Why Companies – Not Governments – Will Solve the World’s Biggest Problems

by

It makes little sense for corporate managers to spend shareholder money on pet philanthropic projects. As Milton Friedman asserted in his classic 1970 article: "The social responsibility of business is to increase profit." In fact, the core premise of corporate social responsibility (CSR) – profit spending for the "greater good" – is fundamentally flawed.  Individuals can donate their private wealth in any way they choose, but corporate executives are paid to put the shareholders' capital to productive (i.e. profitable) use.

Even under the best of circumstances, it is impossible for companies to give away enough money to have a material impact on the world's growing list of social and environmental ills. CSR is like trying to bail out a sinking ship with a teaspoon.

Where Friedman was wrong...

Where Friedman was wrong was in assuming that corporations cannot understand societal problems or environmental challenges, which he viewed as the exclusive responsibility of elected governments. It is true that corporations are not democratic institutions designed to reflect the broad "public interest." But today's representative governments have become all but incapable of addressing society's real challenges.

The power of "incumbency" has rendered government a conservative (rather than progressive) force, protecting the interests of those seeking to perpetuate "yesterday's" solutions. It should come as little surprise, for example, that Dick Cheney's now infamous "energy task force" included no one from the renewable energy or conservation sectors.

National governments are self-interested by design, concerned first and foremost with the security and well-being of their citizens. Tragically, preoccupation with the "national interest" makes government less and less relevant in a world characterized by trans-boundary challenges such as climate change, loss of biodiversity, and international terrorism. It is not at all clear today that the sum of "national interests" equals the "public interest" of the world.

The role of business in sustainability is evolving.

Ironically, then, the for-profit corporation may turn out to be our best hope for a "sustainable" future – economically, socially, and environmentally. Corporations are becoming increasingly global in scope, making them ideally suited to address trans-boundary problems. It is not by happenstance that some multinational companies have lead initiatives to address climate change (e.g. the US Climate Action Partnership), loss of marine fisheries (e.g. the Marine Stewardship Council), and sustainable development (e.g. the World Business Council for Sustainable Development).

Corporations may be even better positioned than governments to understand – and respond to – many emerging societal needs. Not the broad and abstract "public interest" trumpeted by enlightenment thinkers, but the on-the-ground "micro" interests of actual individuals, families and communities. Getting "close to the customer" is, after all, the stock and trade of the corporate world. Indeed, companies can (and are) creating tomorrow’s markets in renewable energy, biofuels, affordable housing, potable water, drip irrigation, wireless IT, point-of-care health care and sustainable agriculture, to name just a few.

Big business can respond to "micro" interests.

The “base of the pyramid” often provides the perfect environment in which to evolve new technologies. In fact, China’s towns and small cities, Brazil’s favelas, and India’s rural villages present huge opportunities to pilot green tech. The poor and underserved are often an ideal point of focus for initial commercialization because they aren’t already being courted by myriad products and brands. Incubating new “green” technologies such as distributed solar and point-of-use water can lead to win-win outcomes: consumers have access to better quality of life through new products/services, while companies can work through the “D” part of “R&D” in a cost-effective way. Once established, such clean technologies can then “trickle up” to the established markets at the top of the pyramid — but not until they have become proven, reliable, affordable, and competitive against the incumbent infrastructure.

Profit can accelerate sustainability.

The profit motive can thus accelerate (not inhibit) the transformation toward global sustainability, with civil society, governments, and multilateral agencies all playing crucial roles as collaborators and watchdogs. Through thousands or even millions of business-led initiatives, we can innovate our way into tomorrow's "clean" technology and welcome the four billion poor at the "base of the pyramid" into the global economy. The competitive process will weed out the bad initiatives ­— those that work neither for people, nature nor shareholders.  And like the industrial revolution two centuries ago, this commerce-led revolution will need no central administrator.

About the Author

Stuart L. Hart is the Samuel C. Johnson Chair in Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. He also serves as Distinguished Fellow at the William Davidson Institute (University of Michigan). Hart is also Founder and President of Enterprise for a Sustainable World and Founder and Senior Managing Director of the Indian Institute for Sustainable Enterprise in Bangalore, India.

  • Ryan Scott

    What’s missing here is why and how this will happen. Pressure from consumers and shareholders. Not just that corporations are the best hope, the only institutions powerful enough to solve the problems that they themselves in many cases caused, but that the public (customers and employees) finally has the power to force the organizations to do it. Ultimately corporations will compete with each other to do the most good, *because* of profit motives, not despite them. And this, I contend, is a good thing.

