How firms contribute to societal economic inequality

In this article, we contend that the underlying issues of economic inequality remain salient to business and society, and we as organisational researchers ignore them at our own peril. Modern firms have achieved an enormous success in creating economic wealth, and organisational researchers have aided in it by studying value creation and appropriation. However, organisations – and by extension organisational researchers – have fallen short in value distribution to various stakeholders, and thus have contributed to the current high levels of economic inequality.

Scholars are complicit in the production of inequality

Implicating organisational scholars for the corrosive levels of economic inequality might sound harsh, but we have undoubtedly become complicit in the production of inequality because of the choices we make about the issues that we study and ignore; for example, highlighting the beneficial effects of globalisation without paying similar attention to local labour markets, examining falling unionisation without studying its negative impact on wages and work conditions, and analysing growth without paying attention to its distributional skews. In the continuum of individual-organisation-society, organisational scholars have paid more attention to the first link than the second; focusing more on the role of individuals and firms in value creation and appropriation, while overlooking the role of society in the same. Similarly, organisational scholars have studied the distributional benefits of firm profits to shareholders and executives, but have rarely studied the claims of society and the state, and the benefits that can accrue to corporations by sharing profits with them.

Firms are credited with value creation as if they are solo actors operating in a vacuum

Inequality impacts organisations at all three levels of the value paradigm. At the level of value creation, the contributions of individuals at the lower end of the power equation end up being ignored in a systematic way. We are conditioned by the orthodoxies of our field to argue that value is created by the upper echelons of the firm, with lower rungs of organisations providing nothing but a support role. Often, the micro processes by which knowledge seeps into firms are ignored and elided by researchers. A firm that operates in multiple geographic and institutional environments, uses a variety of vendors and contractors, incorporates a plethora of foreign and indigenous modes of operations into its own routines but ends up being credited with its value creation as if it was a solo actor operating in a vacuum. Apple is a case in point. At the intra-firm level, credit for value creation and appropriation is arrogated to the top management, which of course sets the stage for unequal compensation practices, the representation of lower level workers as dispensable and contingent sources of undercompensated labour, and the sedimentation of the idea that firms that create and appropriate value do not need to give back to the context that made this value creation possible. As organisational scholars, we need to reflect on the importance we place on the role of top managers in firm performance, and whether the same is justified.

Products are delinked from the conditions under which they are produced

Likewise, value distribution to the providers of capital is actively encouraged through a regime of property rights and regulations. Regimes of taxation get represented as unjust demands on a firm, customers are made to pay inflated prices through opaque forms of value representation that in turn obscure the often exploitative conditions under which production occurs and the acquisition of public resources through regimes of accumulation by dispossession is ignored while calculating the cost of production. The fetishisation of exchange value is accomplished by delinking products from the conditions under which they were produced. A beautiful handbag or smartphone is best sold when it can be linked to a pleasant user experience, which means that it must not be associated with the conditions under which it was produced, the wages earned by the workers who produced it, or the environmental impact of the factories where it was produced. Firms route their sales through tax havens to take advantage of arbitrage opportunities offered by their spatial spread, maximise their accumulative powers at the expense of social claimants such as governments, and locate polluting production facilities in countries with lax environmental protocols, thereby maximising their value appropriation, and reducing the ability of governance mechanisms to police and allocate appropriate costs to their actions.

Researchers eschew the corporate role in fostering inequality

To make the value creation and appropriation actions of corporations accountable to the societies in which they operate, organisational researchers need to study these phenomena comprehensively, and from the perspectives of all stakeholders. But, it remains a powerful indictment of our field that organisational researchers have been relatively silent on the effect of firms on the societies in which they operate, and the role of firms in value creation and distribution by firms. For example, management research has studied firm actions relating to compensation, training, vertical integration, outsourcing, and offshoring – all of which have an effect on economic inequality, but have rarely viewed these actions through the lens of their distributional consequences for societal wellbeing. Research in human resource management and organisational behaviour has been concerned about wage dispersion and its consequences within the firm, but rarely examines its broader social consequences beyond the firm. Similarly, the literature and research on corporate social responsibility has, at best, offered only marginal treatments of income distribution. Issues related to living wages, fair trade, and poverty have occasionally been explored, but questions about the broader corporate role in fostering inequality remain unanswered. In fact, research on phenomena such as "the base of the pyramid" has often deployed poverty as an opportunity, suggesting micro-strategies for firms to extract further value from the poor, with scarce consideration for the welfare of those who they seek to transform into consumers.

Organisational researchers need to study value distribution to all stakeholders

In addition to focusing on the role of society and government in value creation and appropriation, organisational researchers need to study value distribution and its consequences. Currently, value distribution is skewed heavily toward capital market stakeholders of the firm, principally shareholders (and peripherally, holders of debt). The logic of the shareholder being the residual claimant of the organisation is adopted to squeeze value out of the "supply chain," a denatured term that functions to obfuscate the reality that this chain comprises humans whose livelihood is compromised and whose misery is exacerbated by reduced compensation. So, suppliers are short-changed, employees are downsized, governments starved of tax revenues, all in favour of the shareholder, who benefits doubly, first from increased dividend payouts and then from capital gains that accrue when firms are rewarded for such behaviour by increased market capitalisation.

Putting a human face on the victims of inequality

It is important that organisational scholars put a human face to the victims of such inequities, and to make some bold statements: inequality leads to misery among its victims. It makes people physically and mentally sick, it increases crime, reduces life expectancy, and substantially reduces the quality of life among those at the receiving end of unequal relations. The problems of inequality are not confined to absolute socioeconomic status, but relative status as well. For example, the fact that the poor of developed nations are better off than the poor in far-flung parts of the world does not reduce their misery. Likewise, an unequal society affects not just the poor but all sections of society. And as researchers of firms, we need to be cognisant of the increased role played by firms in fostering this inequality and in undermining institutions of social welfare.

The neoliberal turn in the world economy risks undermining the social compact

We have alluded in this article to the potential of skewed distribution to endanger future value creation and appropriation, via decreased human development and poor institutional infrastructure. But, recent events in the macrosocial realm show that those consequences need not manifest in such a linear fashion. For example, election of protectionist/nationalist governments is one way in which unequal distribution can have disruptive consequences for organisations. Similarly, protest movements and the resultant support for alternative organisational forms can seriously undermine the ability of firms to create and appropriate value. The neoliberal turn in the world economy over the past few years risks undermining a social compact several decades in the making.

There is a need to focus on the relationship between business and society

In sum, to better understand the role of organisations in societal inequality, as well as to examine the detrimental consequences of inequality to organisations, organisational researchers need to carefully focus on the relationship between business and society. To achieve this, we suggest that organisational scholars study (i) the role of society and governments in value creation and appropriation, (ii) the claims of government and society to value distribution, and (iii) the consequences of skewed value distribution to firms and societies, in the form of reduced opportunities for future value creation and appropriation, as well as in the form of lower human development.