What is the role of business in society today

22 09 2011

(speech given at PWC in debate with Stefan Stern,Vicky Pryce, Michael Green and David Phillips)

Keynes famously said that practical men are usually the slaves of defunct economists. I am going to prove how practical I am by quoting from two of that ilk.  First Adam Smith in the section of the ‘Wealth of Nations’ in which he discusses the hidden hand of the market, went on in the same passage to say of a businessman:

‘By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.I have never known much good done by those who affected to trade for the public good.’

Karl Marx, when asking himself what was the principal function of capitalists, answered:

Accumulate,accumulate. That is Moses and the prophets!

Now it looks as if we are at the onset of the deepest global slump since the 1930s. Surely the question of this debate, ‘What is the role of business today?’ should be a rhetorical one.  The role of business people in society  today is to grow their companies and through this grow the economy.  Businesses in the UK have around £60b in cash sitting on their balance sheets doing nothing useful. They should be investing more of this in research and innovation than the pitiful amounts they currently are; they should be taking more advantage of the huge new consumer markets in the emerging economies; they should be trying to grow, to create jobs and to raise living standards here and elsewhere. All the wealth of society is created by businesses. Jobs are created not only for those who work in those businesses but also the taxation that pays for education, health and the other public services. A focus on growth and the creation of surplus, or profit; that should be the role of business in society today.

But business has become too cautious to play this role to its full potential. Business today has more cash on its collective balance sheet than anybody can remember, but instead of looking for productive ways to invest it is playing the financial casinos, investing in arcane financial instruments in the vain hope that it can find a safe haven for its cash.

Perhaps it is not surprising that businesses find it diffiulct to focus on their core fucntion.It sometimes seems the main role of business today is to be the whipping boy for every special interest group in society. Business has to be seen to be environmentally aware, morally conscious of its obligations to the developing world, an active force for racial and sexual equality, careful about what it researches into and particular about its use of scientific breakthroughs and new technologies. It seems to have taken on the doctors’ mantra, first do no harm. This is damaging for innovation and growth. These days’ businesses are expected to avoid making a mess in the process of making anything. They seem to have forgotten what the purpose of business is first and foremost making things and developing services. It’s a terrible cliché, but you really cannot make an omelette without breaking eggs.

 If you read the mission statements of many large corporations they will mention their main business in passing before going through a long list of all the ways they are making the world a better place through their corporate social responsibility agendas. You may think that some if not all of these issues are ones that society in general should be in favour of, I may too for that matter. But I fear that this concentration on broader social issues that fall under the CSR area are the wrong ones for business to be focused on.

If you look at some of the corporate disasters of recent years one wonders how much of the damage could have been avoided if businesses were completely focussed on their core business. Would BP have been more careful in the Gulf of Mexico if they had not been simultaneously trying to convince us they were Beyond Petroleum? Would UBS managers have been more likely to have spotted its rogue trader had they not been busy engaged in human rights, the environment and empowerment, all key objectives
according to their website. Not to mention producing a 44 page document on the proper way to dress for business. I remember sitting through an address about how wonderful Toyotas’ environmental policy was at the precise time its cars were accelerating off the road while their terrified drivers were helpless.

Directors and managers, like all of us, have limited attention spans and limitations to what they can concentrate on. I would like to see more businesses sticking to their knitting. Now some might say that all the CSR is superficial, pandering to an external agenda, a kind of box ticking exercise. If that is true then CSR is just a cynical PR exercise, if it is not then it takes up management attention that would be better spent on its core business. Either way it is wrong. Let the politicians and the campaign groups argue for and legislate for a better society, business should get on with business.

Those who are really interested in global wellbeing should consider this: the average global wage is around £5000 per annum. In order to bring that average up to £25,000, the average wage in the UK, the global economy would have to grow by a factor of 5. This growth is what would make the real difference to the people we aspire to help in underdeveloped parts of the world.

By the way, it would also be a good idea if politicians and others laid off those dynamic sectors of our economy, pharmaceuticals, bio engineering, energy and aerospace for example which are often treated as if they are the spawn of the devil. Without these progressive industries we will be truly condemned to a desolate economic future.

Business has become far too risk-averse in every way, too cautious to take chances with innovation, too scared to make risky investments in case of upsetting interests groups, too distracted and too cowardly all round. It has lost the confidence to say that the business of business is business.It is going to take an enormous amount of risk taking and innovation to get this economy  out of its slump, caution and risk aversion are standing in the way.