The Future of the Corporation and the Economics of Purpose

Abstract

This article examines the economic underpinnings of the concept of corporate purpose, which has gained increasing attention from business academics, practitioners and policymakers. It argues that there are fundamental reasons for reconceptualizing the purpose of business in the future which derive from the changing nature of business and the market failures to which it gives rise. It suggests that regulation is proving increasingly inadequate at correcting market failures, and the traditional separation between economic efficiency and distribution that underpins policy formulation is untenable. Instead, the article sets out how appropriately defined notions of corporate purpose can help to promote not only better social outcomes but also enhanced functioning of firms and markets. It describes a set of principles that provide a comprehensive framework for reforming business around credible commitments to corporate purpose. The reformulation of the corporation has profound implications for the macroeconomic performance of economies as well as the microeconomics of firms and markets.