The Dominant Econ Paradigm and CSR

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Corporate Social Responsibility and Environmental Management Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002) DOI: 10.1002/csr.7

THE DOMINANT ECONOMICS PARADIGM AND CORPORATE SOCIAL RESPONSIBILITY

Jouni Korhonen* University of Joensuu, Finland For many centuries, industrial societies in the Western modernity have been driven by a dominant social paradigm (DSP). It is argued in this paper that this paradigm has some serious difficulties in the light of the development of the field of corporate social responsibility and in the light of its practice. Therefore, a new paradigmatic foundation is required for corporate social responsibility. The dominant social paradigm is contrasted with metaphors and principles that are derived from sources that are outside the paradigmatic basis of Western modernity, and outside the paradigm of neoclassical economics. These new metaphors and principles may be suitable for further development of the corporate social responsibility paradigm as well as for reconsideration of the economics paradigm. Copyright  2002 John Wiley & Sons, Ltd and ERP Environment.

* Correspondence to: Dr. J. Korhonen, University of Joensuu, Department of Economics, PO Box 111, 80101 Joensuu, Finland. E-mail: [email protected] Copyright  2002 John Wiley & Sons, Ltd and ERP Environment.

Received 3 October 2001 Revised 8 November 2001 Accepted 30 November 2001

INTRODUCTION or some several centuries, industrial societies in the West have been driven by a dominant social paradigm (DSP) (Ehrenfeld, 1997, p. 87). This paradigm, analogously to Thomas Kuhn’s sense of a scientific paradigm (1962), can be understood to describe, guide and direct societal development in general, and the everyday of various institutions, actors or organizations in particular. ‘A paradigm is a framing set of concepts, beliefs, and standard practices that guide human action’ (Ehrenfeld, 1997, p. 88) or ‘. . . a paradigm is or contains a set of structures on top of which social action is created. . .’ (Ehrenfeld, 2000). A paradigm is a vocabulary with which we make sense of the world and it is the basis of our underlying worldview. It can be argued that the economics paradigm, and especially the neoclassical economics science paradigm, is very powerful in Western thinking, in modern science and in the society of modernity. Lazear (2000) prefers to use the notion ‘economic imperialism’ when he describes how economics science has been able to invade intellectual territory

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J. KORHONEN that was previously deemed to be outside the discipline’s realm. In the level of standard and normal economics analysis or empirical case studies, now also themes such as individual tastes and preferences, social discrimination, family, divorce, crime, free time of individuals, religion, social interaction, demography, business strategy and organizational behaviour are studied. Lazear notes that normal economics concepts and notions such as those of maximizing rational behaviour and efficiency have enabled economics to gain ground in other scientific fields, e.g. in sociology or in psychology. ‘Because economics focuses so intently on maximisation, equilibrium, and efficiency, the field has derived many implications that are testable, refutable, and frequently supported by the data. The goal of economic theory is to unify thought and to provide a language that can be used to understand a variety of social phenomena’ (p. 142). According to Lazear, the success of economic imperialism provides evidence on the power of economics as a scientific discipline. In other words, it can be argued that, both at the level of a paradigm and a metaphor and at the more practical level of normal science and analysis, economics has been very powerful in modern science. Although the purpose of this paper is to discuss the economics paradigm with a critical approach, it must be noted that oversimplification of the critique can also be risky. The influence of economics on other disciplines is not inherently bad and economics has been important for the development of other scientific disciplines. It has provided clear answers and testable hypotheses on many issues that have not been measurable before, and despite simplification this has generated important discussion in social science. However, in terms of the development of the fields of corporate social responsibility and environmental or ecological economics there are also some potential risks involved in economic imperialism. Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

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For Ehrenfeld (2000), following Kuhn, a shift in the dominant social paradigm is a process that has two stages. The first one is paradigmatic, metaphoric and normative, while the second is descriptive, analytic and positive. In order for a paradigm shift to occur, a deep change is needed in the first stage, the paradigm stage, not only a change in the second stage, the normal practice stage. The practice or the action stage does not change in a deep or fundamental manner without a change in the first stage of the paradigm shift. Then, for the implications for the particular interest of this paper, it can be asked whether the dominant social paradigm or the dominant economics paradigm is a suitable precondition for the development of the theory and practice of the field of corporate social responsibility. If the current dominant social paradigm is not suitable for corporate social responsibility or for sustainability and sustainable development, a paradigm shift is required. This means a change in the vision or in the vocabulary of economics and in the way we view the world. New metrics, instruments or social accountability and quality management systems are important but not enough alone and not substitutes for the first stage in the paradigm shift. It is assumed in this paper that the current dominant social paradigm, for example that of neoclassical economics, has some serious difficulties in the light of corporate social responsibility. The development of the field of corporate social responsibility needs a new paradigmatic foundation. For this purpose, our paper derives metaphors and principles from outside the dominant social paradigm. These are intended to consider an alternative dominant social paradigm and to reconsider the economics paradigm. The metaphors and principles belong to the first stage of the process of a paradigm shift. Perhaps these can contribute to the discussion on the basic paradigm of the emerging field of corporate social responsibility. Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

