Democracy and Private Discretion in Business

DEMOCRACY AND PRIVATE DISCRETION IN BUSINESS

Wim Dubbink

Abstract. Some critics raise moral objections against corporate social responsibility on account of its supposedly undemocratic nature. They argue that it is hard to reconcile democracy with the private discretion that always accompanies the discharge of responsibilities that are not judicially enforceable. There are two ways of constructing this argument: the "perfect-market argument" and the "social-power argument." This paper demonstrates that the perfect-market argument is untenable and that the social-power argument is sometimes valid. It also asserts that the proponents of the perfect-market argument are mistaken in their assumption that perfect markets are conducive to democracy. There are strong reasons to hold that perfect markets are undesirable from a democratic point of view. A proper conceptualization and differentiation ofthe relation between "the private and the public" can make this clear. The proponents of the social-power argument sometimes maintain that the democratic deficit can be compensated for by consulting the stakeholders affected. Against this, 1 will argue that the social power argument has nothing to offer affected parties. Still, it will be shown that modern theory on corporate social responsibility is not well accommodated to the democratic deficit as revealed by the social power argument.

/. Introduction "The notion that firms should by themselves pursue the objectives of society is, in fact, a rather frightening proposition. Corporate management holds in its hands enormous financial resources. [Corporate social responsibility] suggests, or rather demands, that management use these resources to influence the social and political course of events. But who is to determine in what way these events ought to be influenced? Who is to select these goals? If it is management itself, the power of interference with our lives and the lives of others that management is asked to assume is surely intolerable. The threat of effective democracy should be clear enough." (Baumol 1975: 61; and 1991: 50-51; see also 1991: 22) "This process [corporate social responsibility] raises political questions on [the level of principle]. . . . [T]he imposition of taxes and the expenditures of tax proceeds are governmental functions.... Here the businessman—self-selected or appointed directly or indirectly by stockholders—is to be simultaneously

© 2005. Business Ethics Quarterly, Volume 15, Issue 1. ISSN 1052-150X.

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BUSINESS ETHICS QUARTERLY legislator, executive and jurist. He is to decide whom to tax by how much and for what purpose, and how to spend the proceeds—all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on. . . . He becomes in effect a public employee, a civil servant [I]t is intolerable that such civil servants—insofar as their actions in the name of social responsibility are real and not just window-dressing—should be selected as they are now. If they are to be civil servants, then they must be elected through a political process What it [corporate social responsibility] amounts to is an assertion that those who favor the taxes and expenditures in question have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic procedures what they cannot attain by democratic procedures." (Friedman 1970)

A

dvocates of corporate social responsibility hold that the moral responsibilities of actors on the market do not completely coincide with their (positive) legal responsibilities. Market actors should take a broader view of their moral duties. Advocates of corporate social responsibility usually maintain that non-legal moral duties are morally as important as moral duties that are also legal duties (henceforth moral-legal duties). However, many of these non-legal moral duties differ structurally from moral-legal duties. Moral-legal duties always refer to actions and they can be enforced. Many of the other moral duties refer to maxims or policies a person should internalize and (thus) cannot be enforced. As a consequence of both these characteristics, market actors have some or even considerable latitude when it comes to the discharge of non-legal moral duties. That is, they have a certain freedom to decide for themselves where, when and in what way they will act on these duties. A citizen may for example discharge her moral duty to act beneficently by supporting a nature conservation society, by actively participating in a movement for the advancement of the disabled or by making a donation to a local library. As a rule, ethicists tend not to think that there is anything strange or peculiar about the element of latitude connected with many moral duties. They can easily explain its existence alongside moral-legal duties which lack this element of latitude. Any prudent, liberal-democratic society must enforce its most elementary moral duties and incorporate them in its legal system. Each person's basic hberties and basic rights can thus be guaranteed. However, in any such society it will also be acknowledged that a person is not morally worthy just because she abides by this minimal morality. The scope of morality is much broader, given for example the importance of the ideal of self-governance within liberal-democratic thinking. The complexity of modem life is another reason why not all moral duties can refer to specifically described actions. I define the "principle of private discretion" as the principle that it is morally unproblematic when the system of moral duties implicitly or explicitly grants an actor the abihty to decide to a certain extent where, when and how to discharge his non-legal moral duties. Kantian theory makes it possible to delineate even more exactly the kind of private discretion this paper will be dealing with. Kant held that every "duty of virtue" gives an actor some latitude (Kant 1797. See also Hill 1971). However, there is a structural difference between a moral duty such as "respect for persons" and a moral duty such as "act beneficently." We have some leeway in deciding what respect

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demands of us in a particular situation but we always have to respect persons.' When it comes to a duty like beneficence, our latitude increases substantially. Beneficence has a "sometimes-structure." We do not always have to give it priority. We have leeway in deciding when, where and how to act on it.^ In this paper we will be dealing with situations in which actors on the market have the private discretion that gives them the latter kind of latitude. This article is about the legitimacy of private discretion in a special domain of action: the market. As the introductory quotations make clear, the principle of private discretion does not go unchallenged in this domain. Some critics of corporate social responsibility persistently point out that private discretion is sometimes morally problematic in the market. This is particularly the case when private discretion is intended to relate to a public issue, such as environmental problems, public health problems or public safety issues. I will elaborate on this concept in section VI. For now I will define a "public issue" as an issue that a democratic political community wants to or has to reflect on and possibly also has to take action on.' Why does the latitude associated with broader moral issues become problematic as soon as public issues come into play? The critics of the principle of private discretion argue that in such cases the principle of private discretion collides with the important value of democracy. They maintain that it is essential to democracy that citizens decide collectively over public issues. Private discretion that affects public issues undermines this principle and is therefore undemocratic. This argument is chiefly used in the discussion over the value of corporate social responsibility, which indeed presupposes private discretion. I will therefore refer to this criticism as "the democratic argument against corporate social responsibility." In contemporary markets, corporations are the dominant actors, not persons. This gives rise to the question: whose private discretion are we talking about? And if we are talking about the private discretion of corporations, can we think of corporations as persons? I will sidestep the discussion on the ontological and moral status of corporations by stating that this article is about the private discretion of decision-making managers within corporations. However, it must be stressed that this paper is not about their private discretion in relation to the shareholders. It is about the private discretion they have in relation to their/eZ/ow citizens in the political communities to which they belong (as citizens). Advocates of corporate social responsibility and others who endorse the principle of private discretion often hit back at the above argument with an impatient and condescending retort. They tend to think they can settle the discussion by reeling off a few imphcations that seem absurd to them. For example, if the democratic argument against corporate social responsibility holds true then a person is no longer at liberty to become a vegetarian—or a meat-eater for that matter—^because that decision affects a public issue. In addition, institutions like churches are no longer free to fight world poverty. I hold that such a response does not suffice. Firstly, the fact that an argument has absurd consequences in particular cases is not always sufficient reason to dismiss it for all other cases. There are often marginal cases in moral and political theory. Secondly and more importantly, responses like these have not been able to convince

