The Social Impact of Profit-Maximizing Firms

11 Pages Posted: 20 Nov 2018 Last revised: 19 Jun 2020

See all articles by Paul Clyde

Paul Clyde

University of Michigan, Stephen M. Ross School of Business; William Davidson Institute at the University of Michigan

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Survey Research Center

Aneel G. Karnani

University of Michigan, Stephen M. Ross School of Business

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business

M. P. Narayanan

University of Michigan, Stephen M. Ross School of Business

Date Written: March 29, 2018

Abstract

The recent ascent of social enterprise into the lexicon of business schools and, more importantly, businesses themselves, reflects a growing concern that profit-maximizing firms don’t address all of the world’s problems. There are significant problems the world is facing — income disparities, environmental concerns, human trafficking — and many claim that profit seeking businesses are not only not helping, they are exacerbating some of these problems. Social enterprises that do not maximize profits are seen as the solution. We disagree. We begin by considering alternatives to profit maximization in a free market. We then recognize that there are limitations and qualifications to the profit-maximizing model, most of which can be addressed most effectively by appropriate government action. However, we conclude that these qualifications do not undermine the basic argument that firms trying to maximize profits are generally socially beneficial. We don’t have a fundamental disagreement on the goals, such as environmental protection, advanced by proponents of social enterprises. In fact, it is precisely because we believe these are so important that we are making these arguments.

Keywords: social enterprise, profit-maximization, corporate social responsibility, free markets, social welfare

JEL Classification: A13, A20, L10, L31

Suggested Citation

Clyde, Paul and Sivadasan, Jagadeesh and Karnani, Aneel G. and Manchanda, Puneet and Narayanan, M. P., The Social Impact of Profit-Maximizing Firms (March 29, 2018). Available at SSRN: https://ssrn.com/abstract=3284113 or http://dx.doi.org/10.2139/ssrn.3284113

Paul Clyde (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan
Ann Arbor, MI 48109-1234
United States
734-764-8008 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/departments/busecon/f

William Davidson Institute at the University of Michigan ( email )

701 Tappan
Ann Arbor, MI 48109-1234
United States
734-764-8008 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/departments/busecon/f

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan at Ann Arbor - Survey Research Center ( email )

Ann Arbor, MI
United States

Aneel G. Karnani

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-936-2445 (Phone)
734-936-8716 (Fax)

M. P. Narayanan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5936 (Phone)
734-936-0274 (Fax)

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