DOMINANT ECONOMICS PARADIGM

DOMINANT SOCIAL PARADIGM Some central features of the dominant social paradigm that also seem to be embedded in neoclassical economics can be presented. Arguably, such features underlie, drive or heavily influence the everyday actions, practice and decisions of corporate management and business strategy. This part of the paper considers five central characteristics of the DSP. Our presentation is, and of course, only can be, highly simplified. At times, simplification can benefit a structured discussion. Globalization The global market economy, global trade and globalization in general are largely Western induced phenomena. As noted above, this paper wants to focus on those aspects of globalization that can be criticized in terms of the corporate social responsibility vision or the vision of sustainability. Such problems have been addressed in many occasions in the literature on development and sustainable development as well as in many other parts of the current societal discussion. The inequality between the developing and developed nations and the resulting social problems, poverty, crime, inaccessibility of education and insecure and unhealthy living conditions can be argued to belong to those problems that can result from the globalization paradigm. Undoubtedly, economics as a scientific discipline has been an important driving force of globalization. Countries and regions experience new social problems, e.g. because of increasing urbanization that may be a result of international trade. Trade makes cheap agricultural products available through imports and makes it more economic to leave the countryside and stop practising rural professions (Wackernagel and Rees, 1997). Furthermore, distant foreign investors may not be able to take the local cultural tradition and social conditions into account. This can make it difficult to secure Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

the cultural and social diversity in the regions to which they are investing. The regions can be valued mainly in terms of the short-term economic benefits of the investments. Anthropologists argue that the modern sense of the world as a globe mirrors an unrealistic view of the lifeworld, which is, and only can be, a local world and which is experienced by the local people, with the exception of a few fortunate astronauts, who have seen the global world from the window of a spacecraft (Ingold, 1993). In this line of argument, intervention in local societal systems is then intervention in something in which the intervening party does not genuinely feel a part of. The globalization paradigm can present some difficult challenges for environmental policy and management. This is particularly the case with large multinational corporations. The inter-regional, inter-national and global product and capital flows carry with themselves many environmental questions. The inter-regional life cycles of products and the associated environmental impacts are difficult to trace, monitor and control. The geographical separation of production from endconsumption increases the overall use of energy, creates emissions and makes it difficult to establish holistic environmental management networks that include manufacturers as well as end-consumers. Problem displacement from business locations in the developed countries toward those at the developing countries or from production emissions to consumption emissions and wastes has been observed in the literature on ecological or environmental economics. Specialization The economics logic is that of specialization. The theory of comparative advantage is an example of this. Specialized products are selected that are expected to yield the highest profits. Investments and production capacity are then directed to those products. This can have some serious social effects on local Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

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J. KORHONEN communities, and on the vulnerability of regional or national economies. For example, many developing nations and their economies are vulnerable, because the developed nations have required rapid large-scale production of key products, e.g. timber or sugar, while the diversity of the economy has been neglected (and its ecological and social dimension). In case of the ecological aspect of corporate social responsibility, it can be noted that economic specialization seems to work against ecological or ecosystem diversity (Weitzman, 2000). Large-scale mass production of individual crops or species in agricultural fields creates a risk of the emergence of new genetic combinations of parasites and pathogens. In other words, when the host population is artificially increased, the number and the risk of parasites can also increase. Monoculture of commercially managed agricultural or forest ecosystems risks natural diversity and the ability of the ecosystem to sustain itself in the long term. Such loss of diversity may be an indirect consequence of international trade and of the comparative advantage thesis of economics theory (Gale, 2000). Certain regional or national economies are required to specialize and mass produce in agriculture and forestry, which may neglect ecosystem diversity. Mass production and economic growth Social problems in the world that relate to rich–poor or developed nations–developing nations relations can be argued to be the result of the current form of economic growth, but this is not necessarily to argue that all economic growth is harmful for societal development or for well-being. For instance, prosperity has created significant advances in education, infrastructure and health care and in the accessibility of such services. However, the above problems of inequity or the environment seem to relate to the quantitative economic growth. The increasing gap between the rich and the poor as well as quantitative growth of material throughput are examples. Despite the Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