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the proponents of the democratic argument against corporate social responsibility. As a consequence, the discussion on the possible incompatibility with democracy has been haunting the theory on corporate social responsibility since the 1970s, casting doubts on its desirability. Of course, there may be subjective reasons why the proponents of the argument are not to be convinced. They might just be stubborn and unreasonable. However, the proponents of the democratic argument against corporate social responsibility number distinguished academics among their ranks, such as Friedman and Baumol. There are also many respectable "fellow travellers," academics who do not fully accept the argument but who are sympathetic towards it or who, at the very least, do not seem able to refute it (Lindblom 1984: 20; Donaldson 1994; Fisher and Lovell 2003: 268; see also Goodpaster and Matthews 1982). This suggests that the argument somehow appeals to reason. A change of strategy is therefore needed: one must fmd out the systematic origin of the democratic argument against corporate social responsibility and try to understand its appeal. This might contribute to the real settlement of the discussion. The first goal of this paper is therefore to analyse the origin and appeal of the democratic argument against corporate social responsibility. Accordingly, I will analyse the assertion that private discretion in the discharge of broader moral duties is morally problematic when public issues are involved because of the contradiction with democracy that arises. This analysis gives rise to a second goal, which is to show that there are in fact two versions of the democratic argument against corporate social responsibility. I will argue that the first version, which is embedded in neoclassical economic theory, does not hold water. The claim of the other version, which I will call the social-power argument does seems valid, however, at least in particular cases. Throughout my argument, I will assume that all participants in this discussion embrace the liberal-democratic tradition, in which values such as freedom, democracy and equality take centre stage. Since the critics stand as firm defenders of both the market and democracy, this assumption seems warranted. I thereby interpret hberal democracy as a broad tradition that includes both libertarians like Hayek (1960) and "liberals" like Dworkin (1978), Rawls (1972) and Held (1987). I hold that this paper is of practical and of theoretical interest. In practical terms, it may resolve a discussion which has obscured thinking on corporate social responsibility for too long. Where the theory is concerned, I hope to show on the one hand that the neoclassical version of the argument is untenable. What is more, I will argue that the democratic argument against corporate social responsibility is not merely an aberration of neoclassical theory, but seems to be structurally connected to the foundations of neoclassical thinking and follows its logic. That is why I finally conclude that it is far more plausible to hold that it is neoclassical theory, not corporate social responsibility, that is incompatible with democracy. If authors such as Friedman and Baumol are so concerned about democracy, they must reject the perfect market as a political ideal, not the principle of private discretion. On the other hand I would like to make clear to the proponents of corporate social responsibility that there is indeed sometimes a conflict with democracy. These proponents have been too quick to brush aside democratic concerns in recent decades. From a democratic point of view theo-

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rizing on corporate social responsibility must indeed be accommodated to a certain extent. I will illustrate this by means of a brief analysis of stakeholder theory.

//. The Perfect-Market Argument against Corporate Social Responsibility The most widely known version of the democratic argument against corporate social responsibility is the one employed by neoclassical economists such as Baumol and Friedman, quoted above, I will employ the term "perfect-market argument" to refer to this specific version of the argument and I will deal with it in sections II through VII. Fundamental to this line of argument is the proposition that all citizens have an equal right to influence decisions that are intended to relate to public issues. According to the proponents of the perfect-market argument, this implies that all intentional decisions on public issues should be taken by a democratically elected government. On this basis they conclude that corporate social responsibility is a bad thing from a democratic point of view since corporate social responsibility gives some people more opportunities to influence public issues than others. Their other conclusion is that the neoclassical ideal of the perfect market is highly conducive to democracy. In perfect markets, actors struggle to survive and therefore have to concentrate on their private concems, leaving no room to discharge broader moral duties and hence no room for private contributions to the solution of public issues. Many advocates of corporate social responsibility find the perfect-market argument morally contra-intuitive and therefore have trouble taking it seriously. But can we? Let us take the case of a corporation that pollutes the surface water of an area downstream as an unintended consequence of its production process. Many people accept that, from an environmental perspective, this corporation is doing excessive damage. However, the law of the land permits the pollution. The government of this particular country has opted for low environmental standards, partly due to the fact that the economy is under pressure from international competition. One day the management of the corporation decides that it can no longer forsake its responsibilities as a corporate citizen. It gets in touch with a few important environmental NGOs and together they come up with a plan to reorganize the production process so as to put an end to the water pollution once and for all. The implementation of the plan will cost five jobs and ten million dollars. Another drawback is that the new production process will result in some air pollution. Still, the NGOs are content with the plan. In this particular case they deem that the slight air pollution is preferable to the vast pollution of the water. Just as the corporation's management is about to approve the plan, the employees and local interest groups downstream throw a spanner in the works. They not only demand to be consulted, but they also voice strong objections to the plan. As they see it, the water pollution is not that big a problem. Unemployment is a much bigger issue and besides, the ten million dollars could be put to better use to build a new library in the economically underdeveloped town. The corporation's management is duly perplexed by all this, so they call in some experts on stakeholder theory. They point out that according to contemporary wisdom within business ethics, local residents and employees have a moral right to be consulted. As a consequence

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the management reconsiders the plan and finally decides to side with the employees and the locals and build the library. The point of the proponents of the perfect-market argument is that, in a true democracy, corporate managers do not have the power to make these kinds of decisions. Issues regarding pollution or the building of libraries are public issues that concern all and should therefore be decided by all.

///. A Reconstruction ofthe Perfect-Market Argument The perfect-market argument presupposes a particular view of democracy. In this section I will set out to reconstruct the perfect-market argument, as put forward by neoclassical economic scholars. I will formulate the argument as strongly as possible and try to retrieve the theory of democracy that lies at the base ofthe argument. This is no easy task, given that the proponents of the perfect-market argument are masters of rhetoric but very brief when it comes to explaining their reasoning. In order to retrieve their theory of democracy, I will first formulate some important political-theoretical propositions that follow from the quotations at the beginning of this paper. I will argue that these propositions combine to form an embryonic theory of democracy. (I should also add that they constitute a more general theory of society as well, but these two are very hard to separate.) As a subsequent check of these propositions, I will demonstrate that the perfect-market argument follows logically from these propositions in their entirety. I have been quite meticulous in analysing the perfect-market argument, especially with regard to the meaning of the concepts of "public" and "private" and their relation to the concepts "state" and "market." My reasons for doing so will become clear later on, as I will demonstrate that it is precisely in relation to this point that the perfectmarket argument is conceptually flawed. Within a hberal democracy one must take due regard of the relevant distinctions when using these concepts or linking them to others. I will argue that the proponents of the perfect-market argument are found wanting in this respect. I hold that the following eight political-theoretical propositions underlie the perfect-market argument, as formulated by Baumol and Friedman in the opening quotations: 1. A society that is well-organized from a political-theoretical point of view is a democratic society. This follows from the fact that both authors use the value of democracy to oppose corporate social responsibility. 2.

In this kind of well-organized society, there is a very sharp distinction between the private sphere and the public sphere. This follows among other things from the fact that both authors do not question the decision-making power of managers in private matters.

3.

In this kind of well-organized society, there are two spheres of action "the market" and "the state or the government." This follows among other things from the distinction that Friedman makes between "governmental functions" and the activities performed by a businessman.

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4. In this kind of well-organized society, "the market" falls completely within "the private sphere," whereas "the state" coincides with the "public sphere." The first part of this proposition follows among other things from the fact that Friedman states that businessmen become civil servants or public employees if they assume responsibility for issues such as poverty or the environment. The second part follows from Baumol's suggestion that "effective democracy" is impaired if non-state actors interfere with our hves and the lives of others. 5. In this kind of well-organized society, "democracy" is something that is related to pubhc issues, such as the environment or poverty. This follows among other things from the fact that Friedman associates issues like fighting poverty with "things that ought to be democratically decided upon." 6. In this kind of well-organized society, "democracy" is something that is and can be organized by means of the state. This follows among other things from the fact that Friedman associates "democratic procedures" with procedures as they can be operational in the state. 7. In this kind of well-organized society, "democracy" means that "public issues" must be collectively decided upon. This can also be formulated as "democracy entails collective control over public issues." This proposition follows from the connection both authors make between the loss of "effective democracy" and the citizens not being able to decide on public issues. 8. For all practical circumstances the last proposition implies that in this kind of well-organized society public issues are decided upon by the state, which should be organized in such a way that the citizens take decisions over collective issues by way of a representative system. The validity of these eight propositions can be checked by showing that the perfect-market argument follows logically in six steps (A through F) from the entirety of these claims. I have added step G as a qualification to set out the argument as solidly as possible. A. Democracy means that all citizens ought to have an equal influence on all decisions that are intended to relate to public issues. B. The only institution that guarantees citizens equal influence on decision-making is the state. C. All intentional decisions aimed at dealing with public issues should therefore be taken by the state. D. It follows that the market ought to be the sphere of private issues, in the sense that no decisions should be made there that are intended to relate to pubhc issues. E. It also follows that, in the market, private discretion on decisions that are related to pubhc issues is undesirable.

