The Purpose of Business
Posted by Joseph Phillips, Jr. on Tuesday, August 9, 2011 at 11:04 AM PDT
Fordham University recently hosted a meeting of academics and business people here in Seattle. As part of the event, they convened a panel of five business school deans to give their perspectives on the Purpose of Business. Here are some exerts of what I said in the discussion:
“The purpose of business is to meet human needs, in two ways. First, provide goods and services to customers and, two, to provide employment and opportunity to those involved in the enterprise.
The first includes basic needs that take the form of goods and services, but also less urgent goods and services that contribute to an improved standard of living. The products produced by business contribute to the common good by meeting basic needs as well as less critical needs.
Regarding the second purpose, employment is important. It provides income to meet basic needs, but not just that. Employment is also a way that people define themselves and find meaning and fulfillment and feel good about themselves. In brief, it provides human dignity.
The business also needs to be sustainable, which influences how it does business. The focus is on long term customer relationships, not a quick turn. The environment cannot be excessively exploited in the process of producing goods and services, since that is not sustainable. To be sustainable, the business also needs to operate profitability, so that it provides incentives for capital, but profitability, particularly when measured in the short term, is not the sole purpose of the business.
Think of examples of successful businesses that you know of – Costco, Boeing, Paccar, Amazon, or Facebook. Is it profitability that gives owners and employees pride and excitement? Or is it meeting customer needs and what they produce and do that turns them on? Looked at another way, Microsoft, Alaska Airlines, and Weyerhaeuser are making money now but do not seem to get any credit for it. Salesforce.com, LinkedIn, and Shutterfly don’t make much money, but are widely admired. It has to be some combination of both profits and mission that gets people excited about what they do….
One reason that business should be about meeting human needs and contributing to the common good is that society creates an environment that allows a business to operate. Without that supportive environment, a business could not be successful. I have in mind such things as property rights, enforcing contracts, educating and training the workforce, overseeing a monetary system and well functioning financial markets, maintaining law and order, and providing infrastructure like highways and ports that support commerce. Businesses get a “license to operate” so to speak in this supportive environment.
I would suggest that much of my thinking on this issue is influenced by Catholic Social Thought, and I am not saying that to please our Catholic university host, Fordham University.
A major tenant of CST is the “dignity of the human person,” and how work contributes to human dignity. Thus, a business that “does not enhance its workers and serve the common good is a moral failure,” no matter how profitable. It was Rerum Novarum (On the Condition of Labor), the first Papal encyclical in CST tradition issued in 1891, that first raised questions about the treatment of employees. Subsequent encyclicals have gone on to elaborate and press that theme. For example, Quadragesimo Anno (1931) posed the “just wage” as one that could support a family and allow for some accumulation of property.
But back to the role of profits, Pope Benedict says the following in the most recent encyclical, Truth and Charity (Caritas in Veritate): “Profit is useful if it serves as a means towards an end that provides a signal both of how to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty.”
In sum, my view is that the purpose of business is to provide goods and services to customers and, two, to provide employment and opportunity to those involved in the enterprise. Business enjoys a supportive environment provided by society and, in turn, it boosts the standard of living of society and contributes to the common good.