Social Responsibility and Business Success

Probably most of the answers would turn out to be positive. Anyway, the mechanisms that would be involved in explaining the connection between social responsibility and business success would be different, possibly, differing from each other significantly. I would like to call the attention to the main, in fact, diametrically opposed approaches:

·         Pro-market: Successful businesses (e.g. companies, undertakings), even if they do not aim to inevitably fulfill a social function by making following contributions: creation of working places, paying taxes and employers' insurance, striving for producing goods and services with higher quality at lower prices. That is a perpetually working mechanism on a natural basis.   

·         Socialist: Main role of the government is to carry out social programs (many activities are not defined as “social programs” but in fact they are), redistribute wealth and thus fulfill social functions.

But it costs something and since governments do not create money [1] and at the same time have the authority to tax and collect money, they need to take it away from someone. Thus you cannot get something from someone who does not have it or has not produced it, you must take it from those who have worked for it – successful businesses or successful workers. Imagine you were the government; afterwards you can redistribute the collected money and direct it to wherever you think is appropriate. According to the socialist approach that is the very just co-existence between social responsibility and successful business. The more money is taken away and ready to be “invested” in sociality, the better. Here that is to be accomplished on an unnatural, compulsory basis.

One of the many ways to fulfill a social function according to the socialist ideology is subsidizing state companies, i.e. covering losses they have produced over the year with money from the state or municipal budget. A typical case here has always been the Bulgarian State Railways (BSR).

 

How is the company doing?

For the firs three quarters of 2005 BRS have incurred losses of over EUR 13 million [2] , which is about EUR 4 million higher than the same period of 2004. Over the past three years the company has suffered financial losses of over EUR 50 million.

Short-term liabilities exceed by over EUR 37 million the short-term assets – company undergoes a serious liquidity crises. The owned capital of BSR as a percentage of its assets is slightly over 3 %, i.e. the company does not dispose of its own resources and is working on credit. Paying back the principal and interests would additionally burden it and lower the profit (if there should be any profit at all) or increase losses – respectively the money that has to be taken away from the budget to prevent company going bankrupt.

 

What are the tendencies in provided services?

Over the past 15 years (1990-2005) the number of passengers has decreased by over 67 %, covered kilometers, by over 70 %. For the same period there has been a similar drop in hauled loads – 68 % and covered kilometers have dwindled by over 63 %.

Over the last decade the company has been shrinking by an average 4-5 % annually, which is a clear indicator that customers are no longer attracted to provided services at that quality and price. We believe that there are no preconditions for achieving a breakthrough and an upward trend.

Anyway, there is a positive sign: BSR are no longer going to cross-subsidize the transportation of passengers by using resources of the still financially sustainable part of the company dealing with hauling loads. It is a step in the right direction – towards market-oriented decisions of the management. Thus, if there are no passengers to buy tickets, but firms willing to buy transportation of their loads, the latter would probably get a service higher in quality if the company reinvests part of the profit in improving the respective capacity and facilities.

Although this is a step in the right direction, it does very little to solve the main problem – the company is owned by the state and is being managed more or less by government decisions. In addition, accumulated losses will be further covered by the state budget.

We expect that in future the company will continue losing capital, while the management policy within the company would probably remain the same and unnecessary expenditures, not directly connected to the company's profile would not be cut off. For example BSR are maintaining:

          3 sea-based rest homes

          5 mountain-based rest homes

          2 sanatoriums

 

Holding up expenditures like these would definitely not help the company out of the financial crises, much rather the opposite – will deepen it. That would not be so bothering if the company was a private property and the responsibility for potential losses was fully to bear by and at the expenses of its private owners.

In the case of BSR, the government should sell its shares and totally withdraw from the transportation sector, which is and will keep growing even faster with at least one more private player, which could be the privatized BSR of today.

The fulfillment of social responsibilities will be then transferred to where it belongs and carried out on a natural basis.

 

 

 


[1] In narrow sense, solely banks create money. It is about the creation of additional value, wealth.

[2] Source: BSR's website – http://www.bdz.bg/


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