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F. Furthermore, it follows that the ideal of a perfect market is highly conducive to democracy, since societies with perfect markets are able to strictly separate intentional decision-making on public and private issues. G. Again, it follows that the principle of private discretion should be regarded as highly suspicious in actually existing societies, which have to operate under imperfect conditions. However, it may sometimes be inevitable as a device for coping with these imperfect circumstances. One qualifying remark should be made with regard to this reconstruction of the perfect-market argument. It should be pointed out that the neoclassical academics exhibit a certain ambivalence in the way they put forward this argument. On the one hand these academics claim that every decision that intentionally relates to a public issue should be taken by all. This implies that private discretion always constitutes a problem in relation to pubhc issues, irrespective of the social domain in which it originates. Accordingly there is no inherent difference between managers deciding whether or not to build a library and a society of housewives who decide to campaign for a library to be built in their town (the members could have spent their energy otherwise as well). This view reflects the argument as I have reconstructed it. However, on the other hand, perfect-market proponents sometimes add that private discretion is particularly undesirable in contemporary markets where the separation of management and ownership has been established. Corporate social responsibihty is particularly suspect here because it indicates that managers are taking advantage of their position and are spending money which belongs to the shareholders. I will ignore this additional argument for the time being but at the end of section VII, I intend to show that a proper understanding ofthe distinction between the public and the private also eliminates this addition to the perfect-market argument, even if one contents oneself to the highly controversial claim that managers can be reduced to agents or fiduciaries of the shareholders (see: Philips, Freeman, and Wicks 2003). IV. The Appeal ofthe Perfect-Market Argument The perfect-market argument has a certain appeal. Otherwise it would not crop up in the discussion on corporate social responsibility time and again. In this section I want to show that the appeal of the perfect-market argument can be explained. The interpretation of democracy as "collective control of public issues" fits with a general conception of what democracy means within latter-day theories of democracy. Of course, the meaning of democracy is heavily contested. Contemporary theory of democracy is infamous for its lack of disagreement on what democracy is and what it imphes (Lively 1975; Held 1987; Van der Burg 1991). Still, there is a significant or perhaps even dominant tradition that basically interprets democracy as "a way of life" (Dewey 1916 and 1925-1927; see also Dewey 1939-1941; Van der Burg 1991; Dahl 1985,1986, and 1989; Dworkin 1977 and 1978; Held 1987; Keane 1998; MacPherson 1973 and 1977; Nauta 2002; and Walzer 1983). In line with Held (1987: 271) I will refer to this theory of democracy as "the autonomous view."

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A key characteristic of the autonomous view is that it applies "democracy" not to a specific procedure or a specific institution (such as the state), but to society as a whole. According to this view, a democratic society is a society that upholds certain ideals. The two ideals that take centre-stage are freedom and (political) equality (Dahl 1989). Some authors supplement this list with the ideal of "autonomy" (Held 1987). I do not regard this as a supplementary ideal; instead I interpret freedom in such a way that it contains autonomy, as will become apparent. Authors such as Friedman and Baumol conceptualize democracy in terms of collective decision making. What does the autonomous tradition say about this? Collective decision making is of course an important aspect of democracy in this tradition. The main principle can be summarized as the principle, that in a democracy, citizens should have collective control over the common life. Interestingly, this principle is usually introduced as a principle that should be interpreted very broadly. "Control over the common life" refers to society as a whole; it is not explicitly restricted, to for example, "political institutions." Held (1987: 271), for example, states that citizens should enjoy equal rights "in the specification of the framework which generates and limits the opportunities available to them!' The principle of collective control is legitimized within the autonomous tradition by linking it to "democracy as a way of life." This is done in many ways by different authors, I hold that the deduction from the core ideal of freedom is the most elegant. As a means of understanding the appeal of the perfect market argument I will reconstruct this deduction. Within democratic theory, and indeed within Western political theory as a whole, freedom is a core ideal. It is also a complex ideal. One dimension i^ positive freedom. Positive freedom as an ideal unfolds into two components. On the one hand positive freedom is about reflexivity. As such it overflows into autonomy: the abihty of persons to reflectively make up their own minds and to be moved by reasons that they themselves endorse. To be a choosing subject and an instrument of one's own, as Berlin puts it (1969: 131; see also: Dworkin 1988). On the other hand positive freedom is about empowerment. As such it refers to the ability to act on the basis of one's own deliberations, to realize the goals and policies one has chosen on the basis of one's own reasons (Berlin 1969: 131; see also: Taylor 1979; MacPherson 1973). Positive freedom as an ideal has a notorious history within democratic theory. In recent decades many authors, including Berlin (1969) have convincingly shown that it can easily be interpreted in ways that suit totalitarian regimes and thus imply the denial of any meaningful and reasonable interpretation of freedom. One tradition within democratic theory commonly referred to as "protective democracy" has for this reason completely turned away from the ideal (Schumpeter 1944; Sartoni 1987; see also MacPherson 1977). According to this tradition "negative freedom" is all that matters in a real democracy whereby negative freedom can be defined as freedom from physical coercion (by the state). Advocates of protective democracy hold that democracy is valuable because it is a means to negative freedom. It protects people from the encroaching power of the state. Still, many authors, including Berlin, do not call for a radical rejection of positive freedom. Instead, they insist on a careful and moderate interpretation of this ideal. I believe my interpretation fulfils that condition.

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Positive freedom is a broad ideal, in the sense that it can be applied to many areas of life. Within the autonomous tradition it is always applied to the political domain at least, where it is specified as "the principle of collective control." This specification of positive freedom in the political domain is generally justified by claiming that if persons are to be moved by reasons they themselves endorse, it is reasonable that they should at least have an equal influence on the collective decision-making process governing the rules and decisions that will structure their common life. I believe that the appeal of the perfect-market argument can be explained by the fact that its interpretation of democracy as "collective control over public issues" does not seem to be in discord with the principle of "collective control over the common life" as figured in latter-day theories of democracy. On the face of it, it might even be looked upon as less demanding. "Collective control of public issues" seems to be a more modest formula than "collective control over the common life." This appeal is reinforced by the observation that democracy as autonomy seems to be the most reasonable latter-day interpretation of democracy. In any case it constitutes a more reasonable view than its main competitor, protective democracy. Due to its instrumentalization, it cannot properly justify democracy and explain its value. After all, one cannot attribute any true value to the principle of collective control over the common life if protection of negative freedom is the only reason why democracy is important. Furthermore, it is contra-intuitive within the liberal democratic tradition to hold that only negative freedom has true value. While I would not want to argue that political-theoretical conclusions can never be contra-intuitive, I would insist that contra-intuitive claims must be sufficiently defended. It is a common complaint within contemporary political theory that the advocates of protective democracy ignore this task (Taylor 1979; see also: Buchanan 1985). On the basis of these considerations, I conclude that the appeal of the perfectmarket argument lies in the fact that, on the surface, it does not take an idiosyncratic stand on democracy. There seems to be a certain resemblance between the principle of "collective control over public issues" and the principle of "collective control over the common life"; the latter principle being part and parcel of a generally accepted and reasonable latter-day theory of democracy. However, the above discussion on positive and negative freedom appears to expose some inconsistencies in the work of Friedman. In most of his academic work, Friedman is the herald of negative freedom (Friedman 1962) but in the context of the discussion on corporate social responsibility he defends a position that assumes the validity of positive freedom as an ideal. It therefore seems reasonable to ask whether Friedman's argument against corporate social responsibility is not just opportunistic, as it does not seem to fit in well with the rest of his political philosophy. I have chosen not to explore this question further. In what follows, I will presume that it is possible to consistently argue for the principle of collective control over public issues from a theory of democracy that stresses the value of the ideal of positive freedom. This theory may be compatible with the political-theoretical framework of neoclassicists such as Baumol, even if it is probably incompatible with Friedman's specific politicaltheoretical stance. Whether or not this theory is a reasonable view of democracy, in

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the sense that it also fits in with the autonomous view on closer inspection, remains to be seen.