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fact that economic growth seems to be peaking, three of the major social problems seem to be peaking too: global unemployment, inequality and population growth (see Daly, 1998). The negative environmental consequences in the relation of the human economic subsystem and the larger ecosystem, in which the economic system is embedded, have also been observed. The economic subsystem is growing inside the non-growing mother ecosystem. The conflict is obvious. The source as well as the sink functions provided to the economic system by nature are limited. Competition The modern ideal of a firm seems to be that of an organization that is independent from its surroundings (Boons and Baas, 1997). Competition is one of the central features of the dominant neoclassical economics paradigm. Competition can have serious social effects, leading to e.g. domination or neglect of the community or the developing nations. Competition obviously relates to the above notions of specialization and mass production, and therefore also to the domination and overuse of the natural source and sink functions provided to the firm by natural ecosystems. Competition is also a barrier of the efforts of increasing stakeholder cooperation and cooperation between the firms and its suppliers or the local community actors. This kind of cooperation would be important for corporate social responsibility and for environmental management, the vision of which are that the responsibility of the firm should include social actors and stakeholders, not only internal management or the shareholders and investors. Linear, reductionist and mechanistic approach to science and society Economics science seems to be based on subject–object dualism and a linear or reductionist approach to theory. Some cultural philosophers have preferred to use the ‘machine metaphor’ to describe the scientific position Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

DOMINANT ECONOMICS PARADIGM of modernity (Oliver, 1989). For example, some argue that dominant economics production theory, e.g. the Cobb-Douglas production function, is developed and applied in isolation from its surrounding and contextual factors on which it is dependent (Daly, 1996; O’Hara, 1997). Natural resources or land rarely enter the production theory and wastes and emissions are non-existent. When resources are entered, they are allowed to approach zero if compensated or substituted with humanmanufactured capital. This position may well be inadequate in terms of environmental policy. The fishing boat is not much good without the fishing population and a power plant will need fuels derived from nature or the CO2 assimilation capacity of the ecosystems. Further, the social sustaining functions, such as ease of stress or emotional pressure and resting, nurturing, child rearing, caring, intimacy or gardening and the provision of social bonding and shelter services do not enter the production function. These, however, are also complementary to labour and humanmanufactured capital; you cannot have one without the other. This question on the economics production theory is further elaborated in the latter parts of the paper. In addition, markets and the economics paradigm seem to usually account mainly for those goods and services that have a monetary value. The monetary value of natural resources, ecosystem life supporting services or of social sustaining functions provided by the household economy or the social structures and bonding of the local community cannot reflect the diversity or the value of these goods in a complete way. However, despite oversimplification and perhaps an incomplete approach to study, economics has made some important contributions to many fields of social science (Lazear, 2000). The economics theory and the concept of rational maximizing behaviour have been applied, for example in the study of such an untraditional economics area of life as love or marriage (Lazear, 2000). The analogy to labour markets and the ‘marriage’ between workers Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

and firms has been used. A good marriage consists of a situation in which enough surplus is created, i.e. more than with a different pairing. Accordingly, the workers choose their jobs on the basis of firm-specific human capital, e.g. the time spent in a job. When enough time is spent in one particular job, the worker is more likely to stay in that position instead in a situation in which less time has been spent in the job. The marriage-specific human capital can then consist of such factors as the existence of children and the time spent in the marriage. Results show that with more time and with children divorce is less likely than in a situation where the marriage is young and there are no children (Lazear, 2000). The success and the important contribution of economic imperialism as Lazear likes to call the economics influence on many social sciences shows also in the development of population policy. Economists have been able to measure, predict and quantify some of the implications of the education level and the wage level of women for fertility rates. Profound suggestions for policy have been derived from these economics studies that propose that wages of women can be raised and their labour market alternatives (e.g. through education) can be improved to reduce fertility. Also here it is argued that the economics science can make such clear predictions, suggestions and measurements or probability studies that other social sciences find it difficult to do without the help of economics theory. Economics can contribute in many ways to different fields of social science as it can present simplified concepts, measures and results even on such issues as tastes or preferences, but obviously there is a risk of oversimplification, e.g. more factors than time and children contribute to marriage and these cannot always be measured or accounted for with economics methods. For the performance measurement and analysis of corporate social responsibility and its practice as well as for the measurement of corporate environmental management Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

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J. KORHONEN or valuation of natural capital, this kind of discussion is very important to take into account. Oversimplification can be risky for sustainability: consider the vulnerability of ecosystems or natural habitats and the difficulty of measuring and quantifying biodiversity. Consider how to value or weight the difference between the importance of household income growth and the reduction in the time available for public participation and communication to coordinate community services (O’Hara, 1997).

