In 1970, the economist Milton Friedman laid out what he believed to be the ultimate role of enterprise within modern society – ‘There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…’
Friedman’s doctrine, now more popularly dubbed as ‘shareholder primacy’, soon captured a neoliberal consensus that was propagated by Ronald Reagan and Margaret Thatcher throughout the 1980s and 1990s.
In fact, as recently as 2013, former Prime Minister – and unapologetic child of Thatcher – David Cameron parroted a tired Friedman-esque cliché in a sales pitch to British voters – ‘profit is not the problem’, he asserted, but rather the ‘solution’. Cameron, whose stance on Brexit demonstrates his ability to capture the public mood, delivered such a speech just five years after a global financial crisis that was fuelled by an unfettered drive for profit.
Through their near religious devotion to a single economic doctrine, Cameron, Thatcher, Reagan and co have fallen into a trap familiar to all historians: assuming that the debate is over and the status quo as it currently stands will endure. On the contrary, Boris Johnson’s new anti-austerity agenda, characterised by lavish spending promises in Northern England, is evidence that the economics debate is never over.
So too it is with the role of business. Covid-19 has demonstrated clearly that the Private sector has a role beyond profit accrual and can work collaboratively alongside the Public sector in order to answer some of the most pressing issues of our time.
Take, for instance, the laudable efforts of corporate giant JBL, who throughout the pandemic, donated to schools in need to support virtual classes and free music lessons. Similarly, companies such as L’Oréal and New Balance moved quickly in order to produce masks at short notice. And of course, lest we forget the role played by countless local businesses, who often provided free school meals or shifted to manufacturing ventilators. These are just a small selection in a list of countless examples of organisations who have looked beyond the pursuit of shareholder dividends by embracing a wider social purpose.
Climate change is a further crisis in which the private sector, in congruence with state support, must play a focal role. Owing to claims that just 100 companies are responsible for 71% of global emissions, ‘Big Business’ is a term that has become ubiquitous with mass pollution. For this reason, it’s unsurprising that large corporate entities such as Shell have become targets of choice for anti-capitalist movements such as Occupy and Extinction Rebellion. But while certain businesses are unquestionably exacerbating environmental challenges, the tides of climate change cannot be stemmed without initiative being taken by those same businesses. Indeed, private sector jobs in the UK account for a considerable 76% share of total employment.
One might look to a company such a Patagonia for inspiration. Rather than engaging in meaningless hyperbole about corporate social responsibility, Patagonia have cultivated a business model that places both growth and environmental sustainability at the heart of its constitution: the Earth is considered a stakeholder and accordingly, is factored into the company’s policies and practices alongside shareholders and employees.
There remains, however, an important question: can social purpose be achieved only at the expense of profit? This is the favoured protestation of free marketeers, who argue that a purpose-led business model prevents growth and therefore impedes wealth and job creation. Such hubris is misplaced. In fact, often the opposite is true: corporate scandals such a Carillion and, more recently, Greensill Capital, demonstrate the pitfalls of a business strategy that priorities short-term gains and neglects long-term investment.
By contrast, studies suggest that purpose-led organisations better weather periods of economic volatility. This is because they focus more heavily on long-term wealth investment, as well as having in place more robust management structures. Not to mention there is the added benefit of employee productivity. ‘Woke’ has become somewhat of a loaded term of late, but in an interconnected world where individuals are well informed, employees want to work in an environment that is reflective of their own motivations and values. The fact that 80% of UK residents have expressed at least some concern about climate change should therefore be of pertinence to prospective employers.
In recent years, business has become a dirty word. But it doesn’t have to be. A sincere and concerted effort from the private sector, supplemented with top down reform by an interventionist government willing to challenge the shareholder-centric principles of company law, can make business work better for both people and the planet.
In which case, David Cameron’s insights are in need of a revision – No, profit is not the ‘solution’. But profit coupled with social purpose? It might just well be.