Role of Business
Let us assume that the objectives of business enterprize are primarily economic in the sense that they are concerned with the allocation of resources, In any industrial society the firm is the primary allocative agent, whether it operates through the price system or under central bureaucratic direction. Dissatisfaction has arisen because the practical working of this system inevitably involves certain consequences for social relationships as between, on the one hand, the ownership of a firm and its management and on the other hand, between the firm itself and its employees, suppliers, customers and the community as a whole.
The ancient controversy over the ‘just price’ illustrates this dichotomy between economic decisions and their wider social impact. The phrase itself crystallizes the inconsistency since the word ‘just’ has obvious ethical connotations while ‘price’ clearly relates to the bidding for resources. This traditional conflict of economic ends and social means is now acquiring a new dimension as public concern with the environment reaches explosive proportions.
In advanced industrial societies the growth in real incomes over the past two decades has enabled almost all basic physical and subsistence needs to be met. But by the same token these rising stand- ards of comfort and education have also enabled a growing number of people to observe and contemplate the social costs of their own material enrichment, or what an economist would call the ‘external diseconomies’ involvedl. Similarly the function of the business firm itself is now to create wants as well as to satisfy them*.
But these wants are themselves becoming more and more intangible, as their satisfaction is to an increasing extent psychologically induced. One consequence of this change in economic and social priorities is that people are now coming to express their rising expectations in non-material terms. The prospect of a ‘leisured society’ appears to con&t with the tangible costs, in both real and . human terms, of the present day acquisitive society. To take an obvious example, the spread of motor car ownership is a direct result of rising real incomes.
But now the point appears to have been reached when the benefits of additional car ownership are outweighed by its cost-measured in terms of atmospheric pollution, urban traffic congestion, loss of life and the effect of noise on the human nervous system. The producers of cars, however, continue to evaluate their performance in purely commercial terms i. e. in terms of profit and corporate growth or in H. Igor AnsofT’s words: “ The return to the firm, or profit, is optimised in some sense in relation to the resources employed to produce it.
This implies that in so far as the objectives of the firm are still primarily economic, then the unrestrained pursuit of growth must inevitably be called into question, which means that the fundamental purpose of business itself is under attack. It follows from this therefore, that the traditional criteria for evaluating business performance are increasingly open to doubt, just as the organization of business is itself becoming more complex. One cannot blame the tim for its emphasis on both total growth and growth in profits. The former has been a major objective of every government in the world for a long time.
Presumably also it was accepted as a proper aim by the electorate. Progress, however defined, was seen as depending on economic growth. Change was accepted, perhaps reluctantly, as the consequence of the striving for greater material wealth. The firms of the past and present responded magnificently to this primary aim. In advanced societies millions of people were able to choose a way of life unlimited by the constraints of bare Whether the choice was subsistence. always exercized wisely is another matter, but it is not a consequence for which firms can be blamed. Society accepted then things about which it now has regrets pollution, noise, the danger and the unpleasantness of many occupations.
Growth in profits as a measure of success fitted admirably with the generai objectives of economic growth. Increasing profits attracted resources to the growing and away from static or declining industries. Profitability was linked to the success the firm had in winning customers for new or improved products. Thus a correct assessment of consumer choice by the firm led to greater profits and growth for itself, the economy and general welfare. Yet the very success of this system as a method of allocating resources has made it possible to question some of its assumptions.
So that one can now afford the luxury of asking whether growth is always worth the consequences. The trend is bound to increase. Once basic necessities cease to dominate, concern shifts to semi or non material objectives-to the environment, the background for a satisfactory life or simply greater leisure. Organizational Development-the Multi-national Corporation One of the most remarkable developments in business organization over the past few decades has been the growth of the large corporation ; a process observed first in the U. S. A. and now to an increasing extent in Great Britain and Europe.
Small and medium-size firms still exist in large numbers but it is the absolute size and behaviour of the biggest that has become a major problem both for the managers concerned and for the rest of the community. This growth in the size of the major corporations has been accompanied by a corresponding development in their geographical and commercial areas of activity’. The business policy-maker must now focus his attention on. the multinational corporation which operates in a wide range of diverse product markets. The multi-national corporation is no longer subject to the same constraints as its purely national or parochial predecessor.
These constraints operated largely through the medium of the national government (e. g. taxation. anti-monopoly legislation) and the local social environment (deriving from the historical position of the large firm as the major wealth-creating and socially-unifying agency in a particular locality). Technological Change Current trends in technology, far from alleviating these policy problems are on the contrary tending to aggravate them. As we have suggested above the social costs of technological change that are extern. zi to the firm are rarely immediately apparent either to the firm’s own policy makers or to anyone else.