The Hindu Business Line : Market, business and community development

Managers across the business world are increasingly seeing community development as a strategic imperative. If General Electric recently released the first Citizenship Report that allows interest groups to assess its social commitment, from air pollution to volunteer hours, IBM uses its On Demand Community — a 40,000-employee volunteer programme — to bring its technologies to schools and communities. Closer home, many big companies are dedicating increasing resources for community development as part of their Corporate Social Responsibility.

There's no doubt that there has been a surge in community outreach by corporates. But the role of business in society is currently caught between two contrasting positions. At one end is the stand of such intellectuals as Milton Friedman, who argued that the "business of business is business".

This belief is most established in Anglo-Saxon economies. Here, social issues are peripheral to the challenges of corporate management. The sole legitimate purpose of business is to create shareholder value.

Friedman also quoted Adam Smith: "I have never known much good done by those who profess to trade for the public good". Here the issue is not primarily legal. In many countries, such as Germany and the US, the main legal obligation is to stakeholders and even in the US, the legal primacy of shareholders is open to very broad interpretation. Thus, the market is the king.

Societal Obligations

At the other end are scholars with the view that business has obligations to society at large.

The efficiency of the market has to be supplemented with social good; companies ignoring public good render themselves vulnerable to attack. Further, social pressures can also help corporate profitability: for example, the regulations and public policy environment in which companies must operate; the appetite of the consumers for certain goods above others; and the motivation (and willingness to be hired in the first place) of employees. Hence, the view of CSR for community development is a rapidly growing movement.

So it may be more accurate, more motivating and more beneficial to shareholder value over the long term to describe business's ultimate purpose as the efficient provision of goods and services that a society needs. By creating new products, spreading technology and raising productivity, enhancing quality and improving services, business has been the active agent of progress.

In fact, the great virtue of capitalism is that, spurred by the need to provide adequate returns to those who risk their money, it helps make the good things of life available and affordable to more people. To make more profit the business has to do something more or better.

For the Community

A good business is for a community with a purpose, and a community is not something to be owned. A community has members, who have certain rights, including the right to vote or express their views on key public issues. Business is essential to ensuring sustainability because only business can produce the technological innovations and deliver the means for genuine progress on this front.

The ancient Hippocratic oath that all doctors take on graduation includes an injunction to do no harm.

Today's anti-globalisation protesters claim that global business not only does harm, but that the harm outweighs the good. If those charges are to be rebutted, and if business is to restore its reputation as the friend of progress, then its leaders need to bind themselves with an equivalent oath. Doing no harm goes beyond meeting the legal requirements regarding the environment, conditions of employment, community relations and ethics.

Money can be made even by serving the poor as well as the rich. As management gurus C. K. Prahalad and Allen Hammond recently pointed out, there is a huge neglected market of billions of poor in the developing countries: "By stimulating commerce and development at the bottom of the pyramid, MNCs could radically improve the lives of billions of people and help bring into being a more stable, less dangerous world. Achieving this goal does not require multinationals to spearhead global social development initiatives for charitable purposes. They need only act in their own self-interest, for there are enormous business benefits to be gained by entering developing markets."

Rich Man's game

Unless big business becomes sensitive, capitalism will remain a rich man's game, serving mainly itself and its agents, and democratic pressure may force governments to shackle corporations, limiting their independence and regulating their every operation.

To level the field, markets need some rules. Often, these rules emerge from the competitive process, as in the formation of self-regulating associations but sometimes they need to be imposed and enforced by an authority.

A truly free and competitive market strikes a delicate middle ground between the absence of rules and the presence of suffocating regulations.

For many years, community development goals were philanthropic activities, seen as separate from business objectives. In our changing world there may be a nominal user fee for community services provided by the corporate world, so that the `free lunch' is not abused.

Actually, every society has three basic segments — state, market and civil society. On the one hand, too much regulation — a licence-permit raj — by the state kills entrepreneurship and, on the other, a laissez faire market leads to uneven growth and social inequalities.

Hence, the right balance among state, market and civil society is required. Thus, we agree with the view of Robert Kuttner: "If markets are not perfectly self-correcting, then the only check on their excesses must be extra-market institutions. These reside in values other than market values, and in affiliations that transcend mere hedonism and profit maximisation.

"To temper the market, one must reclaim civil society and government and make clear that government and civil society are allies, not adversaries. The enterprise, in turn, requires effective politics, both as the emblem of a free democratic people and as the necessary counterweight to inflated claims about the market. If we are to balance the market and its demands with other social goals, that requires an enlightened and informed electorate as well as healthy and legitimate political institutions".

(The author is a member of the Indian Revenue Service)

More Stories on : Economy | Society & Development

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Why are wheat farmers angry?

Power at all cost

Market, business and community development

Learning from mistakes

14th SAARC SUMMIT — Will it rise above `just another meet'?

Return of the Reserve Ratio

The malaise of Indian sport

Transfer pricing disputes

Govt staff housing