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 20th century,
the welfare of societies and their members was largely left to government. In
the 21st 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.”