Monday, July 06, 2015

The-Capitalist-as-Philanthropist Or Why The Business Will Not Save The World

I was recently forwarded an Wall Street Journal article (see here, may require subscription) arguing against the Ford Foundation pledging $11 billion to fight inequality, by a colleague. I was not sure whether to agree or disagree with the claims of the article, as, at one level, the claim that businesses should spend their money doing business, seems entirely justifiable. But, there is a bigger, and implicit, claim - that the businesses can solve the problems of the world by doing business - which I can not disagree more with. 

Before I return to the subject of the article, I should elaborate why I have such a dim view of the capacity of businesses to solve all the problems. Businesses are usually good at one thing - focused efficiency - but this is not the only thing that can solve all the problems. In fact, the businesses often create more problems than they solve. Before we jump into this conclusion positing the Capitalist as the ultimate Philanthropist, we must carefully examine at least three limitations of business thinking that come in the way of doing good.

First, as Milton Friedman said, the business of business is business - and that remains true. By this, one means, turning a profit - and, this requires disciplined prioritization on where profits could be found. Despite all the talk about the fortune at the bottom of the pyramid, the logic of business dictates that it should prioritize on markets where the margins may be higher. Regardless of the talk, this is how businesses operate, focusing on places and markets with greatest rewards, and this is how it is going to be, always. This is why we may find capital to invest in Kenyan Gaming Companies but would never find money or time to develop treatments for Ebola, at least till it is very late for many people. 

Second, if one can not rely on the businesses to tackle problems where returns are uncertain or unsure, the same applies to problems where the benefits are long term. The businesses operate with a defined time horizon, which varies with investor perspectives and return expectations. In fact, most public businesses are quite short term, as the retail investors want them to be. This means they can not really do fundamental research, which will be both long term and uncertain, and also that they can not efficiently run long-term businesses such as education. Most For-Profit businesses in education, for example, focus on areas that may have immediate pay-off, IT, Law, Business etc., and ignore areas which may have longer term value, both for the graduate and the society, such as English Literature or Humanities. 

Third, and finally, what works for businesses when they are doing business - accountability towards their shareholders - works against them when they are trying to solve social problems. The businesses have no accountability to society at large, and modern businesses, most dematerialised, have no roots in the community at all. The most efficient structure of the business today demand no offices, no regulatory jurisdiction, no taxes and indeed, if it was possible, no people - and all these developments indeed eroded the accountability (or the sense of it) towards society. Many businesses today are a combination of an algorithm with clever lawyers, contracted staff and a set of symbols, managed to minimise human interactions. If the force of accountability is needed to make a business do well, there is none when it comes to solving social problems.

At this point, I must also return to the article in question to refute its one example of how businesses can spend their money to do good in the society. It is claimed that instead of giving money to charity, the Ford Foundation should perhaps spend money making it easy for entrepreneurs to start businesses. Can they? Most of the time, the established businesses spend their money putting up these barriers in the first place. In an unequal society such as ours, the people at the top of the food chain may invest in some start-ups, but they would effectively do more to stop the entrepreneurial challenges to their domain. It is big businesses that keep sectors or industries, think Pharma or Media, locked down, effectively combatting even the most common-sense changes so that their dominions are not affected. This is what the businesses are good at, and no complaints, this is perhaps how they should be. But claiming that this is good for the world is a travesty.

Finally, what will save us then? I find Reinhold Niebuhr (1892 - 1971) most appropriate here. "Nothing that is worth doing can be achieved in our lifetime; therefore we must be save by hope. Nothing which is true or beautiful or good makes complete sense in any immediate context of history; therefore we must be saved by faith. Nothing we do, however virtuous, can be accomplished alone; therefore we are saved by love. No virtuous act is quite as virtuous from the standpoint of our friend or foe as it is from our standpoint. Therefore, we must be saved by the final form of love, which is forgiveness." (as quoted by David Brooks (2015), The Road to Character)




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