V. The First Exposition Against the Perfect-Market Argument The first case I will make against the perfect-market argument is that under close scrutiny, we are forced to conclude that the perfect market argument is incompatible with the autonomous view of democracy. The principle of "collective control over public issues" cannot be deduced from the principle of "collective control over the common life." It is an idiosyncratic view that will meet with heavy criticism from advocates of the autonomous view. To strengthen this conclusion it is important to stress that the perfect market argument is also—and very clearly—incompatible with "protective democracy" and its instrumental view of democracy. Here, democracy only is about containing the state. Collective control over public issues simply is no true value in that tradition. I will substantiate my claim by analysing the ideal of positive freedom in greater depth, as it figures in the autonomous tradition. As has already been stated, positive freedom is a dangerous ideal (Berlin 1969). Down through history, too many wellmeaning advocates of democracy have been convinced by the fallacy that freedom can he fully realized by positive freedom alone. This, in turn, has led to dangerous totalitarian notions like the idea that the government may legitimately destroy a person's negative freedom in order to set her free in the positive sense. In this way the ideal of positive freedom has theoretically supported the absolute denial of freedom and democracy. Those not confused by such fallacies have been at pains to point out that freedom is a complex ideal. Negative and positive freedom are locked in a tense relationship with each other. The ideal of positive freedom must be clearly delimited in order to preserve the ideal of negative freedom. The experience of totalitarianism in the twentieth century among other things has contributed to the general acceptance of this conclusion within democratic theory. Nowadays, it is generally acknowledged that this also has consequences for the principle of collective control over the common life. It must be considered a formal principle that must be materialized for application in the real world. It goes without saying that the process of materialization is done in many different ways (Held 1987; Rodel 1989; Nauta 2002). Nevertheless, I hold that the formal principle should be materialized in the following set of three material principles in order to position it within the limits of the autonomous tradition, (a) Citizens should have an equal vote with regard to decision-making in political institutions, (b) Political institutions should have a significant influence over the factors that determine the common life, (c) The other factors that determine the common life, such as natural circumstances and social powers, ought to be accidental powers, in the sense that—roughly speaking—no specific citizen should have a greater influence over these than his fellow citizens potentially may have. Together I will call these three principles "the material principles of collective control."

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My assertion that the formal principle of collective control must be materialized in this way rather than any other requires justification in two directions. It must be argued that the formal principle reasonably entails neither more nor less than the three principles specified, if it is to remain within the limits of the autonomous tradition. In a later section I will argue why one should not settle for less. Here I will briefly point out why we must restrict our self to these three material principles. The first argument in this regard is that even the staunchest advocates of the autonomous view of democracy are not prepared to take it any further (Held 1987; see also Van der Burg 1991). This empirical argument already gives us a strong reason not to construe a more inclusive materialization of the principle, as this would render our position idiosyncratic. This argument is reinforced by the observation that a more inclusive interpretation of the formal principle would endanger other values which also form an integral part of the autonomous view of democracy, notably negative freedom. The principle that "citizens should have an equal vote with regard to decision-making in political institutions," for example, becomes a threat to negative freedom and the idea of a "private domain" as soon as citizens are granted an equal vote with regard to decision making outside or beyond the political institutions."* The private lives of citizens are no longer safe from intrusion by the collective (or powers that claim that they represent it). It is exactly at this point where the advocates of the perfect-market argument get out of touch with the autonomous tradition. The principle of collective control over public issues is not in any way qualified or materialized. Collective control is taken literally by them. This is what makes their view of democracy both idiosyncratic and susceptible to the criticism that this interpretation has dangerous, totalitarian overtones. Collective control over public issues as an unqualified principle rests on an interpretation of positive freedom that dangerously resembles the interpretation of freedom of authors such as Rousseau and Marx, authors who inadvertently and in spite of themselves became the founding fathers of totalitarian democracy (Talmon 1952; see also Berlin 1969).

VI. The Second Exposition Against the Perfect-Market Argument My second argument against the perfect-market argument is that its advocates use the political-theoretical distinction between "the public" and the "private" much too loosely. In present-day society we must clearly distinguish between two interpretations of this pair of concepts. In so doing, it becomes clear that the perfect-market argument does not hold water. The distinction between "the public and the private" is fundamental to liberal-democratic thinking, the tradition that embraces both the free market and democracy as ideals. One comes across the first interpretation of the distinction as soon as one considers that the individual and his freedom are crucial to the liberal-democratic tradition. The basic significance of freedom implies that the exercising of power over an individual by the collective is never unproblematic. Nevertheless, there are reasons which justify collective exercise of power over individuals on occasion, for example to ensure the survival of the collective. This tension gives

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rise to the question: when exactly is the exercise of power legitimate? The distinction between the public and the private has significance in this light, if only in a formal sense. The public denotes the sphere of action where power can be legitimately exercised by society over the individual (see: Mill 1859: 59). The private denotes the sphere of action where society is not legitimized to use its power to interfere with the affairs of an individual. I will refer to this interpretation of the distinction between the public and the private as the distinction in terms of domains of action. Another interpretation of the distinction between the private and the public that we must emphatically distinguish from the first is the distinction between the public and the private as spheres of morality. We can define public morality as that part of morality that encompasses those duties which cannot reasonably be rejected by individuals who want to (and know they have to) live with others. In other words, public morality refers to what we owe each other as reasonable human beings (see: Scanlon 2000). Conversely, "private morality" refers to that part of morality that an individual takes upon himself but which he cannot reasonably expect others to feel obligated by. Private morahty refers to that part of morality that others do not owe us. Public morality encompasses several dimensions; or to put it another way, there are several kinds of "others" to whom we owe specific duties. Only two dimensions are relevant here. On the one hand, human beings have duties towards all others. These I will refer to as "natural duties." These include such duties as "do not kill," "do not lie" and "always respect other people." However, generally speaking, human beings are also members of specific historically contingent socio-political communities. A socio-political community is an institutional association that has created a social environment in which living together is made possible and which has constructed devices to influence the conditions ofthe common life. The institutional devices construed by socio-political communities are often complex in the sense that they are composed of layered systems such as a common morality supported by social forces and a legal system supported by both the state and social forces.' Individuals are connected to political communities by fate. All political communities have to deal with historically contingent problems. I will refer to these problems as "public issues." Within a liberal democracy, most of these public issues will be closely related to its ideals. In our times we can think of such issues as poverty, environmental problems, the death penalty, euthanasia and gay marriage. I hold that an important duty that individuals owe to others within a liberal democracy is the duty of taking some responsibility for the public issues society has to deal with. At the very least, this implies that when a person formulates the objectives of her private life plan, she should include the objective of sometimes making an effort to contribute to solving the public issues facing the society in which she lives. The consideration that an individual and her historically accidental political community are mutually dependent, as well as the consideration that political communities can only survive and uphold a certain quality of life if all members make an effort, justify this specific public moral duty (see also Postema 1994: 172-73). The two interpretations ofthe distinction between the public and the private are not seldom confused. P. Devlin provides an example. He asks rhetorically "ought there

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to be a public morality (expressed in and enforced by the law) or are morals always a matter for private judgement?" (Devlin 1965 in Postema 1994: 153). Here I will defend the proposition that, from a liberal-democratic point of view, it is imperative to always clearly distinguish between the two. This proposition requires some elaboration as it is crucial to my second exposition against the perfect-market argument. The first argument to underpin this proposition is that, from a liberal-democratic point of view, public morality as such is not enough reason to justify the exercising of collective power over the individual. Public coercion stands in need of extra legitimization. To say that someone does not fulfil the duties he owes others, is not necessarily to say that the collective is morally justified in coercing him in some way. For example, it is one thing for a neighbourhood—or the state for that matter—to conclude that a particular father is too harsh on his children, but quite another for it to coerce him into being more lenient. Similarly, it is one thing for a community—or the state—to conclude that a particular rich person is miserly and is therefore forsaking his duty of beneficence, but quite another for it to coerce him into giving money to the poor. Secondly, the duties that form part of public morality—what we owe others—quite often have a structure that makes it hard, if not impossible, for them to be enforced by the collective. The collective can only justly enforce duties if they refer to actions that must always be performed. However, the duties of public morality such as the duty of beneficence and the duty to take some responsibility for public issues have a different structure. To resort to Kantian terminology, they are imperfect duties of wider requirement. They refer to ends or policies we expect another person to adopt in her plan of hfe and upon which we expect her to act in the appropriate circumstances—that is to say: sometimes. This structure precludes enforcement. Thirdly, within liberal democracies, we lose an essential aspect of what public morality is about if we hold that it is or should be completely enforceable. Within this tradition the ideal oi self-governance is of fundamental importance. Self-governance can roughly be defined as a person's capacity to discharge her duties on the basis of her own reasoned choice. J. S. Mill (1848 and 1861) explicitly speaks of the importance of self-governance in his work. Within latter-day democratic theory, the ideal of self-governance is sometimes enclosed within the ideal of "autonomy" (Held 1987). At other times it is interwoven in the ideal of positive freedom. Berlin, for example, speaks of the ideal of being a choosing subject. But, in whatever form the value of self-governance is expressed, it is important to note that it is never absent. The importance of the value of self-governance within liberal-democratic thinking implies that a person's duties of public morality should never be encapsulated by society's moral standing to enforce these duties. This would significantly detract from the meaning of self-governance. Because of the importance of the value of self-governance, a liberal-democratic society is bound to restrict the duties it must enforce to a (bare) minimum. Anyone who considers this minimum as representing the whole of public morality places herself outside of the liberal-democratic tradition. The nature of my second exposition against the perfect-market argument should be more or less clear by now. The perfect-market argument is flawed because it confuses the two interpretations of the distinction between the public and the private. The

