Reflection on “Why Business Can Be Good at Solving Social Problems”

If you have seen my previous post, I provided a video of a TED Talk given this past summer by Michael Porter.  In this post I want to provide a deeper set of thoughts, summary, and responses that I have as I reflect on the implications of Porter’s claims, hopes, and ideas.

globePorter begins by acknowledging the seemingly continual reality of there being “problem after problem.”  The difference now perhaps more than at any other age in history, is that we are all very aware of these problems. (Those that claim that they aren’t problems, I would argue are just in denial at this point.)  Porter accepts the problems, but raises the question I have often wondered, “why are we so struggling with all of these problems?” Simply put, why do we have all of these social problems?

Business (or as a sector, the for-profit sector) is now largely seen as the problem.  Because of the work of many- sweat shops, pollution, unhealthy food, unfair and unsafe labor practices, fraud towards employees, etc., there are many reasons why business has rightfully earned a bad name.  In response to this, and in the face of the reality of the rising social problems, the past 10-15 years has seen the ballooning of the social sector.  There has been a tremendous rise of NGOs and social organizations.  Solutions to the societal problems have been largely believed to be coming from some combination of the work of NGOs, governments, and philanthropy.  These areas, and the rise of the social sector in general has resulted from and in an enormous amount of energy, innovation, and talent which Porter readily acknowledges.

The issue isn’t a lack of awareness of the problems.  As Porter says, we have been aware of many of these problems now for decades.  The reality is though, that despite our best efforts and what we have done so far, “we’re not winning.”  “We are not making fast enough progress, we are just making incremental progress.”  This is so true.  Why else, for example, can we still be fighting malaria, when the last documented case in the United States was in the 1950s? We know how to defeat the disease, so why isn’t the disease defeated globally, like on the continent of Africa?

Porter moves into economics for some of his unpacking of the reasons for the continued problems.  The largest problem has everything to do with scale as he sees it.  He argues, “We can’t make a large scale impact on these problems because in the current models, we don’t have enough resources.”  This scarcity of resources is only growing in light of down economies, fiscal challenges, and fiscal uncertainty (for example- if the US defaulted on its loans, resources would become all the more scarce within all sectors).

Perhaps where Porter might enter the most confrontational area is when it comes to his view on the resource location and allocation.  He argues (and I believe accurately) that resources in society are in business by and large.  From the economics of it, “business creates wealth when it meets needs at a profit.” Its really an Econ 101 idea when you get down to it.  Because when businesses create wealth by meeting societal needs, tax revenue is generated, income is generated, and there is more money and resources which can be charitably donated.  As Porter goes onto claim, profit is where there is the magic to allow a solution to these societal problems that is scaleable.  [For reference he provides a pie chart which shows in terms of resources, there are $20.1 Trillion available among corporations; whereas there are only $1.2 Trillion available to NGOs/non-profits; and $3.1 Trillion from governments.]

Now because Porter recognizes what the conventional economic defense for business to not be involved in this is that there is a “trade-off” he hits this claim back, and he hits it hard.  He argues that there is in fact NO trade-off between social and economic progress.  He goes so far as to say that “business does not profit from causing social problems.”  Rather, as he sees it, “business PROFITS from solving social problems.” (For example, with a safer work environment or healthy employees a company has higher profitability and economic efficiency.)

As a proponent of cross-sector collaboration, and a current team member of a for-profit start-up around helping solve a societal issue (unemployment and underemployment) this gives me reassurance.  It also in a way vindicates me that at least in theory I am:  1) not crazy; and 2) among many other people in the field who think this is not only possible but perhaps the best and only possible meaningful long-term approach to affect positive social change in ways that are large and scaleable. The group which I am a part of is also one such example of what Porter is talking about when he says that there are corporations who are doing this very thing which he is advocating, in facing societal problems.

When you get down to the main argument, I believe Porter is claiming that “corporations profit from doing good.”  This is a fundamental opportunity for businesses to impact and address these problems, but also more broadly the greatest economic and business opportunity perhaps have the current century.  If you want an equation, a business that gets this and wants to grow in response to this opportunity, it will be creating shared value.  Where, as Porter equates:

Shared Value = Societal Value + Economic Value.

Obviously, all of this is easier said then done. Making such a shift in understanding will take time.  But as we can overcome an idea that social problems aren’t just “externalities” as has been traditionally assumed in economic thought, and move them to be identified more as “opportunities,” we can change how businesses see themselves but also how others see business.  When there is shared value in business, there is a potential for true collaboration between businesses, government opportunities, and social innovators who have been doing great things in NGOs with far less resources than are available through businesses.

What Porter offers, he believes and hopes is a path to success.  I share his hope and optimism.  I admit, it’s not an easy shift for society and culture to make. But, in looking at the rise of social responsibility, and social entrepreneurship across the board, the shift is already happening.  What do you think? Do you agree with Porter?  Do you disagree?  If Porter is on to something, what societal problem would you like to see addressed by corporations and how might a corporation address that problem(s)?

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