The Role of Business in the Modern World - Progress, Pressures, and Prospects for the Market Economy

EMBARGOED MONDAY 2 AUGUST 2004 00:01

In a new study published by the IEA, David Henderson, Visiting Professor at the Westminster Business School and former Head of the Economics and Statistics Department of the OECD, examines the role of business enterprises in the modern world, the power of today’s collectivist ideas and influences, and the prospects for capitalism and the market economy.

David Henderson’s new study has several interconnected themes:

· The primary role of business enterprises, past and present, which is to act as vehicles of progress within a market economy.

· Recent globalisation, which has confirmed, not undermined, this primary role.

· The rise of global salvationism – that is, of alarmist beliefs leading to radical prescriptions for change – which largely accounts for the pressures on businesses today to redefine their role and mission by embracing ‘Corporate Social Responsibility’ (CSR).

· The positive function of profits, and of profit-oriented actions and motives, in a competitive market economy, and the reasons why this function often goes unrecognised or underrated.

· The case against the general adoption or imposition of CSR, which would make the world both poorer and less free.

· The ways in which public policies today can strengthen the business contribution to the general welfare, through extending the scope of competitive markets.

· The power of today’s new millennium collectivism, and the failure of both the business world and ministries of economics and finance to understand and to counter it.

· The situation and prospects of capitalism and the market economy today: reasons for optimism and grounds for concern.

Henderson argues that the primary role of private businesses, now as in the past, is to contribute to economic progress. This contribution is made possible by the twin stimuli which a market economy provides: wide-ranging entrepreneurial opportunities and pervasive competitive pressures. It does not depend on a commitment by enterprises to further economic progress, or to serve the general welfare.

Recent globalisation has not created a new situation, and a new role, for businesses. In particular, it has not conferred on them disproportionate benefits, nor has it transferred power from governments to corporations.

Today, as in the past, the case for private business does not rest on a commitment by business enterprises to fashionable but questionable wider social goals, and their willing compliance with social pressures to act accordingly. Rather it rests on the links between private ownership, competition and economic freedom within a market-directed economy.

It is not through redefining enterprise objectives and ways of operating, along the lines now suggested by CSR adherents in the name of ‘sustainable development’, that the business contribution to the general welfare can be improved. Instead governments should enlarge the sphere of economic freedom so as to strengthen the primary role of business. In doing so, governments would not only allow the creation of greater material prosperity for people in general, rich and poor alike, b