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Climate change
OpinionComment
Dani Rodrik
Dani Rodrik

Opinion | How making business more democratic can improve global governance

  • Despite a swell of private-sector support for corporate social responsibility, the effectiveness of relying on companies’ enlightened self-interest is unclear
  • Firms can become a reliable partner for the social good only when they speak with the voices of those whose lives they shape

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A child stands next to placards before a climate strike rally in Central on September 20, 2019. Despite several firms making high-profile pledges to improve their sustainability and business practices, the effectiveness of relying on companies’ enlightened self-interest remains unclear. Photo: AFP
Dani Rodrik
Fifty years ago, Milton Friedman published an article in The New York Times that articulated what has come to be known as the Friedman doctrine: “The social responsibility of business is to increase its profits.” It was a theme he had developed in his 1962 book Capitalism and Freedom, where he argued the “one and only” responsibility business owes to society is the pursuit of profits within the legal rules of the game.
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The Friedman doctrine put its stamp on our era. It legitimised the freewheeling capitalism that produced economic insecurity, fuelled rising inequality, deepened regional divides and intensified climate change and other environmental problems. Ultimately, it also led to a social and political backlash. Many large businesses have responded by engaging in – or paying lip service to – the notion of corporate social responsibility.

That notion is reflected in another anniversary this year. The United Nations’ Global Compact, launched 20 years ago, takes direct aim at the Friedman doctrine by trying to persuade businesses to become agents for the broader social good. More than 11,000 companies operating in 156 countries have signed on, making commitments in the areas of human rights, labour and environmental standards and fighting corruption.

John Ruggie, the scholar who played a key role developing and managing the Global Compact, describes it and similar initiatives as transnational efforts that help firms develop social identities. By promoting behavioural norms, such initiatives enable firms to self-regulate.

As such, Ruggie argues, they fill the vacuum created by the decline of traditional forms of regulation by national governments and international public organisations, making them an important tool for the rebalancing of market and society that we need. Leading business professors, such as Rebecca Henderson of Harvard and Zeynep Ton of MIT, have made the case that it is in corporate leaders’ long-term interest to take care of the environment and their workers.

A year ago, the US Business Roundtable joined the bandwagon with a revised statement of corporate purpose. It committed to deliver value not just to shareholders but to “all stakeholders”, including employees, customers, suppliers and communities. The statement was signed by CEOs of nearly 200 major companies with a combined market capitalisation exceeding US$13 trillion.
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