Michael J. Baker

Social Business: Business as if people mattered

The pursuit of ‘economic growth’ has promoted materialism and over-

consumption

It is not sustainable

But 2.5 billion people live below the poverty line

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‘Big Business’ and Capitalism are responsible and the ‘villains of the piece’

I believe this misunderstands the role of both

Potentially they are the solution, not the cause

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“Consumption is the sole end and purpose of production”

Adam Smith, 1776, the ‘Father’ of Economics

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Smith’s emphasis on task specialisation and exchange in ‘free markets’, facilitated by

competition and capitalism, was founded onthe concepts of mutual benefit and

satisfaction

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Benefit, satisfaction, value etc. are all subjective states of mind particular to

individuals’, ie. a qualitative judgement or ‘measure’

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Smith’s successors – the nineteenth century

neo-classical economists – abandoned qualitative measures as ‘unscientific’

in favour of quantitative (objective) measures. [‘physics envy’]

In doing so they removed the human elementfrom economic analysis and policy formulation

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Economic growth is measured in terms of the ‘Gross Domestic Product’ (GDP) which is the aggregated monetary value of all the goods and services produced annually by a nation

It takes no account of the quality of life enjoyedby individual citizens, ie. the aggregated valueof consumption; nor does it take ‘externalities’ into account

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Vicious circle-Recession-unemployment-lessdemand-more unemployment-deeper recession

Virtuous circle- increased consumption-economic growth-more jobs-more demand-more growth

Concern over the sustainability of policies promoting economic growth began to gather

momentum in the 1960s

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International recognition of the need for concerted action was prompted by the Brundtland Report (1987). Its Key Recommendations were:

• Reviving growth• Changing the quality of growth• Meeting essential needs for jobs, food, energy,

water and sanitation• Ensuring a sustainable level of population• Conserving and enhancing the resource base• Reorienting technology and managing risk, and• Merging environment and economics in decision

making

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Effectively, Brundtland took up Shumacher’schallenge “Small is beautiful” with its theme “Economics as if people Mattered”

Simultaneously (1987), Lutz and Lux published Humanistic Economics challenging mainstream economics with its emphasis on

quantification to the neglect of qualitative factors that influence human consumption behaviour – the concept of the “dual-self”

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Put simply, the dual-self recognises that basic physiologicalneeds are moderated by social and psychological factorsidentified in Maslow’s Hierarchy of Human Needs, viz:

Higher Self Growth Needs Lower Self Deficiency NeedsSelf-actualisation Ego-aggrandisementTruth seeking Self-interest seekingReasonable Rational (economic)Principled behaviour Instrumental behaviourAltruism and love SelfishnessObjective SubjectiveTranspersonal Personal (individual)

‘Some Basic Characteristics of the Dual-self’

(Lutz and Lux Table 1.1, page 17)

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In essence, the dual-self is motivated by self-interest - survival depends on it - but is

enlightened by the knowledge that collaboration and co-operation will result in better outcomes

than selfish self-interest that ignores the needs of others

The Golden Rule

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Adam Smith’s original conceptualisation ofcapitalism and free trade was based on the

assumption of collaborative exchange behaviour guided by moral principles and

regulated by laws to control/punish those who ignored or broke them

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By replacing the needs of individuals with the‘objective’ notion of demand, laissez-faire

(Anglo-Saxon) capitalism enabled Business topursue profit by any means within the Law

But, democratic governments failed, to a greater or lesser degree, to regulate the

market and prevent businesses fromadopting unethical practices and

unprincipled behaviour

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There is growing evidence that younger people -’Millennials’- are more socially engaged and concerned with ethical and moral issues. This is reflected in the changing curricula of major Business Schools and the PRME initiative

It is also apparent in the growing emphasis given to Corporate Social Responsibility in business strategy and practice

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Governments establish and regulate the environment in which economic growth

occurs but it is Business that decides what will be produced and for whom

Social Businesses accept responsibility for the needs of all their stakeholders and for

the environment on which all depend