Positive Multiplier Effects In The Local Area example essay topic

Corporate and social Responsibility It has been said that companies have a corporate social responsibility, that is that they are "accountable for any of its actions that affect people, their communities and environment". This extends to many areas, including but not exclusive to business ethics, the environment and the community well being. Companies hold the power to greatly affect those around them, in both positive and negative ways. One example of this is Local Economic Development. This is when a company invests in an area with encouragement from the government, through local authorities (i.e. county council).

If an area is in decline, facing issues such as high unemployment and its knock on effects, such as crime and deterioration, then the government employs the help of business organisations. The government has its own budget for regeneration, yet it is not normally enough on it's own. Through incentives such as a reduction in business tax, provision of land and infrastructure they encourage businesses to set up in these declining areas. The expected benefits of this are positive multiplier effects. If there was an increase in employment through a new business, there would be more cash in the local economy. Increased spending could (and hopefully would) trigger more demand.

This could then lead to even further employment in the area to cope with the demand. If events continued in this fashion the area could see itself out of an economic decline, attracting people from outside of the area to spend within it. Benefits from this can be an even further improved infrastructure, public services and an increase in house prices. However, this development and improvement only happens through government intervention. Companies do not, in general, do this off their own back, even though the benefits to society are numerous.

Instead companies often choose better developed areas, which can contain similar companies. An example of this is Silicon Valley, known for its extensive list of information technology companies. Through basing itself in such an environment, a business can add prestige to its reputation, as general public opinion of such areas is normally very positive. Trans-national corporations can have similar effects, such as positive multiplier effects, but it is a very different form of enterprise. Trans-national Corporations, or TNC's, have operations, mainly manufacturing, situated in a different country, which is normally a lesser economically developed country. The main reason for this is the lower cost in wages, as local wages are much less than western wages.

Companies such as GAP, Nike and Reebok partake in such activities, choosing eastern countries such as Thailand, Korea and India. Again, they are offered incentives, such as tax breaks, but in this instance the government provides these to be more favourable than the other potential countries. These manufacturing plants create employment that may not have been previously present. This also can create positive multiplier effects in the local area. Some companies, such as Nike, have set up schools within their plants, to provide general education for their workers.

This can increase the human capital of the area, making people more employable for the future. These are the positive sides of direct foreign investment, which show the existence of some social responsibility. There are, however, negative effects which show a lack of social responsibility. The fore-mentioned companies have been the long standing subjects of issues such as child labour, poor safety standards and abuse of workers. This has happened to such an extent that hundreds of thousands of people demonstrate annually (May Day rally) in protest to the methods employed, and that is just the United Kingdom.

Through the presence of these large companies, smaller local companies can find it harder to survive. Because companies conduct a large amount of their business in the foreign currency they must then convert it to their own domestic currency (normally U.S. dollars) before depositing the funds back into the company. The sale of large amounts of the foreign currency can severely devalue it, as a surplus can then exist for which there is no demand. The use of child labour has been a highlighted issue for TNC's. Companies again including Nike and Reebok have been found to be employing children as young as 12, with many aged 14 to 15.

For this they received much criticism, and have since introduced new working standards to adhere to proposals from the Fair Labour Association. Many people are so strongly opposed to the use of this type of labour that hundreds of thousands protest against it, at the annual May Day Rally. It is quite easy to apply western standards to the eastern countries that these factories are present in, which raises the issue of whether people should. Social perception differs in the east, and so do social practices.

Many of these countries live in a society where the young look after the old, meaning they are the ones who work and earn wages for the family. If the TNC's were not present in the country the young would still be working, just not in factories. The main area of employment in LEDC's is agriculture, which is where they might have worked. Others are not so luck and can find themselves working in illegal enterprises, such as prostitution and drug trafficking. Through the presence of TNC's people are given the opportunity to make an honest living. Overall these companies display a realisation of responsibility towards others, be they workers or the communities around them, otherwise known as Stakeholders.

The Stakeholder theory states that organisations have a duty of responsibility to all those who have a stake in the business. This extends from the workers, to the consumers and to those in the surrounding communities, even their effects to world as a whole (such as pollution). Concern for the environment is a growing issue, with businesses being targeted for their environmental stances. The main problem for organisations in "Keeping Green" is that it isn't always cost effective. To produce less pollution can involve spending more money, which businesses are never keen on. One attempt at controlling emissions was the Kyoto agreement.

Roughly it entailed the issuing of pollution credits, which allowed countries a quota on how much pollution they could produce. Any spare credits that were unneeded could be sold on to other countries. Subsequently the United States bought up these spare credits, allowing them to legally produce at times up to 70% of the worlds pollution (mainly emissions). The next nail in the coffin for the Kyoto agreement was when George W. Bush took power. Shortly into his term he announced that the U.S. would no longer adhere to the agreement as it "was not in America's economic interests". With the U.S. being the largest producers of pollution, it was a mute point whether other countries continued to abide by the agreement or not.

Although implementation of environmental policies for organisations is initially not cost effective, more and more are realising the long term benefits. Consumer preference in modern society is leaning towards environmentally friendly companies, with consumers now often choosing ozone and eco-friendly products over those which aren't. Observing public concern, companies are now changing their ways. Annual reports for most companies now contain information on their environmental policies, including their implementation. Although costly to implement, environmentally friendly systems can be said to be wise economic decisions in the current market, meeting consumer demands. There is a potential flaw in this though.

If extra business is not generated to a suitable level after investing in an environmentally friendly system, costs to the business can rise. Increased costs can lead to drop in quality, lower wages and even unemployment. These possible eventualities would not reflect well of showing corporate social responsibility, so it remains a tightrope for businesses. Overall, in the modern business world companies are making more and more of an effort to fulfil moral obligations to all stakeholders and the earth itself. There is still much room for improvement, and many issues that still need addressing (such as sexism, racism and many other forms of prejudice) but the general impression is that the wheels are turning, albeit slowly..