World is Green

Most successful corporations around the world do have objectives other than just being financially profitable. But profits have to be there for the continued existence of the corporation.

HP, for instance, says on its website that profit is its second objective, after customer loyalty: “To achieve sufficient profit to finance our company growth, create value for our shareholders and provide the resources we need to achieve our other corporate objectives.” Further down the list, its objective of being a “good citizen” is predicated on making profits.

But, even the mere pursuit of profit can indirectly lead to great social benefits. The Silicon Valley in California is responsible for generating trillions of dollars of wealth and commensurate amount of social welfare around the world. All this wealth, and its benefits, can be plausibly traced to the establishment of Stanford University by Leland Stanford from the profits of his companies. The biggest names in high technology today — HP, Sun, Yahoo, and Google — in some sense owe their existence to Stanford.

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The social responsibility of corporations is to make a profit while following the rules. They have a comparative advantage in doing that, just as the government has a comparative advantage in making rules and solving social problems. Insisting that companies solve social problems is like expecting the dentist to fix a broken computer. Yes, he can possibly fix the computer if I lean on him hard enough and he spends a lot of time learning hardware maintenance, but that will be at the cost of a lot of untreated toothaches.

It is easy to see why it takes all sorts to make a world. We differ, and therefore have comparative advantage in different areas, which makes division of labour possible and which, in turn, makes us all more effective and efficient. We neglect these simple truths at our own peril.