● Businesses, like individuals, are relational, and operate in a moral context
● The purpose of a business is to serve the public
● Government could stimulate a boom in the social economy
In the previous post (Proposition 6) I argued that the doctrine of economic mobility and ‘spatial blindness’ (the free movement of labour and capital, and the supposed neutrality of government about where to spend public money) has created a regionally unequal society, harming both the supposed beneficiaries in the economic hotspots as well as those in the places ‘left behind’.
Economic mobility is predicated on Adam Smith’s famous ‘invisible hand’, the magic of the market which arranges the provision of goods and services to the people who need them without a central organising mind. Yet as Smith was the first to say, markets depend on the moral sentiments of the people who inhabit them. Culture, not state power, is the organising mind that enables the invisible hand to work.
Labour operates in a moral context. We expect – or should expect – individuals to make ethical decisions about where to work and what to do, balancing family obligations and self-interest, and conducting themselves well towards colleagues, customers and the wider community. Capital needs a moral framework too.
The legal system recognises this. A business, being ‘incorporated’ – which means ‘embodied’, become a body – is a legal entity with many of the rights and obligations of a human being. A human being, as I have argued in the introductory post (Proposition 1), is essentially relational. We exist as individuals because we belong to a wider group, which gives us identity, safety and freedom. The same goes for businesses. They are not, or should not be, rootless wanderers, scavenging the fruits of civilisation. They are, or should be, connected with the people and situated in the places that bore them. They have obligations to their neighbours, whose work has made them possible. Most of all, they exist – as individuals do – for virtue, with a purpose beyond themselves.
The purpose of a business is to serve the public with what it wants or needs. Profits are a sign this purpose has been fulfilled, and a due recompense to the people who risked their time or money to make it happen. Yet as Professor Colin Mayer has shown, in the late 20th century this idea was lost and an alternative idea adopted: that the purpose of a company is not to serve the public but to create profits for its owners. ‘The business of business’, said Milton Friedman in 1970, ‘is business.’
In most businesses, as for most of us as individuals, public and private benefit are of course deeply entwined. A company might have an entirely Friedmanite idea of purpose and yet – purely in order to maximise profits – it does the right thing by its employees, its customers and the planet. And an enterprise fixated on public purpose might easily neglect the essential requirement to run a tight ship and stay profitable, and thus do far less good in the world than its selfish rival. Yet – whether it lives up to it or not – the key consideration for any organisation is its ultimate purpose: what it is primarily for.
If more businesses determined that they exist to serve the public, that their owners have a responsibility beyond their own enrichment, a vast transformation is possible. Under the influence of this determination capital would acquire patience, that principal virtue for long-term growth and wellbeing in any person or organisation. Between the extremes of global finance houses and local charities – both equally potentially virtuous, if the purposes of both are the public good – a great ‘social economy’ would appear, including social enterprises and mission-driven businesses.
How do we stimulate the social economy? We need reforms to the Companies Act to allow a firm to register as a mission-driven business. We need to incentivise social investment – capital seeking a social or environmental as well as a financial return – through tax policy. We need public spending, possibly vie endowments, to create pools of capital to support the social economy.
Overall, we need to live better, with a less wasteful, ephemeral, throw-away economy. We need more local production (and more maintenance and refitting of the already produced) and less reliance on debt, consumption and imports. As mentioned in an earlier post (Proposition 3), we need more security of our food and energy supplies, and that means more local generation of both. We need more entrepreneurs, more artisans and inventors and innovators.