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perfect-market argument counts the state as "public" in two senses: it is the institution that enforces public morality and the institution that should deal with all public issues. This view of the state is out of line with the liberal-democratic tradition. The state may be the representative of the collective when it comes to the enforcement of legal duties (and moral duties that are also legal duties), but it is not the sphere where all responsibility for public issues is concentrated. Public issues are the concern of individuals, too. By the same token, from a liberal-democratic perspective the market is indeed private in the sense that the collective does not have the standing to coerce individuals. It is wrong to say, however, that it is a place where people have no duty to take some responsibility for public issues (see also section VII). Corporate social responsibility therefore fits in perfectly with democracy.

VII. Democracy and Neoclassical Theory The idea of a perfect market is primarily of use in economics. The "perfect market" is a construct for modelling a particular kind of economic reasoning. The advocates of the perfect-market argument turn it into apolitical-theoretical ideal. It is suggested that a perfect market harmonizes well with democracy and for that reason corporate social responsibility does not. Surprisingly, proponents of corporate social responsibility are sometimes willing to admit this but when doing so they make a clear distinction between theory and practice. They maintain that in theory democracy and the perfect market harmonize well. If it were possible to construct perfect markets, then—from a democratic point of view—working to construct a perfect market would be better than creating room for and stimulating corporate social responsibility. They are quick to add, however, that perfect markets are not attainable in practice. Therefore, in life as we know it, corporate social responsibility cannot be rejected as undemocratic. I firmly reject such overtures. In this section I want to substantiate the proposition that we have strong reasons to believe that the perfect market as a political-theoretical ideal is detrimental to democracy. Societies in which the ideal of the perfect market is materialized are undesirable from a democratic point of view. If the advocates of the perfect-market argument seriously want to defend democracy as an ideal, they must let go of the perfect market as a political-theoretical ideal. The method I will employ to substantiate this claim deserves some attention. How can it be argued that the perfect market is undesirable from a democratic point of view? We are not talking about a conceptual relation, so a mere analysis of the meaning of relevant concepts will not suffice. Since we are talking about the design of the basic structure of society, contract theory (Rawls 1972 and Scanlon 2000) may be of help here. I will try to show that reasonable people committed to democracy and acquainted with the conditions of life in the twenty-first century would not choose the perfect market as the right conception of a free market. It is important to stress that I am assuming that these people would choose a free market society. That is not the issue. The question is: what type of free market would they choose? The ideal of the perfect market is one option among several. For example, an altemative might be the conception of the market put forward by the Austrian school (Hayek 1948; see also Mair and Miller 1991). In this

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conception, market actors are assumed to have a certain amount of freedom, even if the discipline of the market is supposed to be strict. My first argument relates to the value of freedom within democratic theory. Freedom is of central importance to democratic thought. This implies that within a democratic society people must have at least some freedom in the spheres of life that are most important, in the sense that they spend most of their time there. Therefore, if we imagine a situation in which reasonable people, placed in the twenty-first century and committed to both democracy and the free market, were in a position to make a reasoned choice as to the structure of the basic institutions of their society, these people would most certainly decide to make a serious effort to structure their most important institutions in such a way that there is at least some room for freedom. They would not be absolutely opposed to the idea of a sphere of action where people are completely unfree, but they would do their best to prevent the installation of spheres hke these. The strength of this proposition increases in proportion to the amount of time people expect to spend in a particular sphere. This implies that they would try to design the market in such a way that there was some room for individual freedom. The importance of the market for the life of a normal individual underlines this conclusion. Consequently, I hold that they would not opt for a conception of the market, in which there is hardly any room for freedom, for example because it is completely fixated on efficiency as a value. This argument counts against the neo-classical conception of the free market. After all, the neoclassical "perfect market" has been extensively criticized within the philosophy of the economy (Hayek 1948; Sen 1987; Hausman and MacPherson 1993). Critics have pointed out that it assumes a mechanistic social world. While I will not recount all of the arguments made in this discussion, it is worth pointing out one aspect. Neoclassical theory holds that markets must attain efficiency. In fact, one can define a perfect market as an efficient market. Within neoclassical thinking, this goal is hardly ever questioned (even if the content of what constitutes "efficiency" is sometimes discussed, for example by environmental economists). The idea that the collective or society at large has a right to tinker with economic institutions as it sees fit in order to attain efficiency is also hardly ever questioned. I hold that this fixation on efficiency as the end of actions within the market constitutes a problem for democracy.'' Individual freedom implies pluralism of values and ideals. If there is just one criterion for evaluating actions, freedom is lost. This is especially true if people are not just supposed to evaluate their own actions in the light of just one criterion but if society at large constantly tinkers with institutions in order to force all individuals to only pay attention to this one criterion. This means that we actually have strong reasons to turn the perfect-market argument upside down. Perfect markets are undemocratic because this particular type of market eliminates freedom in the sense that all actions are supposed to be evaluated in the light of just one criterion. Whereas the proponents of the perfect-market argument maintain that personal discretion is undemocratic, we now have strong reasons to believe that it is precisely this lack of personal discretion that makes perfect markets undemocratic.

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My second argument is prudential rather than normative in nature. It is based on the observadon that, within present-day society, the market is interwoven with many public issues, such as environmental problems and child labour. With regard to other public issues, such as the struggle against poverty, market actors are sometimes well placed to take some action at least. Given these facts, reasonable people committed to democracy (and therefore committed to dealing with these public issues), when placed in a situation that allowed them to choose their basic institutions, would need a very good reason to opt for a market that completely turns its back on public issues. Neoclassical theory claims that such a reason exists, since the state can and has to deal with public issues. But assuming that these people are situated in the twenty-first century, their experience would invalidate this reason. We all know that the state is a limited-use institution, incapable of managing all public issues. Therefore reasonable people would choose a market in which actors have to acknowledge a duty to take some personal responsibility for public issues. Of course, there would perhaps be considerable disagreement as to the specifics of this duty to acknowledge public issues. Most probably they would finally settle for an imperfect duty of wider requirement. However, these specifics are not at issue here. Some neoclassicists are prepared to acknowledge that the state's capabilities are limited but respond by saying that corporate social responsibility still is not desirable. They see it not as a second best option but as a third best, since markets can be seriously disrupted by the introduction of personal discretion. In this same line of reasoning, it is also sometimes adduced that managers are not specifically trained for the discharge of public duties. I would dismiss both these objections as weak. Markets as they actually exist have never been completely perfect in the neoclassical sense, yet many existing markets cannot be described as disorderly. What is more, society at large provides nobody with a specialized training in discharging one's public duties. It simply constitutes a general aspect of normal upbringing. My third argument is again normative and points to the importance of the value of self-governance for democratic theory. I have defined self-governance roughly as a person's capacity to discharge her duties on the basis of her own reasoned choice. An imphcation of self-governance is that, within a democratic society, a person must define herself as a citizen in some respects at least (i .e., as a member of a socio-political community). A citizen knows herself to be part of a historically accidental political community, reflects on the issues facing the society in which she lives and accepts some personal responsibility for dealing with these public issues as part of her public moral duty. This implication follows from self-governance as a value. A person who never defines herself as a political being can never attain self-government if required to live her life in a socio-political context. It is important to point out that these general statements do not drive a wedge between neoclassical theory and my position. An author such as Baumol (1975 and 1991), who in my view is the most systematic in his analyses of perfect-market political theory, is quite willing to acknowledge that individuals must sometimes take on the role of citizen. However, neoclassical theory and I differ as to the role of the citizen in the market. Baumol holds that people should not act as citizens in the market. Actually,

