5. Analysis
5.1 What role do institutions play in the CSR topic in Denmark?
5.1.2 Informal Institutions
Page 59 of 107 According to Porter and Kramer (2011) solving social and environmental issues has been always ceded to governments and NGOs, but businesses possess instead a much greater potential to reach concrete results, as, for example, they are much more effective at marketing than governmental institutions.
The development of governmental CSR policies in Denmark represents a story of policy succession in which the state has tried to make businesses a key driver in solving social and environmental problems, which were traditionally only to be solved by the state. This approach represents a “systemic institutionalization”, because of an increasing spread of CSR policies pointing towards the greater national objectives of creating competitive advantage through sustainability and advancing CSR in numerous areas (Knudsen & Moon, 2017).
Page 60 of 107 or more of the latter situations occur in a country, trust towards formal institutions decreases, which has an influence on several aspects, such as business activities. (Misiuraa &
Rozkwitalska, 2019). Albeit there is no unequivocal definition of trust, it is generally differentiated between social trust and political trust, with the former referring to principles of fraternity, solidarity and reciprocity, and the latter referring to trust in formal institutions. In the Scandinavian countries the creation of the welfare states conducted to high levels of social trust. Thus, strong formal institutions and access to public goods did matter for the creation of social trust in these countries. (Svendsen, Svendsen, & Graeff, 2012).
Trust is significantly important in societies, present as an informal institution, as it allows to build social capital and it can generally be observed in people’s altruism, honesty, civil commitment etc. High social capital is usually a result of efficient formal institutions, namely political and legal institutions. (Misiuraa & Rozkwitalska, 2019).
According to Svendsen et al. (2012), during the course of history informal institutions can become specific “rules of the game”, which contribute towards either the accumulation of social trust, or towards institutional break-downs and trust collapse. During the Viking Age (from about 780 to 1080), Scandinavia was characterized by an early state building and monopolization of violence, with the Danish King Godfred being the first known state-builder of Denmark. State-building, comprising the accumulation of revenue thorough taxes and tributes extortion, allowed the Viking leaders to propose solutions to collective matters, such as enforcing laws, engaging in public works, supporting trade etc. The growth in trade caused tax collection to increase consequently. The then trade norms based on trust turned increasingly into rules and regulations managed by formal institutions, which led to the establishment, after WWII, of the Danish modern welfare state. (Svendsen, Svendsen, &
Page 61 of 107 Graeff, 2012). People in Denmark trust each other and institutions, such as the monarchy, the government, the police and the hospitals (Denmark.dk, 2021).
The establishment of the welfare state, and the consequent high trust present in the Danish society, can only be understood when considering the evolution of history and of institutions.
Institutions evolve incrementally, linking the present to the past and the future; in this light, history can be seen as an institutional evolution in which each historical economic performance can only be comprehended as a part of the sequential institutional evolution.
In fact, institutions provide a framework for the economy: as the institutional framework evolves, the economic structure evolves accordingly either towards growth, stagnation or decline. (North, 1991).
5.1.2.2 The Tight Tie between Trust and Innovation
The concept of social capital is linked to innovation: two or more parties cooperate towards an objective that not necessarily will be a success. As a matter of fact, countries that have a high uncertainty acceptance are those that are the fastest at accepting and introducing new products and technologies, and also in such countries it is more likely that people take the risk to become self-employed. (Misiuraa & Rozkwitalska, 2019).
Development of competitive advantages occurs today only when the focus is on innovation, thus, the role of R&D is undeniable. Scandinavian economies are considered among the most competitive worldwide, due to the stable macro-economic conditions, inflation, and high level of education. (Misiuraa & Rozkwitalska, 2019). According the UNESCO report on R&D spending, Denmark spends over 2.9 percent of GDP on R&D, that is nearly $ 8 million, compared to the European average of 2.1 percent. It is important to highlight that most of the R&D spending is led by businesses, spending over $ 5 million, while the government’s
Page 62 of 107 part accounts for $ 180.000. Moreover, Denmark is the country worldwide with the highest number of researchers (7.310) per million inhabitants. (UNESCO Institute for Statistics). The Danish system of innovation originated after WWII. In the 1950s, the country’s economy was significantly founded on agriculture, however, political decisions resulted in a change in strategy, aiming at building competitiveness based on innovation. (Misiuraa & Rozkwitalska, 2019).
5.1.2.3 Cultural Approach in the Danish Society Towards CSR
It is embedded in the Danish culture to make socially and environmentally-conscious choices. In fact, the majority of Danish citizens, namely 73 percent, consider sustainability when purchasing a product or service. (Sustainable Brand Index, 2021).
It is relevant to underline how Danish citizens’ decisions regarding buying are in line with the institutional framework. Humans are to be considered as “culture-conditioned beings whose actions are determined by culture and environment”. Thus, people take decisions adjusting to what is required by the environment in which they live and the established methods, which form the institutional framework. Thus, institutions form the root of human behavior, or, as North (1991) suggest, they determine the “behaviour patterns”.
According to Peng et al. argue (2009), one pivotal function of institutions is to reducing uncertainty for different actors, as they provide definitions and boundaries of what is legitimate. Actors have to take decisions, pointing towards their own interests, within the given institutional framework. For example, if firms wish to expand abroad, they need to do their “homework” of getting to know the institutional frameworks of the country they want to go to. Obviously, companies that do business domestically must also know the “rules of the games” if they wish to ensure successful outcomes, otherwise “firms can be burned in their
Page 63 of 107 own home country” (Peng, Li, Pinkham, & Chen, 2009). Thus, it is crucial for Danish firms operating in Denmark to get to know the rules of the games of their own country, namely the formal as well as the informal institutions.