TOWARD A CORPORATE SOCIAL RESPONSIBILITY PARADIGM In this section of the paper, the dominant social paradigm is contrasted with metaphors and principles that are derived from outside it, i.e. from outside the neoclassical economics paradigm. Below four features of such a possible paradigm are presented. Arguably, these may be suitable for further development of the corporate social responsibility paradigm and for reconsidering the economics paradigm. Our presentation, as above, is highly simplified but hopefully serves to illustrate the point. Characteristics of a corporate social responsibility paradigm Globalization of modernity can be contrasted with a locality principle. Arguably, and under certain circumstances, the local/regional arrangement of the product, capital and material flows can benefit societal development. It can increase the ability of the local actors to control and manage their resources. Increasing control over the local resources may increase the possibility of the emergence of a selfreliant economy and reduce dependencies on imports and exports. Through international market changes, that are not possible for the regional decision-makers to control, unhealthy dependencies between regions may emerge. Such dependencies can have difficult social consequences. Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

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In regional economics literature, the potential of closely located firms and networks has been observed. For example, reduction in the costs of imported fuels, when using locally derived fuels, or reduction in the transportation costs can be achieved. Innovation opportunities can also increase in a regional economy through networking between the firms. Local/regional networking can imply increasing participation of the community actors in regional planning and decision-making, as well as cooperation between a company and its stakeholders. Cooperation may be easier to achieve in a situation in which the actors involved are located in close physical proximity to each other and at least partly share the same resources and culture and local tradition than in inter-regional or inter-national networks. All of these features are important for the emergence of the field of corporate social responsibility, the philosophy of which is to increase the interaction between business and the society. Perhaps, a suitable testing ground for this philosophy is the relation between business and its local societal cooperation partners. Furthermore, through local empowerment, the economic gap between the periphery and the centre in regional development can be reduced. The environmental benefits can also be achieved by arranging the economic activity into local or regional systems. When the product flows and the life cycles and their resource use are increasingly within local boundaries, the environmental effects of these flows may be easier to monitor, control and manage than with inter-regional life cycles. This also reduces the overall use of energy and related emission generation. The specialization paradigm can be contrasted with the metaphor of diversity. Some argue that economic trade policy, and economic agricultural or forestry production, should adopt an ecosystem approach rather than the approach that follows from economics theory of specialization (Gale, 2000). Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

DOMINANT ECONOMICS PARADIGM It is argued that in this way, environmental gains can be possible. Monoculture and specialization to produce large quantities of certain key species, crops or adopt a target species approach to fishing (Hanna, 1997) may reduce the natural ecosystem diversity and lead into extinction of the targeted species. This can also lead into negative economic effects, at least in the long run. In policy, then, ecological diversity should be seen as a condition toward which the economic system would try to adapt. Correspondingly, it can be argued that perhaps the most severe environmental question of industrial production today, climate change, could be seen in a different light if the fuel input of economic energy production were more in tune with the diversity metaphor and included not only fossil fuels, but also biomass, biogas (CH4 , methane), industrial wastes and source-separated household wastes or wastes from agriculture and forestry. Social benefits may also arise through more diverse production structures and economies. For example, the vulnerability of the third world economies can be reduced if their production output has a more diverse set of products. Diversity is also an important precondition of local and regional cooperation, e.g. that between a company and its stakeholders. Large manufacturers, SMEs, public municipal organizations, research institutions and NGOs constitute a basic group in which the interaction between a firm and society must take place. For understanding such a network, a holistic systems approach to network diversity is required. The diversity metaphor is important for corporate social responsibility, but alone it will not necessarily lead into cooperation. Hence, interdependency and cooperation can be presented as a distinct element of the corporate social responsibility paradigm. Joint planning of the company policy and management systems needs to be undertaken between the company and its local and regional stakeholders and also the public municipal authority. Some authors have suggested the possibility of Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

