The outcry for socially responsible behavior on the part of businesses is growing across the world, especially in developed nations. Do businesses have social responsibility? Absolutely, today more so than ever. Social responsibility can simply be understood as the responsibility of the businesses to take ownership of all their actions and decisions and the impact it has on the society and environment (International Standards Organization, 2010). The fundamental idea is for businesses to work towards the well-being of society and the environment while still creating shareholder wealth. Under social responsibility, businesses should work towards creating positive externalities within the society and the environment. Positive externalities occur when business action and solution benefit not just the business but the society at large i.e. investments in education, research, and development, etc.
The debate on whether businesses have social responsibility centers around the role of business which more or less has remained unchanged over the last two centuries until perhaps the past two decades. Traditionally, businesses have been viewed primarily as profit seekers and creators of individual and shareholder wealth. This view of enterprise has its roots in capitalism which has its origins in 17th century Britain. It was advocated by none other than Adam Smith and after him the likes of David Ricardo and John Stuart Mill. It was Adam Smith who postulated that “it is not from the benevolence of the butcher, the brewer or the baker that we expect to eat our dinner, but from their regard to their own interest.” (Smith, 2016). It was the birth of the classical school of thought in economics.
The classical school of thought introduced the concept of the free market and free trade i.e. minimum government interference, stressed private property ownership, and emphasized profit motive i.e. self-interest as the driving force behind trade and economic growth (Investopedia, 2020). These became the tenets of the capitalist economic system. Since its birth in industrial Britain, capitalism has taken the world by storm. It has resulted in rapid economic growth across the world spreading from Britain to Western Europe to the Americas and Australia and gradually to the rest of the world. There have been several competing economic schools of thought since the classical era which lasted from 1776 to 1870. The classical era was followed by Neoclassicals, the Keynesian school of thought first introduced by John Maynard Keynes in the mid-1930s and the Monetarist school of thought championed by Milton Friedman in the 1970s.
The principal differences between the schools of thought concerned macroeconomics vis-à-vis employment rate, international finances, international trade, inflation, national income, etc. but at the micro-level differences were few (“Schools of Economic Thought”, n.d.). Throughout these transitions, the basic tenets of capitalism remained unchanged. Indeed, Milton Friedman argued that creating wealth for shareholders was the primary responsibility of business and even went so far as to suggest that “greed is good” which perhaps is the most troubling of the various tenets of capitalism – profit motive and self-interest. Self-interest and profit motive is possibly the most powerful force that fueled the growth of capitalism. However, it has resulted in great inequalities and more importantly an acceptance of such inequality. Adam Smith himself noted this when he said “wherever there is a great property, there is great inequality” (Adam Smith Global Foundation, n.d). The end result of uncurbed profit motive alone was quite apparent as early as eighteenth-century London. In 1853 the English Parliament passed the Smoke Nuisance Abatement (Metropolis) Act 1853 to counter the effects of coal burning in the city of London.
Similarly, the Metropolitan Commission of Sewers Act 1848 was passed to prevent the dumping of sewerage into the River Thames (Wikiwand, n.d.). This was when the Industrial revolution was at a nascent stage with London as its epicenter. Although the industrial revolution did enable the working class and the lower classes to improve their economic condition largely through employment in new and rapidly emerging urban cities, it was simultaneously creating a greater division in wealth between the rich and the poor (Blum & McLaughlin, 2019). This has been the characteristic of capitalist development all through the modern era of economic growth beginning from World War II. Uncurbed capitalism driven largely by profit motive with little regard to social well being and the environment has resulted in our current dilemma. Indeed, the corporate social responsibility movement since the early 1990s is an indication of the growing recognition of a larger role of business away from wealth creation for their stockholders. Social responsibility of business is not a new term.
It dates back to 1970 when Milton Friedman famously stated “the only social responsibility of a business is to create shareholder wealth.”( Tepper, 2020). However, today it is more apparent than ever that such growth and development is unsustainable. In the past decade or so capitalism has fallen out of favor (Chafuen, 2013) (Linder, 2019)(Ambrosch, 2018). There is much disenchantment across the globe with the current form of capitalism. The Wall Street protests after the financial crisis of 2008 was a protest against uncurbed capitalism and deregulation and more recently the yellow jacket movement in France was an outcry for greater social responsibility and income equality (King, 2021).
One of the key challenges in the future will be how businesses will foresee their role. Capitalism in its varied forms is the dominant economic global system. Today in their pursuit of economic growth and prosperity many governments in many countries across the world are intent on pursuing unsustainable paths to economic growth. The mantra generally being ‘grow now, pay later.’ In the absence of regulatory presence previously provided by the state which has played a quintessential role in constraining and controlling uncurbed and unsustainable growth fueled by short-term profit motives – what will businesses do? Will they shed all social and environmental responsibility in pursuit of growth and profits or will they grow a conscience and shoulder their social and environmental responsibilities?
There is hope yet. There is a growing awareness and movement towards sustainable business practices. Movements such as B-Corporation, clean investments, Green Business Bureau, Global Impact Investment Network, Green Purchasing, etc. is a clear indication that business roles are changing. In 2019 CEOs of 180 top corporations (including the likes of Wal-Mart, Apple, JP Morgan Chase, Pepsi, Amazon, Abbot, Baxter, Bayer, etc.) released a statement redefining the purpose of a corporation which clearly mentions commitment towards social well being and environmental protection through sustainable business practices (Business Roundtable, n.d.). Social reporting is on the rise and as more and more companies are embracing and accepting their social responsibility (Threlfall, King, Shulman & Bartels, 2020).
The past decade has also seen the rise of social entrepreneurism. Simply put, social entrepreneurism can be defined as the application of entrepreneurship knowledge, know-how, and skills to address social and environmental issues. Social and environmental issues should be the epicenter for business ideation and not markets. The world does not require more sophisticated smartphones or excursions to outer space but rather answers to affordable housing, clean transportation, food security, affordable healthcare, universal education, etc. The 17 Sustainable Development Goals should serve as the epicenter for business innovation and action. These problems are universal hence scalable, profitable, and carry with them immense positive externalities.
To conclude, today we are at a point where we have endangered the entire planet. The so-called Anthropocene Epoch is having a devastating effect on the planet i.e. global warming, loss of biodiversity, loss of species, deforestation, resource depletion, waste creation, etc. Assessment Report 6 published by the IPCC unequivocally places the cause of global warming upon human activity i.e. industrial activities primarily. According to the landmark report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), ‘nature is declining globally at rates unprecedented in human history – and the rate of species extinctions is accelerating, with grave impacts on people around the world now likely.’(United Nations, 2019).
In these unprecedented times, businesses must reconsider their roles, adopt a broader purpose than profit creation and shoulder their social responsibility. Social responsibility must be borne by all businesses regardless of size or sector. On a positive note, a growing number of corporations and big businesses are shifting gear towards socially responsible behavior. Challenges remain, especially when it comes to small and micro-businesses.
These businesses face numerous barriers such as lack of resources (financial and time), lack of information (awareness), and lack of know-how on how to become socially responsible. Yet these sectors cannot be ignored. In any given country, on average, they account for more than 90% of the total businesses and are responsible for 50% of employment (more so in the developing worlds where these enterprises are highly labor-intensive and where the cost of labor remains cheap) (The World Bank, n.d.). Businesses need to embrace socially responsible behavior and act in an ethical and transparent manner regardless of the policies of the state. It is aptly said by Harvard Professor Clayton that “motivation is the catalyzing ingredient for every successful innovation” and hence industries today must find their motivation from the quagmire of social and environmental issues of our time.