Economics of Mutuality: Part III

No Reward for Business Risk

As a start, a business must be profitable to take care of all its stakeholders. As soon as an entrepreneur cannot make payroll, pay suppliers, meet a loan payment to the bank or settle its taxes, all those stakeholders – supposedly bound by warm fuzzy feelings of mutuality – desert him without hesitation or apology. Yet, the mutuality rhetoric suggests that once the entrepreneur has (finally) emerged bruised and bitter after decades, a million grasping hands are waiting to redistribute the gains and share in the benefits. This underlines that the risk of business is not shared by society, but the return should be. This makes a fiction of the concept of mutuality, leaving the entrepreneur to bear the bigger burden. So, the model falls apart very quickly when extended beyond huge, elite businesses in the West. To truly qualify as mutuality outside the narrow universe of multinational conglomerates then, a converse philosophical question must be asked: what do other stakeholders really owe the business?

Finally, and this concern applies both in Africa and across the world, the article seems to collapse the roles of different players in society, asking business to do it all. Dennis Nally, Chairman of PWC, in his article, presents a new model which seems to want businesses to think about how their taxes are used and take on responsibility for planning regulations and environmental stewardship, even social services like healthcare and education.

Yet, there are entire sectors of society designed to expertly and exclusively play these other social roles, and it is fitting that they should be separate and (ideally, at least) non-conflicted. A sound and working business regulatory regime will make sure that employee welfare is looked after, that consumer goods are safe and that environmental standards are upheld. It will also make sure business behaves itself: anti-trust law and corporate governance help with this. And finally, most progressing nations have an increasingly effective system of economic redistribution. Government collects taxes, delivers essential services, and ensures economic opportunity for all. Perhaps we should let it do its job.

To be sure, there is nothing wrong with those companies that can afford it banding together to self-regulate and further, to affirmatively do good. This should be encouraged. It is also understandable and laudable that in the wake of the Global Financial Crisis (2007/8) and increasing inequality in incomes across the globe, a new dialogue is taking place on system of capitalism, and especially, its regulation.

Having matured over several decades, few among us would support the case for unbridled commercialism. Instead, a global consensus has developed both on the importance of business and the need to regulate it so it does not run amok. The “mutuality” debate re-ignites the question of what the role of business should be in society and how to maximizing the benefits of business while tempering its disadvantages. It should just be careful to define its terms carefully and not over-reach by claiming its learnings apply globally and all the time.

Leave a Reply