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his position is even more extreme, somewhat paradoxically but utterly in hne with the logic of neoclassical thinking. According to Baumol, the most important public duty individuals as market actors have is to fully concentrate on their private endeavours (within the confines of the law). If everybody does this, maximum efficiency will be reached and this is the sole end of the market. I hold that, from a democratic perspective, this line of thinking is unacceptable. The ideal of a perfect market denies people any possibility to exert self-governance in one of the basic institutions in which they have to live their lives. This argument can be underpinned by briefly reviewing and reconstructing Mill's (1861) exquisite rebuttal of the position that "good despotism" would be the best form of govemment, were it not for its (natural) tendency to deteriorate. Mill does not simply define despotism as a situation in which the govemment imposes its values and goals upon its citizens. The defining characteristic of good despotism in Mill's account is that the citizens are not able or not willing to take any private responsibility for public issues. "[A]ll the collective interests of the people are managed for them, all the thinking that has relation to collective interests done for them. . . . [Furthermore] their minds are formed hy, and consenting to, this abdication of their own energies." (Mill 1861: 59) In refuting the argument for good despotism as the best form of government in an ideal world. Mill points out that govemment is not a goal in itself. The ultimate aim of a liberal society is the self-government of every single individual. In Mill's account, despotism is the antithesis of a world in which the citizens are self-goveming precisely because of the division of labour between the govemment and the citizens: in a despotic state the govemment is fully responsible for public issues and the citizens are completely passive. The best possible world that good despotism can therefore bring about is "making the bulk of the community a flock of sheep innocently nibbling the grass side by side" (Mill 1861: 80). Paraphrasing, we can say that Baumol tums people into sheep for the greater part of their life. This may be justifiable if one is fixated on maximizing efficiency, but not if democracy is an important value. On the basis of these arguments, I conclude that we have strong reasons to hold that the perfect market as a political ideal is not conducive to democracy. It opposes democracy because it denies people freedom and self-govemance. Since these ideals are basic to democracy, people in a position to design the basic institutions of their society would reject the neoclassical conception of the market. They would choose a conception of the market in which market actors would still have some freedom to act, among other things to create room to discharge their duty of taking some responsibility for public issues. This leaves us only one detail to consider with regard to the perfect-market argument. What about the notion that corporate social responsibility constitutes a misuse of management power in relation to the shareholder? As I see it, this argument is based on a confusion of the two meanings of "the public vs. the private." If the management of a corporation decides to get involved in corporate social responsibility, the shareholders can claim that the specific materialization is wrong. They might want the company to combat AIDS while the management has chosen to become active in

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the fight against child labour. However, the shareholders cannot claim that corporate social responsibility is wrong in principle. After all, the shareholders themselves also have a duty to take some responsibility for public issues and the management can reasonably claim that it represents the shareholders in this matter, as it does in others. Shareholders who claim that they do not have any public duty because the market is a private sphere wrongly interpret the private character of the market.

VIII. Introduction to the Social-Power Argument Democracy as such is not in conflict with corporate social responsibility. In fact, we may conclude from the previous sections that corporate social responsibility fits democracy very well. After all, it assumes both freedom of action and a duty to take some personal responsibility for public issues. Liberal democracy implies corporate social responsibility. Still, this is not to say that democracy and corporate social responsibility can never come into conflict. In the following sections I will set forth the social-power argument as an altemative way of constructing the democratic argument against corporate social responsibility. Two propositions form the core of this argument. Firstly, that within present-day society the differences in social power are sometimes so great that the private discretion of some will hamper the realization of democracy, if no further steps are taken. Secondly, that these further steps are not always taken and that therefore corporate social responsibility sometimes hampers democracy. I thereby define "social power" as a concept related to (positive) freedom. But whereas freedom refers to the ability of individuals to act on the basis of their own deliberations, social power refers to consequences. "Social power" is the ability of individual to influence the outcome of societal processes relevant for the solution of public issues, independent from political institutions. I will argue that the social-power argument is sometimes valid. The (political) theory of corporate social responsibility must therefore address situations in which corporate social responsibility hampers democracy. At present, this is not the case. Before I tum to the specifics of the social-power argument, it is perhaps wise to clarify the analytical difference between the perfect-market argument and the social-power argument. Analytically, the difference is that, within the perfect-market argument, the conflict between democracy and corporate social responsibility is constructed at the conceptual level, whereas the social-power argument situates it at the empirical level. This distinction can be explained with reference to G. Dworkin (1988: 24—25), who distinguishes between conceptual conflicts and conflicts that involve contingent facts. In the case of a conceptual conflict ideals, norms and/or principles collide as such. There is no possible world in which they could be appeased. If two ideals collide conceptually we are forced to make an exclusive choice between them. This is what the advocates of the perfect-market argument say we have to do with regard to democracy and corporate social responsibility. In the case of a contingent conflict empirical circumstances lie at the root of the conflict. If two ideals conflict contingently, we do not have to make a principled choice between them. Instead we need to be aware of empirical conditions that might give rise to a conflict and reflect

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on ways in which a reasonable compromise can be established between the ideals if these conditions happen to apply. It must be said, however, that Dworkin's category of "contingent conflicts" is rather broad. It can be refined by distinguishing between conflicts that are rare, given some common assumptions of social life, and conflicts that are empirically inescapable or almost inescapable given these same assumptions. I will refer to conflicts of the first kind as contingent conflicts proper and conflicts of the second kind as tense relations. An example of a contingent conflict proper is the conflict between morality and survival that can loom in extreme situations. An example of a tense relation is the often discussed conflict between freedom and equality. The attempt to realize the ideal of freedom within the context of society collides quite easily with the pursuit of the ideal of equality and vice versa (Dahl 1989). Still, contingent circumstances lie at the base of this conflict. Scarcity of means might be one such circumstance. However, because of the contingent origin of the conflict, it is always possible to appease the conflict by establishing a reasonable compromise.

IX. The Social-Power Argument in Practice I will start my analysis of the social-power argument by discussing a case in which the argument was actually brought to the fore. Consider the criticism that the Marine Stewardship Council (MSC) has elicited. The MSC is a private organization, based in London, with the aim of increasing sustainability in the fisheries sector. Its main strategy is to develop, manage and promote an eco-label for fisheries. The MSC was set up by the multinational Unilever and the World Wide Fund for Nature (WWF) in 1996, but presently enjoys an independent status. The standards that the MSC uses to determine whether a fishery qualifies for the eco-label are generally considered to be tough. The MSC garners almost universal praise for its initiative. After all, organizations such as the WWF consider the decline in the condition of the world's seas to be one of the greatest natural and environmental problems in the world today (www. panda.org/endangeredseas/). Nevertheless, cries of disapproval can be heard (Braathen 1999; Editorial Comment 1996; Belliveau 1998; Kurien 1998 and 2000; O'Riordan 1998; Le Sann 1998). One of the points raised by the critics is that the MSC is in conflict with democracy. They point out that Unilever enjoys enormous social power based upon its economic position, while the WWF has considerable social power based upon its legitimacy within civil society. The MSC therefore thrives upon the formidable social power of these combined forces. The critics go on to claim that the MSC is not a legitimate institution, based on the argument that the private discretion of the MSC cannot be justified from a democratic perspective. One thing the MSC should at least do to make reparations for this situation, is to consult the stakeholders who are harmed by its initiative. In this regard, the critics are particularly concerned about the fishermen and fisheries workers all over the world whose earnings reportedly suffer as a consequence of the eco-label (see: Editorial Comment, 1996; Neis 1998).

