One cannot write about the ‘social responsibility of business’ without mentioning Milton Friedman who stated in 1970 that, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.”
This view is now considered to be outdated and conservative as more and more businesses are finding their value outside of simply making a profit. I do not disagree with the notion that the primary purpose of any business is to make profits – indeed that is how any business can stay afloat. I disagree that it is the only purpose of business, as it takes away from the aspect of capitalism that is ultimately very humanitarian.
One of the reasons that making a profit cannot be the only responsibility of business is the increasing resource crunch. During the age of the Industrial Revolution and up until Friedman’s time there was little talk of natural resource depletion. Indeed, pollution was still an externality and the great cogs of industry made up society.
Now however, current economics prove that functioning without any regard to natural resources leads to the destruction of the ecological system, which leads to eventual collapse of the economic system. The social responsibility of business therefore is to protect the economic system and by implication the bigger socio-environmental system upon which it rests.
Business has the social responsibility to factor in ‘negative externalities’ like pollution - in fact any economic model that still regards the environment as an externality is ultimately an anti-growth model. As the economic system has grown more interconnected and vast over the years, so too has the idea of business itself.
Today business has a responsibility towards its stakeholders – customers and society at large are more aware of the negative impacts of business as usual. They want cleaner and more ethical products and services. Business today also has a responsibility towards the environment – it cannot keep endlessly extracting resources without consequence.
Resources like air, water, biodiversity, fossil fuels are the very building blocks upon which a successful business is built. With the rapid depletion of these essentials, business needs to learn to deal with the ominous constraint of environmental degradation. Even big business today needs to adapt towards a social entrepreneurship model in order to survive.
The social responsibility of business is not just the limiting aspect of its responsibility towards societal and environmental protection, but it is towards the protection of the notion of business itself. The responsibility of business therefore is to not merely to generate profit, but to ensure a steady flow of capital that can be diverted towards the higher pursuits of society building. Without the realization of this responsibility, business will soon burn itself out.
Image Credit: Akhila Vijayaraghavan ©
Akhila Vijayaraghavan is the Founding Director of GreenDen Consultancy and has been a Triple Pundit Staff Writer for over a year. She has covered various topics pertaining to CSR, sustainability, social innovation, and renewable energy. She can be followed on Twitter.