10 Ideas That Are Changing the World We Live, Work and Play In (Part 1)

The Socialization of Business: The Biggest Change in Capitalism Since Adam Smith

In my last post I promised you a list of 10 ideas that I believe are doing more to change the world than the 10 ideas Time listed in its March 24 edition. You may recall my intention to draw my list from the same categories Time used. However, once I went to work on my own list I discovered that sticking with Time’s categories would be to ignore some of the most influential ideas of our times.

Take business, for example. Time ignored that category despite the role of business in society undergoing the deepest conceptual change since Adam Smith laid down the foundations of capitalism in Wealth of Nations in 1776.

Like a person who has evolved from the self-centeredness of youthhood toward the others-centeredness of self-actualization, capitalistic enterprises are projecting more advanced states of socialization than ever before seen on a broad front. Legions of companies have taken up purposes of social significance far beyond service to their bottom lines. Many have adopted a multiple stakeholder relationship (MSR) business model.

Management in MSR companies intentionally address needs of other stakeholders from customers and employees to suppliers and society. Economist Muhammad Yunus, who won the 2006 Nobel Peace Prize for his work in eradicating poverty, calls this “conscious capitalism.”

Ever since British Parliament passed the Joint Stock Companies Act of 1844 corporations have been relieved of any social purpose. As Nobel Laureate economist Milton Friedman famously said, “(T)here is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.”

Friedman regarded executives who operated their companies with a sense of social purpose as being un-American:

The businessmen (who) believe … that business is not concerned "merely" with profit but also with promoting desirable "social" ends, has a "social conscience" and takes seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution are preach­ing pure and unadulterated socialism. (They are) are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.

Ever since Friedman wrote those words for a 1970 New York Magazine article, academicians, business leaders, social commentators and others have waged vigorous debates about the role of business enterprises in society. But as songster Bob Dylan sings, “The times they are a-changin’.” Those who believe that business’s only social responsibility is lawfully making profits are an endangered species.

As the size and power of companies have grown, so also has the “social conscience” of business. Some would counter that claim by calling attention to the recent Enrons, Tycos and WorldComs scandals. However, while commanding fewer and smaller headlines, companies in growing numbers have unabashedly incorporated a resolve to help create a better world into their missions.

Many are the companies that are taking on tasks traditionally considered the job of government and NGOs. For example Starbucks uses its considerable purchasing power to improve the life quality of people in coffee growing countries. It offers growers multi-year fixed prices regardless of fluctuations in market price. In exchange, growers must plow some of their profits back into educational, housing, healthcare and other social needs of their communities.

For the first time in history, companies economically rival most nations on earth. Of the world’s 100 largest economic entities, 43 are business enterprises. Their annual revenues are greater than the GDP of all but 57 nations. Within the next decade they will become the majority.

Foes of globalization see the growing power of companies as a dire threat that warrants government intervention. However, not many nations are likely to take actions that curb the growing power of business. They cannot afford to.

After a century of socialistic behavior, developed nations are finding it increasingly difficult to pay the bills. They are experiencing the double whammy of population shrinkage, which leads to falling tax revenues, and unprecedented growth in elderly populations, which increases the per capita costs of entitlements.

In the past, governments depended on taxes to cover costs associated with fulfilling their social agendas. Often, raising taxes is no longer politically or economically defensible. So, governments must look elsewhere for resources to meet public needs. One rapidly growing trend is selling public infrastructures from roads and bridges to ports and prisons to private enterprises on a revenue-sharing basis.

Many companies have moved on their own to address major social problems. GE’s much hailed ecoimagination initiative is one prominent example. Like a growing number other companies, GE sees profitable opportunities in taking actions that benefit the environment. Other social issues commanding the attention of globally operating companies include exploitation of workers in poorer nations.

One of the most impressive examples of business moving into traditional government territory to solve a major social problem is seen in the operation of the Grameen Bank.

Bangladeshian economist Muhammad Yunus invented the microlending industry to help the poor escape poverty. With a loan of as little as $25 to buy materials for handicrafts that she can sell in the open market, a depressingly poor woman can take herself and her family out of abject poverty.

Philanthropic activity is growing at an unprecedented rate. Some of it flows from corporately sponsored foundations. Other philanthropy is supported by individuals who have amassed great fortunes from business operations. The Bill and Melinda Gates Foundation is a notable example of the latter. The Gates Foundation is dedicated to ridding the world of malaria. It has also tackled illiteracy in poor nations around the world. The Gates Foundation has partnered with a number of public school systems in the U.S.to improve student performance by applying principles of sound business management to the administration of public education.

In the 20^th century, the welfare of societies and their members was largely left to government. In the 21^st century, business enterprise is playing an ever larger role in addressing the social agenda of nations around the world. Surely, the socialization of business is one of the most powerful ideas now shaping the world. Yet the March 24 edition of Time gave it no attention in its cover story, “10 Ideas that are changing the world.”