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The argument of MSC's critics can be reconstructed as follows. Private discretion as such is not problematic. After all, the spokesmen for the fishermen are not against the free market as such, and free markets presuppose a certain freedom of action. Since freedom of action implies differences in social power, the critics are not fundamentally opposed to differences in social power within modern society either. However, in particular instances, like the MSC case, these differences in social power have grown so large that a conflict with democracy does in fact arise. They further state that this conflict can reasonably be appeased by assigning to the (overly) powerful actors a duty to consult those affected by their actions. Since the critics feel that they are not being listened to sufficiently, they claim the MSC is actually an undemocratic institution. If we abstract the social-power argument from the particularities of the MSC case, we can see that its conclusion is based upon two premises. Firstly it implies that, due to specific empirical conditions, differences in social power can become so great that the private discretion of some individuals actually impairs democracy. The differences in social power can become so large as to obstruct the principle of collective control over the common life. Secondly, it is argued that within Western democracies this tense relation is not always settled by a reasonable compromise. Hence, democracy and private discretion do sometimes clash within present-day society. In section X, I will show that there is something to be said for the claim that a tense relation sometimes exists between democracy and corporate social responsibility within the context of present-day society, due to differences in social power. I will refrain from making a survey of all the possible empirical circumstances that might give rise to this tense relation. I believe I will have proven my point if 1 can demonstrate that this tense relation comes about in at least one particular set of circumstances. If these circumstances (commonly) apply to the market, then advocates of corporate social responsibility should find ways to accommodate their theories to this problem. In section XI, I will reflect on the nature of a reasonable compromise. Here I will focus on the critics of the MSC, who argue that imposing a duty to consult those affected on the parties with excessive discretion is a reasonable way to counter the tense relation. At the end of the analysis I will reflect on the specifics of the MSC case based on the conclusions drawn.

X. Social Power as a Problem for Democracy In this section, I will show that, in at least some cases within contemporary society, the differences in social power can become large enough to interfere with the principle of collective control over the common life. My approach will be as follows, (a) I will start by outlining another case in which differences in social power have become intuitively problematic. I have intentionally selected a case set in civil society. Had I selected a case set in the market, our intuition about the problematic nature of social power may easily have been obfuscated by cultural misgivings regarding the dominant position of major corporations or commercialism as such, (b) The next step will be to show that a reasonable interpretation of the aforementioned three "material principles

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of collective control" confirm this intuition, (c) I will then go on to justify these three principles by arguing that situations in which the three material principles are not met can indeed be considered undemocratic (if no further action is taken), (d) The last step will be to demonstrate that the type of situation I have identified, in which the differences in social power become problematic in civil society, can also be found within the market. Throughout my argument, I will assume the validity of democracy as autonomy. I do not regard this as a constraint on the argument, since I have already argued for the validity of this view of democracy (section IV and notes). (a) In the context of nature conservation within the Netherlands one can find clear examples of private organizations which voluntarily contribute to the solution of a public issue and which make use of the private discretion that their position offers. The Netherlands is a small country and one of the most densely populated in the world, both in terms of people and motorcars. As a consequence, a majority of the citizens feel that too much of the natural environment has disappeared. In fact, the total area covered by the asphalt needed to accommodate the country's cars is roughly equal to the area taken up by the natural environment: both account for approximately eight per cent of the total surface area. The government takes action to protect what remains of the Netherlands' natural landscape. Some private organizations have also made this their concern. Their strategy is to purchase conservation areas and also to buy up farmland and redevelop it as a natural area. They do so on an impressive scale. A force to be reckoned with in this regard is the Dutch Society for the Preservation of Nature (Vereniging Natuurmonumenten). This organization is by far the country's biggest private landowner and boasts a membership of around 960,000 members (the total population of the Netherlands is approximately 16.5 million). Since the Society owns so much land, it clearly has a significant influence on the way in which all Dutch citizens experience the natural environment in the Netherlands. Furthermore, the Society also has a considerable influence on the types of ecosystems that will survive in the course of the twenty-first century. It goes without saying that the Society has its own vision of these topics. For example, it likes to save and restore the heaths that were typical of much of the Dutch landscape up to the beginning of the twentieth century. For this reason the Society is engaged in a fierce battle against soft rush, which nowadays ousts heath everywhere. Some people regard the battle against soft rush as a folly, since soft rush accommodates interesting ecosystems of its own. These critics complain that the Society hardly pays them any heed (Dijksterhuis 2003). One aspect of this case which is of particular interest for our purposes is that the Society does not only run properties bought with its own money. A considerable proportion of its land is in fact state-owned, with the Society acting in a management capacity. Other areas in the Society's possession were sold to it by the government for a symbolic sum. I consider these last two categories of property to be quasi-public lands. One can argue that they are in a sense still public since the state has handed over these lands to the Society in the belief that the latter would administer them in the public interest. Many of the people who occasionally enter into debate with the Society on matters such as the "soft rush versus heath" controversy also maintain this position.

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Let us confine the question about the tension between democracy and the principle of private discretion to these "quasi-public lands." Intuitively I am tempted to say that, in light of the above, there is indeed something undemocratic about the situations that arise when ordinary citizens disagree with the Society on policy with regard to the management of a conservation area. The social power of the Society seems to be the cause of this.^ All citizens should have an equal say in determining the poHcy with regard to public lands. In effect, the social power of the Society strips many citizens of their say. The most problematic aspect of the case seems to be that the Society controls the access to these public lands. All other parties within civil society can only gain influence through the Society. (b) If we examine this case in the light of the material principles of collective control (section V), it appears to be inconsistent with the third principle. According to this principle the non-political institutional factors that determine the common life, such as the natural circumstances and social powers, ought to be accidental powers. No specific citizen should have a greater influence over these than his fellow citizens potentially possess. If a certain actor controls the access with regard to the solutions to a public issue, we can no longer maintain that all citizens potentially have an equal influence. I therefore conclude that it is possible to conceive of situations within civil society in which differences in social power lead us to question the legitimacy of the private discretion of a powerful actor. Crucial to the kind of situation I have identified is that the actor in question controls the access to contributions that others might make. It is with this in mind that I pointed out the distinction between cases where the Society manages areas bought with its own money and cases where it actually manages quasi-public lands. If the Society only managed lands it bought itself, it would be much harder to complain about the situation from a democratic perspective: if a particular critic had a problem with the Society's policy, she could buy her own piece of land and do what she liked with it (within confines of her public duties, of course). But the quasi-public lands cannot be bought. Here the Society is in a privileged position, in the sense that its power is greater than the potential power of other actors. For this reason cases like these are inconsistent with the third material principle of collective control. (c) In section V, I justified the principles of collective control only in so far as to show why they should not be made more inclusive. To underpin my proposition regarding the social-power argument, it is important to show why we should not settle for less. In this regard I will argue that all three material principles are part of a reasonable interpretation of what constitutes democracy. Here I will limit myself to a justification of the third principle, since this is the only principle that deals with social power. The third principle states that all the non-political forces that influence the common life should be accidental powers. I maintained that this at least implies that the social power of citizen A may not exceed the potential power of citizen B. I contend that this specific principle can be justified with reference to equality as a basic ideal within democratic theory. Citizen B's claim to an equal amount of positive freedom to contribute to the solution of public issues is being impaired if she is not potentially able to match the contribution A is making.

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However, I hold that the justification of principle three is not complete without providing some clue as to the materialization of this principle. This is the trickiest part of the justification process, as there is a danger of becoming lost in a vast quagmire if one tries to materialize when exactly potential differences in social power become problematic from a democratic point of view. I have negotiated my way through the complexities of the situation by keeping in mind that I need not list all relevant criteria; one will suffice. It seems to me that there is at least one obvious criterion in this regard. If it is the case that A controls the access to the contribution that B might possibly make, then this constitutes a democratically relevant difference in social power. After all, if B can only contribute to the solution of a public issue if A approves (and not vice versa) then their potential power is unequal. This is exactly what is happening in the case of the Vereniging Natuurmonumenten. (d) Does this type of situation occur in the market as well? Are there situations in the market in which a particular actor controls the access to the contribution that another citizen might want to make? Obviously, there are. Situations in which a market actor destroys, depletes or pollutes the environment are clear examples in this regard. The degree to which a market actor burdens the environment is the degree to which he controls the access to the contributions others may want to make to solve this public issue. After all, the pollution is caused within the confines of his property and he is the only one with legal access to his property. The only avenue open to others is to influence the market actor in question.

