SOCIAL RESPONSIBILITY OF BUSINESS

            Now, an important question is whether successful business firms always behave in a socially responsible way, that is, promotes social well – being, without harming it in any way, the answer is ‘no’. Some argues that businesses exist by public consent to serve the needs of society. Therefore, they survive only because they promote social welfare. However this is not correct. Various problems are faced by society because of socially undesirable ways business firms perform their activities. Further, they impose certain social costs on the society for which they do not pay. However, society has taken steps to regulate and control them so as to induce or force them to serve social interest and minimize the harms done by them. We mention below the socially undesirable problems which the working of profit – driven business firm has created and how society has tried to regulate their activities to ensure that they work in public interest.

            First problem that has been often faced is the emergence of monopolies in free market economies for the production of some important products or services. For example, economies of large – scale production and distribution are such that only one electricity producing and distributing company, only one company providing telephone service can efficiently serve a city. Such monopolistic firms are likely to exploit the consumers by charging higher prices and making excessive profits. It is in such cases that government on behalf of the society has intervened to directly regulate them. The Government has fixed fair prices for such commodities or services which are based on cost plus fair return on investment made by business firms.

            The second problem posed by free private business is the emergence of oligopoly (that is, a few producers of a product competing with each other). In certain industries economics of scale are so large or barriers to entry into the industry are so string that only a few firms serve a given market. If there exists competition among these few firms no problem arises. But they formally or tacitly collude with each other and form a cartel, they pose a threat to social interest. Such collusion among the few firms eliminates or substantially reduces competition. Such collusion among the firms or formation of a cartel leads to higher monopoly price being charged and restriction of output. Such collusion or formation of a cartel has been sought to be controlled by the society through enacting laws such as antitrust law in the US and Monopolistic and Restrictive Trade Practices Act in India. These acts are designed to prevent collusion and creation of monopolies through merger. By promoting competition these laws work for social betterment of the people and ensure social responsibility of business.

            A further socially undesirable activity of free private business has been the exploitation of workers due to unequal bargaining power of the employers and workers. In India in private business enterprises, especially owned and managed by small-scale business, workers, workers are paid very low wages because they are not well – organized and also because huge unemployment prevails in the Indian economy. Employers even do not make arrangements for their housing which have resulted in slums in the cities. Further, child labour and women are employed in private enterprises ate very low wages while a lot of work is obtained from them. This has necessitated the regulation of business by Government which have fixed minimum wages that must be paid to workers. The employment of child labour has been banned. Law regarding ‘equal pay for equal work’ are being enforced under which women are to be paid equal wages as men.

            But a very serious problem that arise in business activity is that it imposes a heavy social costs on the economy. It is now common knowledge that productive activities of business firms have created an acute problem of environmental pollution. The pollution creates lung ailments, asthma and other health hazards for the people. These are called social costs by the economists because while they impose these costs on the society they do not pay for them.

            Now, a considerable attention is being paid by the society to internalize these social costs, that is, private businesses are forced to pay for these social costs. Safety standards are being laid down for emission limits on manufacturing processes and products that pollute. Provision for heavy fines have been made who do not provide adequate safeguards. Firms that do not meet these safety standards are even closed down.

            It may be noted that all the above measures, namely regulation of monopolies, antitrust laws, labour laws and anti – pollution policies are examples of actions that society has taken to modify the profit maximizing behaviors of business firms os that they perform their task of producing and distributing goods and services in a socially responsible way. These social constraints have an important bearing on the business activities of firms and hence on managerial decision making.

Arguments for Assumption of Social Responsibilities

            Normally, these arguments are put forward in favour of social responsibilities of business units.

1.      Society expects the business community to assume social responsibilities of business units.

2.      It is in the long term self – interest of business concerns, to assume social responsibilities.

3.      When business starts assuming social responsibilities, it may reduce the pressure for and incidence of state regulations

Besides these arguments, it is also argued that businessmen are citizens as well as business promoters. So they are expected to use their corporate powers in such a way to develop a better world.

Prof. Paul Samuelson, a Nobel Prize winner in economics supports the assumption of social responsibilities by business units on the ground that prevention is better than cure. For example, it is often less costly and less unpleasant to avoid pollution than to clean in up.

Arguments against Assumption of Social Responsibilities

            There are people who strongly, argue that businessmen have no social responsibilities except their classical function. Milton Friedman is of the opinion that the one and only social responsibility of businessmen is to use their resources and engage in activities which are designed to increase their profits, so long as their business stays within the rule of the game.

            Further, according to Milton Friedman, those who urge business to assume social responsibilities are “preaching pure and unadulterated socialism”.

Pragmatic View of Social Responsibilities

            No doubt, there are powerful arguments in favor of profit maximization and complete exclusion of any social responsibilities of business. But even in a capitalist economy, profit maximization is “not generally as the sole aim of business”. As business unit receives its profit from the society it has some responsibilities to spend part of its income to benefit the society.

            Today we will be in more trouble with the authorities like the stock exchange and state regulations, etc., if we tried to run a business along old – fashioned grand fathers dairies for immediate profits rather that taking account of the public interest.

            In a planned economy like India, the objectives of business has to be proper utilization of resources for the benefit of the society.

            Profit is still a necessary part of the business goal but it is not a purpose of running a business.

            The implies that utilization of the corporate resources should be manages not from the angel, “What is best for the shareholder”, but from the point of view of “What is best for the community at large”.

            Responding to the demands of the public, many companies have agreed to pursuer major social programms on a voluntary basis.

Related Topics

OBJECTIVES OF PROFIT MAXIMIZATION
MEANING AND SCOPE OF BUSINESS ECONOMICS
DEMAND ANALYSIS
ELASTICITY OF DEMAND
DEMAND FORECASTING
BUSINESS CYCLES – TYPES AND PHASES 
MARKET STRUCTURE
PERFECT COMPETITION
MONOPOLY
MONOPOLISTIC COMPETITION
PRICE DISCRIMINATION
OLIGOPOLY AND DUOPOLY
ECONOMIC LIBERALIZATION
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