What's A Business For? (July 10, 2021)

Why are virtue and integrity so vital to an economy? 

Virtue and integrity are very vital to an economy because that is what capitalism thrives on. Capitalism is an economic system in which a country's trade and industry are controlled by private owners for profit, rather than by the state. A capitalist market relies on rules and laws. Those rules and laws in turn depend on truth and trust. If truth is concealed or trust eroded, the market becomes unreliable. If the market is unreliable, ordinary people will find other places to put their money - into their houses, maybe under their bed. If this happens, the market will empty and share prices will collapse. That then means the economy has collapsed. The great virtue of capitalism – that it provides a way for the savings of society to be used for the creation of wealth–will have been eroded. 

According to Charles Handy, what is the "real justification" for the existence of businesses?

According to Charles Handy, the "real justification" for the existence of businesses is not just to make a profit. It is to make a profit so that the business can do something more or better. That “something" becomes the real justification for the business. To illustrate this further Handy gave an example using food. He said: "We need to eat to live; food is a necessary condition of life. But if we lived mainly to eat, making food a sufficient or sole purpose of life, we would become gross."

What are two solutions proposed by Handy that you agree with? Why?

One of the solutions Handy proposed that could help promote truth and trust in the economy is America’s new requirement that chief executives and chief financial officers attest to the truth of their company's financial statements. He suggested that if this new requirement pushes accountability for truth-telling down the line, some good may result. This will make the chief executives and chief financial officers not be encouraged to cook the books of their companies, making the company more attractive than it deserves. The public may start having confidence in the marketplace and leaving their money in shareholdings.

He also suggests that it seems only fair that dividends be paid to those who contribute their skills to the growth of a company as well as to those who have contributed their money. That way employees have a say in their company and will give their all to enhance its growth. The public will be willing to invest in such a company knowing that everyone, both employees and shareholders are stakeholders in the company. Truth is promoted.