a regional management system (Welford and Gouldson, 1993) that would follow the steps and the structure of a normal management system of an individual company. Many of the management systems of today tend to focus on and are designed for a single company, e.g. ISO 14001 and EMAS. A regional management system would involve many different companies, public organizations, NGOs, research institutions and citizen groups of a certain region into a common effort. I am not sure whether networks can be designed, planned or intentionally managed, but it seems that a regional management system could be important for the implementation and practice of the principles of corporate social responsibility. It serves the purpose of a platform for regional cooperation and decision-making, increases participation and opportunities for economic innovation or for the exchange of tacit knowledge. Obviously, the potential of a regional management system in light of the environmental dimension of corporate social responsibility is important too. The material and energy flows and product life cycles affect or are affected by many different actors in the society and require a holistic systems perspective and cooperation in order for societal actors to be able to control and reduce the associated environmental burden. A reductionist, linear or mechanistic approach to science and society may not be enough for the emergence of corporate social responsibility as a field of study or for its successful implementation in practice. Therefore, an additional feature of the paradigm can be an organic and holistic approach to scientific theory and to society. The economics logic in production theory of separating production from its physical and social preconditions obviously works against the principles of corporate social responsibility. Natural capital and the social sustaining functions provided by community and household economy are complements of human-manufactured capital and labour. Human-manufactured capital does not Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

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J. KORHONEN yield perfect substitutes for these, despite ecoefficiency can increase and day-care centres, nursing homes, entertainment industries and furniture mills can be established to sell those goods and services that have traditionally been supplied by households (for discussion, see Pietil¨a, 1997).

SOURCES FOR A CORPORATE SOCIAL RESPONSIBILITY PARADIGM Our aim has been to consider the possibility of moving toward a corporate social responsibility paradigm or a sustainability paradigm. We have assumed that the current dominant social paradigm is not adequate for this purpose. Therefore, it can be important to draw from sources that are outside the DSP. Arts, sports, indigenous cultures, village cultures or different religions can provide radically different worldviews from that of Western modernity. One such source could also be found in the long lived or sustainable natural ecosystems (Ehrenfeld, 2000; see Korhonen, 2001a, 2001b, 2000). The ecosystem provides us with such characteristics as connectedness, community and cooperation. These run counter to individual libertarianism, fragmentation and competition, which are central in the current unsustainable dominant social paradigm or in the neoclassical economics paradigm (Ehrenfeld, 2000). Below some features of a natural ecosystem are further considered to reflect back on the possibility of the corporate social responsibility paradigm. Nature as a source of a corporate social responsibility paradigm Ecosystems need to rely on the locality condition or principle. It is not possible for them to substitute the local natural limiting factors with trade or with human-manufactured capital. In economic systems, the value of local natural capital can be undermined, when resources from distant regions become available through Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

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trade and markets. The eventual result may be the exceeding of the local carrying capacity. Ecosystems need to minimize the overall consumption of energy and so organize into local networks of green plants as producers, animals as consumers and decomposers, bacteria or fungi as recyclers. Modern economic systems have geographically separated production from end-consumption with the assumption of the infinite availability of fossil energy to drive transportation, imports and exports. Ecosystems are characterized by diversity, biodiversity, diversity in species, in organisms and in their genetic variance and information. Through system diversity and feedbacks, ecosystems are able to secure the overall balance and recover from environmental disturbances. No monetary value exists in nature, which in human economic systems reduces the interpretation of the system diversity. Different goods and qualitatively different resources or even different regions are described with a common denominator, the monetary value (Ring, 1997). This can lead to incomplete information and to incomplete action, e.g. in the case of interventions in nature or in natural biodiversity. The global natural ecosystem is a nongrowing system. It is a materially closed system with the infinite solar energy input as the only external source or the driver of the system. Waste heat is released to the surroundings of the organisms and from there it radiates back to space. Energy cascades in the food chain and material cycles between species and organisms have secured the sustainability of the natural ecosystem as a whole. In human economic systems, through quantitative economic growth, also the material throughput, resource use and waste and emission generation increase. This risks ecological sustainability of societal systems, healthy living environment, and can eventually lead into social conflicts over scarce natural resources. An ecosystem is based on adaptation to the physical surroundings. Organisms fit in with their surroundings. They do compete, Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

DOMINANT ECONOMICS PARADIGM but rarely make war on resources (Ehrenfeld, 2000). Cooperation seems to be a more important feature of an ecosystem than competition. The ecosystem diversity has led into interdependent relations between the system components, system actors or organisms. Rather than a mechanistic, positivistic, or linear machine metaphor of modern science, an organic or holistic metaphor seems to describe the ecosystem structure and organization. If we compare the ecosystem characteristics with our earlier presentation of the potential corporate social responsibility paradigm, important similarities can be found in terms of the metaphoric orientation.

