By Kathleen A. Getz
Business schools are experiencing an image crisis. With 40% of Americans saying they no longer trust capitalism1, business has been made out to be the villain. A misunderstanding of the tenets of capitalism leads to the belief that workers, community, and the environment must be exploited in order to make a profit. This negative perception of capitalism colors how we talk about business schools within the realm of the university and business within the community. The language of marketing a business school is often couched in apology. It seems as though we are trying to reconcile the goals of higher education with the goals of business, when in fact, they are not opposed.
The fundamental purpose of business is to produce and distribute goods and services that benefit society. Yet, it is well understood that altruism is not the driver of production and distribution. As Adam Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest2." To achieve profits, businesses focus on the efficiency and effectiveness of their operations. Capitalism is not perfect, but it has proven to work better than any other economic system in terms of producing private goods to advance material welfare and public goods to ensure human dignity.
The best business leaders use resources effectively to maintain market share, revenue, margins, and productivity. This benefits shareholders and other stakeholders. It provides the best products at the best prices for customers, thereby contributing to higher standards of living. The competition among employers for the best workers enables employees to achieve a level of material well-being and offers scope for the intelligence and freedom of workers. As a consequence of acting efficiently and earning profits, businesses and their owners pay taxes that pay for the public goods provided by government. More generally, optimally functioning businesses contribute to community well-being. Business activities can even promote peace through the sustainable creation of wealth, as demonstrated by the burgeoning literature on peace through commerce.
On the other hand, a business model that values shareholder profits to the exclusion of all other considerations can harm both businesses and their stakeholders. Ineffective stewardship of capital, human, and environmental resources that focuses only on the short term reduces profits for business; it also leads to inferior products at high prices, which reasonable customers do not want to purchase. If a business's outputs are not purchased, employees lose their jobs, and overall community well-being is adversely affected.
Critiques of business often fail to distinguish self-interest from greed. Conflating these concepts leads to the conclusion that business is bad. (I contend that few rational people found Gordon Gecko's "Greed is Good" speech to be compelling.) Self-interest is a concern for one's own well-being. In contrast, greed is an excessive desire to acquire or possess (usually material) things. If there is a slippery slope between the two, perhaps it is leveled a bit through consideration of enlightened self-interest, which emphasizes the communion of self and other interest. Simply because capitalism can reward greed does not mean it is dependent upon it. In fact, the free enterprise system is the best assurance against the concentration of wealth and power that greed seeks, for it allows new market entrants to compete freely with those who would seek monopolistic control.
People of goodwill can disagree on desirable ends and appropriate means by which to pursue them. Business schools should welcome and facilitate debates about the moral and practical merits of the free enterprise system. At Loyola University Chicago, in the spirit of this necessary and frank conversation, we are launching a discussion series on this topic. We will bring together academics and practitioners, critics and defenders alike, in the cause of advancing a thoughtful and well-rounded discussion. I hope that some of you will consider participating in this series as well as originating similar conversations at your home institutions.
Loyola has long focused on business ethics; we are now poised to marry our Jesuit mission of being "people for others" with the business ethos of acting from self-interest. We have made social enterprise a strategic priority. In social enterprise, leaders find business opportunities through identifying ways to serve the real needs of the poor and vulnerable. Innovative social enterprises can spark individual creativity, help lift people from extreme poverty, and contribute to broader economic and societal justice. Justice also is served by businesses that voluntarily undertake social responsibility initiatives. Still, we cannot act as effective educators if we camouflage the fundamental value of business behind the cloak of "giving back." As noble and valuable as social enterprise and social responsibility are, business in and of itself can be equally good for society.
As those in the position of educating future business leaders, we must confront the complexities of our capitalist system without apologizing for it.
AACSB Peace through Commerce Report
1(2011, December 28). The Pew Research Center for the People and the Press. A Political Rhetoric Test: Little Change in Public's Response to 'Capitalism,' 'Socialism'.
2(1776). Smith, A. The Wealth of Nations.
Kathleen A. Getz