  • http://nbs.net/ NBS

    A blog that begins by quoting Milton Friedman’s discredited ideas from 40 years
    ago risks making us queasy in the 21st century, and Mr. Hart does not
    disappoint.

    “Individuals can donate their private wealth in any way they choose,
    but corporate executives are paid to put the shareholders’ capital to
    productive (i.e. profitable) use.”

    This seems to ignore the extensive social subsidies all businesses enjoy – the
    highway system, the telecommunications system, the educational system, the
    social safety net, the health system, all paid for by society. Corporations do
    not exist in a vacuum just for their shareholders. I would have thought that
    the mantra of “privatize the profits and socialize the costs” would
    start to recede as many of us try to think like human beings and not cash
    registers.

    “It is true that corporations are not democratic institutions designed
    to reflect the broad ‘public interest.’ But today’s representative
    governments have become all but incapable of addressing society’s real
    challenges.”

    Well, isn’t this the problem? Corporations are not democratic institutions, yet
    they own democratic institutions through their lobbying efforts and campaign
    donations. Of course representative governments are hamstrung  –
     they face of corporate threats to move their jobs and capital (to say
    nothing oftheir pollution) to more “friendly” jurisdictions.

    “National governments are self-interested by design, concerned first
    and foremost with the security and well-being of their citizens. Tragically,
    preoccupation with the ‘national interest’ makes government less and
    less relevant in a world characterized by trans-boundary challenges such as
    climate change, loss of biodiversity and international terrorism. It is not at
    all clear today that the sum of ‘national interests’ equals the ‘public interest’ of the world.”

    This neglects to mention that trans-boundary corporations and the mindless
    consumption many of them promote may be at the root of climate change, loss of
    biodiversity, and international terrorism through the incessant promotion of
    the 1% at the expense of the 99%. The Occupy movement is gradually teaching us
    this.

    “The profit motive can thus accelerate (not inhibit) the transformation
    toward global sustainability.”

    Here I finally realized that Mr. Hart has set me up. This essay was a
    tongue-in-cheek satire designed to parody certain kinds of thinking.

    Sure, let’s have more profit motive. Foxes unite to manage the henhouse!

    Well done, Mr. Hart, you really got me going there.

  • http://nbs.net/ NBS

    A blog that begins by quoting Milton Friedman’s discredited ideas from 40 years
    ago risks making us queasy in the 21st century, and Mr. Hart does not
    disappoint.

    “Individuals can donate their private wealth in any way they choose,
    but corporate executives are paid to put the shareholders’ capital to
    productive (i.e. profitable) use.”

    This seems to ignore the extensive social subsidies all businesses enjoy – the
    highway system, the telecommunications system, the educational system, the
    social safety net, the health system, all paid for by society. Corporations do
    not exist in a vacuum just for their shareholders. I would have thought that
    the mantra of “privatize the profits and socialize the costs” would
    start to recede as many of us try to think like human beings and not cash
    registers.

    “It is true that corporations are not democratic institutions designed
    to reflect the broad ‘public interest.’ But today’s representative
    governments have become all but incapable of addressing society’s real
    challenges.”

    Well, isn’t this the problem? Corporations are not democratic institutions, yet
    they own democratic institutions through their lobbying efforts and campaign
    donations. Of course representative governments are hamstrung  –
     they face of corporate threats to move their jobs and capital (to say
    nothing oftheir pollution) to more “friendly” jurisdictions.

    “National governments are self-interested by design, concerned first
    and foremost with the security and well-being of their citizens. Tragically,
    preoccupation with the ‘national interest’ makes government less and
    less relevant in a world characterized by trans-boundary challenges such as
    climate change, loss of biodiversity and international terrorism. It is not at
    all clear today that the sum of ‘national interests’ equals the ‘public interest’ of the world.”

    This neglects to mention that trans-boundary corporations and the mindless
    consumption many of them promote may be at the root of climate change, loss of
    biodiversity, and international terrorism through the incessant promotion of
    the 1% at the expense of the 99%. The Occupy movement is gradually teaching us
    this.

    “The profit motive can thus accelerate (not inhibit) the transformation
    toward global sustainability.”

    Here I finally realized that Mr. Hart has set me up. This essay was a
    tongue-in-cheek satire designed to parody certain kinds of thinking.

    Sure, let’s have more profit motive. Foxes unite to manage the henhouse!

    Well done, Mr. Hart, you really got me going there.

