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Theories of the Role of Business
Before describing the various theories one pertinent question is why so much focus on the role of business now?
The shareholding pattern of corporations has been in existence for at least 3 centuries. However, the "social" focus of organizations is a relatively recent phenomenon of study. The reasons for the same are equally important to the analysis. We believe that two reasons stand out immediately.
The first one is the size of the global organizations. 51 out of the 100 largest economies were not nation states, but corporations. In 1999, The United Nations reported that the world's then three richest people - Bill Gates of Microsoft, the Sultan of Brunei and the Walton family of the Wal-Mart retail chain - were worth more than the combined gross domestic product of the world's 34 poorest nations. Thus, the modern day large corporations are often larger than nation states. Rich individuals own and command resources that are so large, often larger as compared to smaller / poorer nations. With great power (and size), comes great responsibility.
The second is the gradual shrinking / withdrawal of state from hitherto "social" areas of development. This started initially with the fall of global communism as an ideology. The second phase was marked by opening up of the economies of many developing and poor countries and the shrinking of revenues of the state. Hence, the big organizations, which were seen as owner of huge resources, were expected to step into the vacant space.
The dominant views regarding the role of business are those of -
Milton Friedman - Published in 1970, his dominant work on the subject "The Social Responsibility of Business is to Increase its Profits", argues that in a free society, "there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
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* Contributed by: -
Saurabh Goswami & Malini Pande,
II Year Students,
IIM Kozhikode.
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