CONSIDERING THE ECONOMICS PARADIGM Arguably, the dominant economics paradigm is influencing the modern everyday and the business strategy and the management system of a firm. For corporate social responsibility and for sustainability, it is important to reconsider this dominant economics paradigm. The above presentation is an attempt toward this direction. This question on the basic economics paradigm deserves more attention here. Herman Daly (1996) and his use of the ‘full world’ metaphor has perhaps succeeded in opening up a discussion on a new economics paradigm. Daly notes that ‘Since analysis cannot supply what the preanalytic vision omits, it is only to be expected that macroeconomics texts would be silent on environment, natural resources, depletion and pollution’ (Daly, 1996, p. 47). Daly contrasts the economics picture of the macroeconomy as an isolated system of the circular flow of goods and factors of production, or production and consumption, between firms and households with his use of the full world metaphor. In the circular flow, the economy is isolated from its physical surroundings in the natural ecosystem as well as from the social sustaining functions offered to the economy and its workers by the household Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

economy. What is flowing in the circle is abstract exchange value. Natural resources and the ecosystem services or the social sustaining functions offered by neighbourhoods and by the community, its social structures, relationships and the capacity to social bonding and cooperation are ignored in the circular flow. In the full world metaphor, the world is full of human-manufactured capital, e.g. machines, technology and infrastructure and empty of natural capital and empty of the social sustaining functions. In this new picture of full world economics, the economic system is a subsystem of the social system and of the larger mother ecosystem. Here, the dependency of economy and of individual economic actors on the social sustaining functions and on the natural capital flows cannot be neglected. Consider that natural capital (in a general sense, the renewable and non-renewable resources and the ecosystem services) is the material cause of production, which undergoes qualitative transformation into output products in an economic production process. Human-manufactured capital is the efficiency cause of production, that is the agent transforming the resource flow into an output product. Efficiency is the ratio of output to input and capital is the quantity of input. Therefore, quantitative substitution across the qualitatively different roles of natural capital and human-manufactured capital is impossible (or very difficult). More eco-efficient technology or machines can be created and these can reduce the resource inputs to an economic production process, but these machines are not the resource inputs themselves. Machines too require natural capital for their manufacturing. However, the neoclassical economics production function such as Cobb-Douglas that is based on the circular flow picture of economics holds the substitutability position. The aggregate production is written as Y = f (K, L), i.e. output is a function of capital and labour stocks and resource flows rarely enter and waste output is non-existent (Daly, 1996). Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

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J. KORHONEN The use of the full world metaphor of Daly, however, has initiated an intensive debate in economics on a complementarity position on production theory. Here natural capital and human-manufactured capital are each other’s complements. What good is a sawmill without the forest, or the fishing boat without the population of fish? Similarly, the production process needs rested and emotionally balanced workers who have enjoyed the services offered to them by households and community, the social sustaining functions. In Daly, the use of metaphors is important for the emergence of a new vision, or a new paradigm. He argues that the analysis cannot study what the preanalytic vision does not take into account. The approach in this paper has also been metaphoric. This is because we believe that metaphors are important for the required paradigmatic change toward corporate social responsibility. Without a change in the first stage in the process of the paradigm shift, the second stage, the normal practice stage, does not change significantly. In such a situation, perhaps all that we can achieve are reductions in air emissions, which come at the expense of transforming or shifting the emissions to a form that is disposed of to land, or reduction in paper wastes at landfills which results in increasing wastes from paper recycling such as de-inking sludge and incineration ash, or problem displacement from production to endconsumption with no sufficient waste management practices at place. The first stage in the required paradigm shift is the paradigm stage. This stage is paradigmatic, metaphoric and normative. The second stage, the normal practice stage, is descriptive, positive and analytic. It is argued in this paper that it is important for corporate social responsibility to consider the tools and instruments or metrics, but also the metaphors that are included in the first stage in the process of a paradigmatic shift. Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

