A Better Model for Capitalism, Case Study Example

Corporate Social Responsibility is defined as the continuing commitment by businesses to provide assistance to enhance economic development, while simultaneously improving the quality of life of the workforce, the families of the workforce, the community, and society as a whole. Social entrepreneurship entails the pursuit of innovative solutions to social problems. Social entrepreneurs join up with a mission or goal to create and sustainable social value. By definition in order for this social value to be sustainable, must be profitable. The key difference between social entrepreneurship and corporate social responsibility is that the first is seen as a form of movement, and in some cases a grass roots endeavor. Social entrepreneurs are often young people looking to launch a start up or those who identify a specific need in their community. In these instances the initial goal is to improve quality of life and profit is just an effect of the cause. Corporate social responsibility has traditionally been more of a concept than an actual method towards sustainability. The following will demonstrate how FairTrade USA illustrates social entrepreneurship and how does it create social value and serves the public interest. The report will then demonstrate how the same value and interest can be achieved through corporate social responsibility, as an alternative.

In the text “Social entrepreneurship: What everyone needs to know,” Bornstein and Davis point out the main reason why people have been skeptical of corporations and their attempts at corporate social responsibility, the authors note that, “corporations have grown immensely powerful. Three hundred multinational corporations control roughly a quarter of the world’s wealth. Their managers frequently make decisions that run counter to the long-term interest of the public and even their own shareholders, as the recent financial crisis illustrate” (Bornstein & Davis, 2010). Here the authors provide a prime example of how corporations traditionally perform in ways that are counter-productive to what would be considered corporate responsibility. They function based on a fundamental fear of social responsibility, adopting the view that it will negatively impact their pursuit of profits.

In Rippling’s section “A Better model of Capitalism” he talks about the influence of Fair Trade, quoting Rufino Herrera Puello, who stated that “the impact of Fair Trade doesn’t just refer to the possibility for a family to earn more from their harvest, but rather through the organization, they become the protagonist in their own development. FairTrade offers us the opportunities with which we can positively influence the construction of a more equitable society” (Rippling, 2010). The author presents a case where a man by the name of Paul ventures to Nicaragua and finds that coffee farmers in the region are suffering from poverty due to the fact they have no access to the free market and are subject to trade through middle men. Paul locates European buyers that are willing to purchase the coffee for significantly more than the farmers had been compensated. This essentially is the core of Free Trade and social entrepreneurship in that Paul identified a need and then acted for the sake of improving conditions for the farmers. The end result is that Paul establishes a sustainable business that improves the quality of life of the farmers. The European buyers were wiling to pay a premium for the Nicaraguan coffee because they were purchasing quality goods.

In the FairTrade USA case, Rippling talks about the difference between how trade works in the United States verses the coffee co-op business Paul had established, noting that, “conventional wisdom in the business community used to be that profitability and sustainability were at odds with each other. To the extent that a company pursued profitability, it couldn’t afford to care too much about sustainability. To the extent that companies pursued sustainability, they had to sacrifice profits (Rippling, 2010). He does however note that this view is not held by all economist as many of them feel sustainability can lead to profitability and long-term growth. The problem is that the traditional view of capitalism is that corporate social responsibility is truly the pursuit of profits as it is the company’s sole responsibility to acquire profits. This is a popular philosophy shared within the business world and first stated by Milton Friedman. Paul’s case attempts to turn this concept on its head and suggests corporations can have their cake and eat it too.

In sum, through social entrepreneurship in Nicaragua, establishing a mutually beneficial relationship between the poverty stricken coffee farmers and European buyers, Paul is able to identify how U.S. Corporations can achieve the same level of success with corporate responsibility.  He notes that there is a way Corporations and consumers can come to mutually beneficial arrangements that provides the company with profits and also improves quality of life. He illustrates specific examples, noting how companies should start small with Fare Trade arrangements to see if they can produce 5-10% profit. The main argument Rippling makes in favor of Fair Trade is that consumers are buying the feeling of knowing they are contributing to sustainability and the development of society. In this since, it puts the power in the hands of the consumer to make a difference based on which products they choose to purchase.

References

Bornstein, D., & Davis, S. (2010). Social entrepreneurship: What everyone needs to know. Oxford University Press.

Schwartz, B. (2012). Rippling: How Social Entrepreneurs Spread Innovation Throughout the World. John Wiley & Sons.