The Social Impact of Profit-Maximizing Firms

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.