The Covenant

As I mentioned in my previous blog, the 60 Minutes report from Sunday was very good. I displayed it in two of my classes yesterday. SE 101 Introduction to Social Entrepreneurship was asked a series of questions after watching the 12 minute clip, as was the students in URB/EC420 Microenterprise Development. Great discussions in both classes, however, I am continuing to ponder this issue of great wealth and social responsibility.

Milton Friedman argued from a classical economic perspective that the only social responsibility required for business is to act according to the law. If the agents of the company, managers, did anything else they would be violating the principle’s rights of ownership. The agent, according to Friedman, has the ethical responsibility to maximize the returns on investment for the principle, or owner.

R. Edward Freeman countered that perspective with an argument that each company has a series of stakeholders who either provide or receive benefits for the organization. As such each of the stakeholders, called so because they have a stake in the company, should get a return in relation to their commitment to the organization. The shareholder does not have primacy in this equation.

Placing these two perspectives in juxtaposition demonstrates the demarcation that has led to a greater participation of corporations in socially responsible activities. However, Stassen in his work “A Thicker Jesus” describes another argument that is similar to Freeman.

Stassen argues, successfully I might add, that the economy suffers when we become extremely individualistic. I am a free marketer who believes in the power of private ownership, but when we gather too much manna, without thinking of others, we hurt not only ourselves, but the community too. It appears the Buffets, Gates, Cases, and others have learned this lesson and are willing to give away at least one half of their fortunes to help the community. To join this club you need to have a net work of at least one billion dollars and are willing to give away at least half of your fortune.

Stassen says this, “Anyone who makes wealth in this society is benefiting from the education that society gives to workers and consumers, from society’s justice supported both by the legal system and police and the character and consent of the governed, from the transportation systems provided in large part by people and government working together, and from the natural resources that are a gift of God – many of which will not grow back once they are consumed.” This is a very interesting point.

Stassen is taking a Stakeholder perspective, and is spelling out who the stakeholders are, and who the company, or the mega-rich, is beholden to. I am agreeing with Stassen’s argument of “Benefiting from all this creates a covenant obligation by the wealthy to the community.”

I am not saying the Wealthy would only be successful with the help of others, because the Entrepreneurs that Buffet has convinced to give away over half of their wealth took the risks to be successful. Reward should always be coupled with risk. However, I am saying that I agree with the concept of covenant. That if the entrepreneur is rewarded for taking risk, it is because the invisible hand has chosen the product of service provided by that entrepreneur, and decided that it had value. This indicates a relationship that is mutually beneficial.

Synonyms of the word covenant are contract, agreement, commitment, and guarantee. I agree with Warren Buffet when he stated during the 60 Minutes report that “incremental wealth has no utility.” To continue to pile money on top of money when you have enough does not have to be dynastic, but the amassment of wealth can be used to do good.

Bill and Melinda Gates though their charitable giving have almost eradicated polio from the world. They learned many lessons about how to give during this process, but they have demonstrated what can be done when you take collected resources and apply them to a specific social problem. The editor for Forbes Magazine made a comment that I think is critical to this discussion. Government is incapable of solving the big social issues of the day. However, using the principles of business focusing on efficiency and effectiveness a difference can be made. I love Social Entrepreneurship, which this is describing, and it will be interesting to see where these ideas will takes us.

And that is my thought for the day!


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