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DIFFICULTIES IN ADOPTING A NEW PARADIGM Defining the focus of the critique It is important to be critical when using metaphors. Metaphors can be interesting, provocative and even romantic. Therefore, there is a risk of neglecting a thorough research approach and becoming lost in the world of the metaphor. For example, I am not arguing nor do I think that it is necessary to argue that all neoclassical economics is bad or all corporate business management is bad if we consider some of the visions of sustainable development or corporate social responsibility and corporate environmental management. In addition, it is impossible to make an absolute definition on what is included into a certain field or certain school of thought and what is not. Of course, it would be easiest and very tempting to first construct the focus of your critique and then present your critique. Consider that the emerging metaphor, analogy or the field of industrial ecology (Ehrenfeld, 1997, 2000; Korhonen, 2001c) has been criticized with arguments that the term or the notion of ‘industry’ or the interpretation of industrial ecology in the literature and the present few case studies (documented) are neglecting consumption and focusing mainly on manufacturing and large industrial manufacturers (Bey, 2000). Then the question arises of what (or who) is industrial ecology and what is not industrial ecology. It is clear that life cycle assessment (LCA) is very relevant for industrial ecology. It constitutes a major part of the articles now published in the Journal of Industrial Ecology. As early as the 1970s, LCA alerted the environmental policy and management communities to the geographical separation of production and end-consumption. The fact that the life cycle of a product and its related material and energy flows affect or are affected by both production and consumption as well as end-disposal, recovery and recycling became the contribution of LCA. Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

DOMINANT ECONOMICS PARADIGM The natural ecosystem analogy in the concept of industrial ecology alerts the decisionmaker to the material and energy flows of economic systems in general. Green plants as producers, animals as consumers and decomposers as recyclers all use material and energy flows in the ecosystem (see Lifset, 1997). These material and energy flows affect both production and consumption in economic systems too. In addition, if one of the ideas in the analogy is to develop energy cascades and material cycles between economic actors and so mimic nature, it is just natural to consider the use of household wastes as fuels in industrial energy production or the use of waste heat derived from manufacturing in district heating networks of residential household systems or cities. This is integrating production and end-consumption into industrial ecosystem type development (Korhonen, 2001c). Therefore, in the sense of the flows of matter and energy, industrial ecology indeed considers end-consumption and life cycle assessment is not ‘outside’ industrial ecology. But of course, it seems that the strict focus on the physical flows of matter and energy can result and often has resulted in a situation in which the ‘softer’ issues or those related to culture and values are not taken into account in literature on industrial ecology. Such, perhaps somewhat neglected, factors that are important for industrial ecology include individual values, interests of different societal actors and consumer preferences or demand for products. It is obvious that much environmental gain could be achieved with a thorough consideration of alternative need satisfaction and by increasing the focus on the service and the function of economic activity instead of the physical quantity of product outputs in the market. In respect of these issues related to individual values and preferences, it seems that some industrial ecology articles deserve more critique than in the case of material and energy flows. Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

The focus on the material and energy flows has perhaps been the most important contribution that industrial ecology has made to the sustainability discussion. A holistic systems approach and the life cycle thinking alerts us to the interdependencies between different societal actors, also those between production and end-consumption, but there is also a challenge to contribute to the culture of sustainability and adopt the interdependency of cultural, social, technical, economic and ecological issues more thoroughly as the focus of one’s research. Perhaps industrial ecology can contribute here too if the natural ecosystem analogy and the metaphor are further studied. This simplified discussion implies that we also need to reconsider our critique toward the neoclassical economics paradigm in this paper. It is very difficult to define what is neoclassical economics and what is not neoclassical economics. There is a problem also here, in that first one constructs the focus of the critique and then attacks it, leaving it little room for defence. For instance, some might interpret the classic Leontief input–output economics and tables as neoclassical economics (Leontief, 1986), but Leontief input–output economics is suitable for the Daly or ecological economics complementarity thesis regarding the relation of different kinds of capital in economics production theory. Leontief I–O economics assumes that all factors of production are complements instead of substitutes (Daly, 1996). On the other hand, as noted above, it can be argued that many neoclassical economics approaches and tools have not taken nature or social sustaining functions thoroughly into account. Indeed, a growing number of researchers are making this argument, e.g. in the fields of evolutionary economics, ecological economics or within the feminist critique of the economics paradigm (see Brennan, 1997; O’Hara, 1997). Therefore, if metaphors are not absolute or strict, it is arguable that the basic metaphor or paradigm of economics may benefit if aspects outside the neoclassical tradition are also included in it. In particular, these gains Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

