Mike Moore: Prosperity relies on social responsibility

Mike Moore

The first responsibility of a business is to make a profit. Some say it's the only responsibility. The Nobel Prize-winning economist Milton Friedman, who has been very vocal about shareholder rights, said in the Financial Times about the current fashion to promote corporate responsibility: "The stakeholder notion is a very dangerous notion. It is a socialist notion. It says that employees are major stakeholders. It is really a movement towards employee-run enterprises."

Yes. Without profit there are neither jobs nor revenue to tax. However, business must live in a wider world where social and environmental issues impact upon how it does business - business cannot prosper in societies that fail.

Corporate responsibility, shareholder and stakeholder rights are a growth industry, given the criminal excesses of Enron, WorldCom and others. I disagree with Friedman because labour is not just another product and the wider environment cannot be ignored. Standards, transparency and commercial honesty can raise all ships. This is the responsibility of business and government.

Robert Reich, in his book I'll be Short, said: "Each year of education or job training after high school, whenever it occurs in the course of a career, increases average incomes by 6 to 12 per cent."

Companies that introduced formal employee-training programmes experienced a 19 per cent rise in productivity compared with firms that did not train their workers.

The question then, is should Governments direct business to do what's good for it or should it be left to the market to let business get rewards for good practices?

With a mobile workforce it becomes more difficult for companies to capture the return they need on investment in training. The state has a role to provide training, education and skill upgrading in partnership with business, especially in times of economic restructuring. Without a state-business partnership the social or even political costs are too high. Friedman would disagree.

Business skills can play a role in making things happen in poor countries and the state of poor nations should be of direct concern to richer ones. Failed states can function as breeding grounds for disease when 2 million people cross national borders every day. As we saw from the Sars scare, health problems can travel quickly.

Gro Brundtland, when director-general of the World Health Organisation, commissioned a team of economists to find the cost of health failures in dollar terms. By scaling up investment in health we could save around $8 trillion by 2015, she claims.

Those states that are close to anarchy are dangerous to their own people and to the rest of the world. If they had honest politicians, competent bureaucrats, true property rights and open economic policies, they would not be in the trouble they now suffer.

I went to Africa seven times in 30 months, sat in hotels and heard gunfire, looked out the window and watched gangs of angry young males walking down the main road with weapons, menacing and dangerous.

In these troubled states, the future of delivering social services may best be done by private-public partnerships. What's the point of giving free medicine, millions of dollars, if it's ripped off by politicians, bureaucrats, or phoney capitalists?

A number of private-public partnerships are working in Africa. Microsoft provides free software for all of South Africa's 32,000 schools. And an inspiring programme has been launched by Peter Watson, past-president of OPIC (Overseas Private Investment Commission) and an ex-pat Kiwi. It's a project to provide treatment for HIV-positive homeowners in South Africa, enabling them to keep their homes by guaranteeing banks against the risk of defaulted mortgage payments. You must be HIV-positive to get the coverage, but you must take treatment. The drugs are made available from US foundations. Bypassing Governments and ministries and getting to the real need is where the business community can deliver.

Perhaps we are becoming globally what Victorian England became. It was no use being rich and having a mansion if the cook or cleaner brought influenza or disease into your home. So municipal socialism was invented; clean water, public sewerage and education systems were necessary to preserve the rich. An interconnected world now demands global action.

General Electric invests heavily in sustainable energy projects and efficiency is just another word for conservation. GE expects its clean technology projects will earn it $30 billion by 2010. BP now proudly says "BP stands for Beyond Petroleum" to position itself in the green market.

Virtuous business practices are not only actions of profitable self-interest, they may be the best short-term way of helping the victims, preserving the environment and producing the better world we old social democrats still dream of. Not the way I thought we'd do it in my youth.

* Mike Moore is a former Prime Minister of NZ and director-general of the World Trade Organisation.