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By Andrew Hammond
Conservative thinker Milton Friedman famously declared in the 1970s, in the period leading up to the political era defined by Ronald Reagan and Margaret Thatcher, that the 'business of business is business'. By this, he meant that the bottom line of the private sector should be making money for shareholders.
However, there has been a significant shift in the half-century since then in how many corporate leaders view the social responsibility of corporations toward a broader group of stakeholders. Correspondingly, many major businesses today talk frequently about their organizational commitment to a wide range of philanthropic, social responsibility and related activities.
This agenda has been showcased at last week's World Economic Forum meeting in Davos. Here the dialogue is centered on public-private partnerships, and multi-stakeholder dialogues, to promote cooperation to tackle the most pressing issues facing the world today from income inequality to global warming.
This debate about the responsibility of business and elites to society was exemplified by the release of an NGO report showing the extent of inequality in the contemporary landscape. Oxfam asserts that almost two-thirds of all new wealth created between December 2019 and December 2021 went to the top 1 percent of the income strata. In the words of the study, "although billionaire fortunes have fallen slightly since their peak in 2021, they remain trillions of dollars higher than before the pandemic … This crisis-driven bonanza for the super-rich has come on top of many years of dramatically growing fortunes at the top, and growing wealth inequality."
It is not just NGOs that worry about this issue. The World Economic Forum (WEF) itself has also acknowledged it in its 2023 Global Risks Report. This study includes growing global income disparities on its key risks register for the first time in a decade.
The WEF has, of course, long been perceived by some critics as a cozy club for the global elite. It will therefore be ironic, for some, that these issues are being discussed as Davos hosts one of the largest concentrations of billionaires in the world.
Yet legitimate skepticism held about WEF aside, business elites at Davos can potentially play an increasingly large role in delivering solutions to global challenges and promoting a sustainable recovery post-pandemic. And this goes well beyond longstanding measures such as creating good new jobs and boosting investment in the economy while paying workers fair wages and benefits.
For some polling data shows that ― more than a decade and a half after the global financial crisis ― there is growing trust in business. Fairly or not, this contrasts with the way that many view a large number of politicians today, and indeed also the private sector too in the immediate aftermath of the financial crisis of a decade and a half ago.
Declining confidence in firms was one of the key legacies of that crisis. And that growing distrust in business was illustrated not just in polls, but also by significant protests, including the "Occupy Movement" which came to international prominence in Wall Street in 2011 in its campaign against social and economic inequality. The Occupy demonstrations, often driven by younger people, subsequently spread to around 1,000 cities and over 80 countries.
The potentially significant change in attitudes, since then, comes amid a wider rebound in perceptions of the private sector, on measures including competence and ethics. Increasingly, people expect corporates to play a greater role in society, including helping tackle the range of grand problems facing the world, including climate change and the obesity epidemic.
This shifts the paradigm popularized by Friedman toward one favored by Michael Porter.
Perhaps the key idea behind Porter's shared value concept is that corporate competitiveness and the health of society at large are mutually dependent and reinforcing. He argues that firms can therefore secure competitive advantage by creating value for society as well as shareholders by capitalizing on the connections between societal and economic progress, helping drive a new wave of sustainable growth for years to come.
Given the growing range of grand challenges facing the world, now is therefore the time to increasingly step up to the plate on this agenda. It is the time to walk the walk, not just talk the talk in the Swiss snowscape.
Andrew Hammond (andrewkorea@outlook.com) is an associate at LSE IDEAS at the London School of Economics.
