The business of business is social improvement
Businesses are commonly portrayed to be holding society back from solving social problems. Too often, we hear about companies exploiting workers, demonstrating poor ethics, and only being concerned about the bottom line. Business is not seen as the solution, and rightly so in many cases. Common economic theory would support this, with there being “a trade- off between social performance and economic performance”, and as the renowned economist Milton Friedman would state “The business of business is business”. Whilst many criticisms of business practices may hold, businesses can contribute to social progress.
In dealing with social problems, as a society we have tend to see the solutions in terms of NGOs, in terms of government, in terms of philanthropy. However, these routes are seeing little progress on the large problems that face us such as climate change, pollution and deforestation. There’s simply not enough resources to deal with any of these problems at scale using the current model. There’s not enough tax revenue, there’s not enough philanthropic donations, to deal with these problems the way we’re dealing with them now. And the scarcity of resources for dealing with these problems is only growing. The fundamental problem here is scale. Businesses have something that NGO’s and non-profits don’t: scale. Businesses have access to significantly more resources, which gives them the potential to promote social change faster and more effectively. Rather than combining the different resources, needs, and wants of 1,000 non-profits, we could look to one large business to have the same impact.
Secondly, solving social problems can lead to greater profitability. Let’s take pollution. Reducing pollution and emissions is generating profit — saves money, increases productivity and efficiency of business operations. On the consumer front, businesses can also see motivated consumers as shown by TOMS shoes, which promotes a “One for One” deal. When a consumer purchases a pair of shoes, they also are providing a pair of shoes to someone in need. This encourages the purchase by the consumer with the positive externality attached, and has led to increased profitability at TOMS shoes — with 60 million pairs of shoes donated to date. As shown here, profit is the magic. Because that profit allows whatever solution we’ve created to be infinitely scalable. The solution becomes self-sustaining. If a business therefore holds a social focus this can lead to huge social progress.
Lastly, and in relation to the above, consumers are becoming more conscious. According to a new study by Cone Communications nine out of ten of consumers consider themselves conscious consumers, and a great majority of them are more likely to buy from companies that treat the environment and its workers right. As advancements in technology give us the ability to become more aware of pressing social problems, consumers across industries are now more than ever more responsible about what they buy. In the future, we will see businesses leverage their “social responsibility” even more — enhancing their brand perception and generating further sales.
At the same time, this movement isn’t perfect. Most of the time, social entrepreneurs aren’t successful because they have a great model for giving back, but the revenue and profits that come with the model are not sustainable. According to the Harvard Business Review 80% of startups fail, so it appears that businesses focused on social values and profits would be at an even greater disadvantage. However, there are companies that have done it with sizeable impact. As outlined TOMS, Ben & Jerry’s, Whole Foods have all been successful while giving back a significant amount. Others include Dow Chemical leading the revolution away from trans-fat and saturated fat, and Cisco training so far four million people in I.T. skills. Even companies with seemingly less meaningful ties to consumers have found ways to be profitable and give back a significant amount — Alcoa, an aluminium manufacturing company gave back $6.7 million dollars last year alone. There’s a fundamental opportunity for business today to impact and address social problems, and this is the largest opportunity seen today in business.