  • Steven Moore

    A
    blog that begins by quoting Milton Friedman’s discredited ideas from 40 years
    ago risks making us queasy in the 21st century, and Mr. Hart does not
    disappoint.

     

    “Individuals can donate their private wealth in any way they choose,
    but corporate executives are paid to put the shareholders’ capital to
    productive (i.e. profitable) use.”

    This seems to ignore the extensive social subsidies all businesses enjoy – the
    highway system, the telecommunications system, the educational system, the
    social safety net, the health system, all paid for by society. Corporations do
    not exist in a vacuum just for their shareholders. I would have thought that
    the mantra of “privatize the profits and socialize the costs” would
    start to recede as many of us try to think like human beings and not cash
    registers.

     

    “It is true that corporations are not democratic institutions designed
    to reflect the broad ‘public interest.’ But today’s representative
    governments have become all but incapable of addressing society’s real
    challenges.”

    Well, isn’t this the problem? Corporations are not democratic institutions, yet
    they own democratic institutions through their lobbying efforts and campaign
    donations. Of course representative governments are hamstrung  –
     they face of corporate threats to move their jobs and capital (to say
    nothing of their pollution) to more “friendly” jurisdictions.

     

    “National governments are self-interested by design, concerned first
    and foremost with the security and well-being of their citizens. Tragically,
    preoccupation with the ‘national interest’ makes government less and
    less relevant in a world characterized by trans-boundary challenges such as
    climate change, loss of biodiversity and international terrorism. It is not at
    all clear today that the sum of ‘national interests’ equals the ‘public interest’ of the world.”

    This neglects to mention that trans-boundary corporations and the mindless
    consumption many of them promote may be at the root of climate change, loss of
    biodiversity, and international terrorism through the incessant promotion of
    the 1% at the expense of the 99%. The Occupy movement is gradually teaching us
    this.

     

    “The profit motive can thus accelerate (not inhibit) the transformation
    toward global sustainability.”

    Here I finally realized that Mr. Hart has set me up. This essay was a
    tongue-in-cheek satire designed to parody certain kinds of thinking.

     

    Sure, let’s have more profit motive. Foxes unite to manage the henhouse!

     

    Well done, Mr. Hart, you really got me going there.

     

  • Steven Moore

    A
    blog that begins by quoting Milton Friedman’s discredited ideas from 40 years
    ago risks making us queasy in the 21st century, and Mr. Hart does not
    disappoint.

     

    “Individuals can donate their private wealth in any way they choose,
    but corporate executives are paid to put the shareholders’ capital to
    productive (i.e. profitable) use.”

    This seems to ignore the extensive social subsidies all businesses enjoy – the
    highway system, the telecommunications system, the educational system, the
    social safety net, the health system, all paid for by society. Corporations do
    not exist in a vacuum just for their shareholders. I would have thought that
    the mantra of “privatize the profits and socialize the costs” would
    start to recede as many of us try to think like human beings and not cash
    registers.

     

    “It is true that corporations are not democratic institutions designed
    to reflect the broad ‘public interest.’ But today’s representative
    governments have become all but incapable of addressing society’s real
    challenges.”

    Well, isn’t this the problem? Corporations are not democratic institutions, yet
    they own democratic institutions through their lobbying efforts and campaign
    donations. Of course representative governments are hamstrung  –
     they face of corporate threats to move their jobs and capital (to say
    nothing of their pollution) to more “friendly” jurisdictions.

     

    “National governments are self-interested by design, concerned first
    and foremost with the security and well-being of their citizens. Tragically,
    preoccupation with the ‘national interest’ makes government less and
    less relevant in a world characterized by trans-boundary challenges such as
    climate change, loss of biodiversity and international terrorism. It is not at
    all clear today that the sum of ‘national interests’ equals the ‘public interest’ of the world.”

    This neglects to mention that trans-boundary corporations and the mindless
    consumption many of them promote may be at the root of climate change, loss of
    biodiversity, and international terrorism through the incessant promotion of
    the 1% at the expense of the 99%. The Occupy movement is gradually teaching us
    this.

     

    “The profit motive can thus accelerate (not inhibit) the transformation
    toward global sustainability.”

    Here I finally realized that Mr. Hart has set me up. This essay was a
    tongue-in-cheek satire designed to parody certain kinds of thinking.

     

    Sure, let’s have more profit motive. Foxes unite to manage the henhouse!

     

    Well done, Mr. Hart, you really got me going there.