XI. Private Discretion, Democracy, and Stakeholder Theory The social-power argument states that, due to differences in social power, a contingent conflict between democracy and corporate social responsibility may sometimes arise. However, this argument does not claim that we have to choose between corporate social responsibility and democracy. Since we are dealing with a contingent conflict, the tension may be alleviated by a reasonable settlement. In the case of the MSC, critics claim that the conflict surrounding the council's activities lacks such a settlement: the fishermen ought to have been consulted but they were not. I am not simply interested in the specifics of the MSC case. The proposition I wish to defend is that contemporary theory on corporate social responsibility is not properly adjusted to the fact that the social-power argument is sometimes valid. I will demonstrate that at least one influential theory on corporate social responsibility does not take the social-power argument into account and for that reason it has no proper stance on what constitutes a reasonable compromise. The theory I have selected is the (normative) stakeholder theory (see Donaldson and Preston 1995). I hold that this theory is insufficiently differentiated to be able to accommodate the social-power argument, even if we presume—along with the critics of the MSC—that a duty to consult is an appropriate way of mitigating tension. At the heart of stakeholder theory lies the idea that actors in the market ought to balance the interests of their stakeholders. Various versions of stakeholder theory differ as to the precise nature of this balancing act (compare, for example, Clarkson

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Centre 1999: 262, Van Luijk en Schilder 1997: 34, and Freeman and Philips 2002: 333-334). Stakeholder theory is also justified in a number of different ways. For example, Donaldson and Dunfee (1995) seek to justify stakeholder theory on the basis of contract theory, while Freeman and Philipson (2002) employ libertarian theory in their attempt. Yet in spite of all this disagreement, there seems to be consensus within stakeholder theory about one fundamental assumption: organizations have a moral duty to take into account the interests of relevant parties (stakeholders) in their environment. Taking account of other people's interest can, of course, be achieved in various ways. Consultation is one option, but one can also take other people's interests into account without actually having to consult them. Granting them a right to co-decide is yet another way of taking others' interests into account. It is reasonable to question whether contemporary stakeholder theory makes sufficiently clear what circumstances justify the use of which specific approach to taking account of other people's interests. This issue is not of immediate relevance here, however, and I will adopt the position taken by the critics of the MSC that the duty to take account of the interests of other parties means a duty to consult them. I define "consultation" as a process by which a decision-making actor sincerely listens to other actors, responds to their claims or complaints and makes a serious effort to accommodate their reasonable arguments in his actions. Consultation is not the same thing as co-deciding. Nor can it be asserted that a process of consultation has failed simply because the decision-making actor finally decides not to amend his course of action to accommodate others' arguments. Stakeholder theory must develop normative criteria as to when a corporation should be obliged to consult another actor and/or when a particular actor earns the right to be consulted. There is evidence of a certain degree of consensus within stakeholder theory on this point. All branches of the stakeholder family tree at least acknowledge that contributions, costs, and risks are relevant criteria in this regard (Philips, Freeman, and Wicks 2003:488). An actor earns the right to be consulted by a corporation if a particular actor contributes to an organization or bears costs and/or risks with regard to it. However, a considerable amount of disagreement emerges when specifying these criteria. Some theorists tend to limit the right to be consulted to those parties that are in a posidon to either harm or benefit the organization, directly or indirectly. (Evan and Freeman 1995; Philips 1997). Other theorists (Donaldson and Preston 1995; Post, Lawrence, and Weber 1999: 8) specify the criteria differently. They state that the right to be consulted is earned by an actor if a corporation touches negatively (or will touch negafively) on his rights or liberties. I call this the "negative impact principle." As I see it, none of the various elaborations of stakeholder theory sufficiently accommodates the social-power argument, even if we assume that imposing a duty to consult is an appropriate way to settle the tense relation between democracy and corporate social responsibility. I will demonstrate this by concentrating on the negative impact principle, as this constitutes the most far-reaching criterion within stakeholder theory. It is characteristic of the negative impact principle that an actor earns a right to be consulted as a consequence of his private interests being affected. It is this criterion that separates the logic of this principle from the logic of the social-power argument.

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The social-power argument dictates that consultation is required because democracy is impaired, since society has failed to realize the three material principles of collective control. Compensation must be offered to the citizens concemed for their loss of positive freedom and the possible harm done to their/7Mi>//c rights and interests. There is therefore no logical relation between the social-power argument and the negative impact principle. If a conservation body like the Vereniging Natuurmonumenten decides to eradicate soft rush on quasi-public lands, citizens can reasonably claim a right to consultation in the interests of democracy even if their private interests are not harmed. However, the material principles of collective control do not give one a right to be consulted by virtue of being harmed by the activities of an organization. The social-power argument and the negative impact principle are distinct from one another. Contemporary stakeholder theory is therefore insufficiently differentiated. It must adapt to the newly constructed reason for taking the interests of stakeholders into account. How should one assess the case of the MSC in the light of this paper? Are the critics right in their assertion that the MSC is somehow undemocratic because fishermen are not sufficiently consulted, in a situation in which they had to be, due to differences in social power? I reject this proposition. The state of the world's seas would be an even bigger problem for democracy if organizations like Unilever and the WWF did not try to do something to preserve fish stocks. After all, the decline of the world's fish stocks is an important public problem. From a democratic point of view it is not unreasonable to claim that organizations such as Unilever must assume some public responsibility for this issue within the private domain. However, if the likes of Unilever and the WWF are as powerful as the critics claim they are, it is perhaps not unreasonable to argue that the differences in social power are so large as to constitute a problem for democracy. But even if this is true, the problem of social power concerns Unilever, the WWF and the MSC on the one hand and the citizenry as a whole on the other hand. The fishermen cannot claim a special right to be consulted on this basis. In my view the case therefore illustrates the need for a revision of stakeholder theory.

XII. Conclusion Some authors hold that exercising private discretion on the market impairs the democratic nature of modem society. In this paper I have shown that the democratic argument against private discretion can be constructed in two different ways: the perfect-market argument and the social-power argument. The first argument proved appealing but indefensible. The absolute interpretation of the ideal of collective control which underlies this argument is generally rejected within democratic theory. Another important conclusion that follows from this analysis is that perfect markets are undesirable from a democratic point of view. Markets must not be construed as places where actors do not have any freedom or personal responsibility for public issues. It has also been shown that the social-power argument is tenable, at least under one specific condition. Private discretion becomes problematic from a democratic

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point of view as soon as the social power on which it is based gives some actors greater influence than others can potentially possess. Lastly, it was concluded that the validity of the social-power argument forces contemporary theories on corporate social responsibility to adapt. As yet, these theories do not seem to accommodate the occasionally tense relation between corporate social responsibility and democracy, as illustrated by way of stakeholder theory.

Notes The author would like to thank the following persons for their useful comments on earlier versions of this paper: Mandy Bosma, Wibren van der Burg, David Doherty, Johan Graafland, Kor Grit, Hans Harbers, Martin van Hees, Bas Kee, Bert Musschenga, Henk van Luijk, Freek de Meere, Herman Meijer, and Jan Staman. ' For example, sometimes respect for persons requires that we show regard for their particular cultural practice (a religious festivity for example), whereas at other times it demands that we take action against a certain practice (cannibalism or the circumcision of girls). ^ According to Kant persons are completely at liberty to decide the when, where and how of such matters. However, modem neo-Kantians depart from Kant precisely in this respect. ' The concept of a "public issue" differs from the economic concept "public good." "Child labour" or "cruelty to animals" are examples of public issues but not public goods. More generally, "public issue" is a political-theoretical concept that refers to what reasonable people as a political community have an interest in arranging with each other "Public good" originated as an economic concept that refers to what economically rational people must arrange in order to live side by side. •* This argument does not necessarily imply that we must reject all forms of economic democracy from a democratic point of view. All it implies is that economic democracy cannot be justified by an appeal to the material principles of collective control. ^ Empirically, the situation is often more complex. The state, for example, is often differentiated in several levels (e.g., local level, regional level and national level). It is also often the case that the moral system and the legal system only partly overlap. I will ignore these complexities. ^ Technically, one cannot hold that efficiency is the sole end of neoclassical thinking, since the perfect market must at least be efficient. There is not just one efficient market. However, this creates so little room for other values that it not does substantially change the argument. ' In fact, the situation is somewhat more complicated than the case description suggests. The government subsidizes the management of these properties and regains a considerable amount of control this way. For the sake of argument I will ignore this fact.

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