By Samantha Penabad, CRB Student Advisory Board & MBA ’18 Candidate
Having studied and worked at the intersection of business and society for the past ten years, I’ve been quoted Milton Friedman’s New York Times Magazine article “The Social Responsibility of Business is to Increase its Profits” more times than I can count. It argues the role of business is to “…use it 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.” The article more or less narrows the concept of corporate social responsibility to corporate philanthropy and rules out the possibility of shared value – that by acting as a good corporate steward, a company can actually stand to make greater profits, particularly in the long term. The article also assumes that governments function in a way that effectively limit a corporation’s ability to violate human rights and destroy the environment evenly. In today’s global economy, this is an especially dubious assumption, not only because of the varying capacities of governments to do this, but also because companies headquartered in one country, with one set of values and ethics, operate in multitudes of other countries where consistent standards are not observed.
Given Freidman’s assumptions (however simplistic) the case he lays out is a valid one. I agree that it is not in the best interest of communities for companies to self-identify and self-police their ethics and the best way to ensure businesses are responsible, is by mandating it through law. Moreover, when businesses engage in funding one social good over the other through philanthropy, they unfairly claim the privilege of prioritizing certain social and environmental goals over others. For example, why should one infectious disease receive multitudes more funding for research than another, simply because a large global corporate foundation has selected the disease as a priority? Or – at a smaller scale – why should one school district receive more funding than the next, simply because a local company chooses to sponsor it? Is it not the job of a government – which represents the best interests of the people – to prioritize goals, and/or ensure equity across populations?
This is the conclusion I’ve come to time and time again after reading Friedman – that in an ideal world, it is neither the responsibility, not the privilege, of the private sector to choose which social responsibilities it will invest in and operate within. But in truth, we live far from this ideal world, and it is near impossible to believe that corporates can, or should, function without a moral compass guiding them above and beyond what is required.
Last month, I saw the many facets of this argument come to life when I visited Cuba with classmates. We met with academics, entrepreneurs, civil society leaders, those employed by the budding private sector and those still working in formal government jobs – which in Cuba could mean everything from a butcher to a doctor. We saw in living color what it meant to birth a private sector and – even more slowly – a social sector in an economy where the public sector has dominated every facet of life for over half a century. I’ve reflected on my experience which – albeit short at only ten days, and recorded through an expressly American lens – have me seeing Cuba as a still budding case study, and a fascinating narrative of how the role of business is created a new in society:
How will business develop workers’ rights? | In Cuba, the general consensus is that workers in the public sector experience strong protections – limiting hours worked and providing progressive maternity and paternity policies. But the employees of the budding private sector has none of these protections. Already, there exists a suspicion that Cuba is being overly influenced by the American tradition of overworking and that the private sector will destroy the quality of life many Cubans have come to expect – defined not as a standard of income, but as the space and time to step away from work and enjoy life, family, and friends. The question then becomes: Will businesses self-police workers’ rights due to moral obligation, established “norms,” and a desire to maintain Cuban culture? Or will they maximize profits without regard for their social responsibility?
How will business contribute to society? | There exists no formal social sector in Cuba – in a world where the government has provided all social services, and indeed inscribed in society the belief that there is nothing the government can’t provide, the very concept of a private entity providing social support is novel. As such, there are no tax credits for businesses that donate to communities, and certainly no expectation that business would try to take the role of government in supporting communities. But as the role of government shrinks, and the private sector grows, it remains to be seen how business will act as a steward in its local communities. Today, local businesses make donations-in-kind when opportunities arise – a soccer tournament for kids in the local “zona” – not because of an expectation, or a tax-reduction benefit, but because they are embedded within these communities and feel a human obligation to support each other. As the private sector expands, and business owners are rewarded for profits, it remains to be seen whether this culture of responsibility remains – especially without government intervention. Will businesses continue to engage in philanthropy? Will they further their role to engage in shaping society, and prioritizing what it sees as Cuba’s most important social issues as in the States? And as small businesses become large businesses become corporations, how will this trend evolve?
How will society grow to see business? | Perceptions of the private sector are still mixed in Cuba. It was common to hear young people say that “for years the government was telling us business was evil, and now, all of a sudden, we’re supposed to start businesses and apply for permits. Now, all of a sudden, business is ‘ok’.” Certainly, the private sector is seen as desirable from an income standpoint – those that work in the private sector can make over ten times as much as a public-sector employee. Operating an AirBnB or being a tour guide is exponentially more profitable than being a brain surgeon, simply because of the salary differences between the two sectors (doctors are government employees). But outside the allure of higher earning potential, the verdict is still out on the private sector – will Cuban society grow to see business as an integral component of the social fabric, or as self-interested and separate from community life?
Cuba faces an immensely important time in its history – not only because it is reintroducing the private sector, and therefore the concept of working for profits – but also because it has the opportunity to choose what type of private sector it will create. The role of business is evolutionary, and Cuba should choose to be intentional about shaping whether and how the companies respect and promote social responsibility.