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J. KORHONEN can emerge in environmental policy and management and in corporate social responsibility. What is the benefit of metaphors? Our metaphoric approach can be criticized in the following way. Metaphors or analogies derived from outside the dominant paradigm, e.g., from the natural ecosystem, must benefit the theory or the discussion. In this sense, the natural ecosystem analogy is nothing special. Arts, sports or different religions could also provide us with useful metaphors for corporate social responsibility. For example, in industrial ecology, the use of the natural ecosystem analogy is often promoted because it alerts us to recycling, but it could also be argued that we know that recycling can be important without using the natural ecosystem analogy. This is familiar to all who are familiar with thermodynamics or entropy. Why, then, do we need the metaphor to present this simple conclusion? The conditions of locality, and in particular, diversity, interdependency, cooperation and adaptation to one’s surroundings might be more difficult to find within the dominant social or economics paradigm. These metaphors describe the more structural or organizational characteristics of sustainable ecosystems. Perhaps the use of the ecosystem metaphor can then benefit the theory in corporate social responsibility by including these notions in the paradigmatic base of the emerging field. It is also important to test the metaphors or analogies in practice with case studies. This can be difficult in terms of the social dimension of corporate social responsibility, but easier in terms of the ecological dimension. Case studies need to be conducted, e.g. on the use of the natural ecosystem recycling model. We must study whether recycling can in fact reduce the virgin material and energy input as well as the waste and emission output of an industrial network system. Recycling is not always the best solution for the environment. It too requires materials and energy and generates Copyright  2002 John Wiley & Sons, Ltd and ERP Environment

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wastes and emission to be dumped to air, water or land. Finally, it must be noted that drawing metaphors or analogies or paradigms from a different system and using them for the development of another is difficult simply because of the fundamental difference of the two systems. Consider that cultural, economic, market or industrial evolution operates in a different manner than the natural, biological or genetic evolution does. Economic systems operate on the basis of cultural information, oral, written, video or internet record. This kind of information moves rather rapidly: consider the demand of a popular and advertised consumer product in the global market. Ecosystems, in turn, rely on information that moves through reproduction. The information storage medium is the gene (Norton et al., 1997). Natural evolution is therefore more in accordance with gradual change than with rapid change (Ring, 1997). Note also that many environmental problems are chronic and result from human interventions that have taken place decades, or even centuries ago (Ring, 1997). It can be argued that a rapid transformation of a cultural or economic system into an ecosystemtype system is surely very difficult or impossible. The time rate of change and the feedbacks are fundamentally different in the two systems.

CONCLUSION We have argued that for the development of the emerging field of corporate social responsibility, it is important to consider the basic paradigmatic foundation on which it rests. For this purpose, the dominant social paradigm was considered. It was argued that it is similar to the dominating economics science paradigm. Further, this dominating paradigm may not be suitable for corporate social responsibility. To consider the paradigmatic base of corporate social responsibility, metaphors and principles were derived from sources that are outside DSP. We used the natural ecosystem analogy for this purpose. It was argued Corp. Soc. Responsib. Environ. Mgmt 9, 67–80 (2002)

DOMINANT ECONOMICS PARADIGM that this could benefit the reconsideration of the dominant economics paradigm and contribute to the development of a corporate social responsibility paradigm. We believe that metaphors are important in that they can affect the change in the first stage of the paradigm shift. Such a change is deep. This is needed because the dominant social paradigm seems to be more toward unsustainability than sustainability or corporate social responsibility. If only superficial changes in the practical stage of the paradigm shift are achieved, the overall condition of unsustainability will most likely prevail. Our approach has been an initial attempt to consider the corporate social responsibility paradigm. Hopefully, it can serve as a part of the discussion on the development of this new field. Much further work is needed. There are problems in our approach to use the natural ecosystem analogy in economics and in business strategy or management. The economic system is fundamentally different than the natural ecosystem. But we hope that the discussion on the ecosystem analogy or on other analogies and metaphors can benefit some emerging fields and discussions within economics and management. For example, it may be fruitful to follow the developments in the fields of ecological economics and industrial ecology.

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J. KORHONEN Wackernagel M, Rees WE. 1997. Perceptual and structural barriers to investing in natural capital: economics from an ecological footprint perspective. Ecological Economics 20(1): 3–24. Weitzman ML. 2000. Economic profitability versus ecological entropy. The Quarterly Journal of Economics February: 237–264. Welford R, Gouldson A. 1993. Environmental Management and Business Strategy. Pitman: London; 189–203.

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BIOGRAPHY Dr. Jouni Korhonen can be contacted at the Department of Economics, University of Joensuu, PO Box 111, 80101 Joensuu, Finland. E-mail address: [email protected]

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