Shared vs. Growing Value

Every now and again, it seems that a theme is developing across my reading list.  Such was the case about two weeks ago when a LinkedIn post led me to a blog that I had not seen.  Then I caught a New York Times column by Steve Lohr that referenced a piece written by Milton Friedman and a presentation by Professor Michael E. Porter of the Harvard Business School.  There have also been several more pieces along the same lines that I have seen since then that I can't put my hands on at the moment.

The Shared Value concept is just Business 101 dressed up to make it acceptable in polite company.  At its core, it says that when businesses identify human needs and wants and find a way to fulfill them at a price that the market can afford and allow the company to make a profit, then value is created for all participants.  By pursuing profit, business makes society better.  Professor Porter puts a lot of decoration on it, but the fundamental tenets are there.

Economic theory says that any time a transaction takes place both parties are better off after the transaction.  A business will be improved by the profit on the transaction; the customer by the improvement in his ability to survive or thrive as a result of the product or service delivered.  Of course, in doing the arithmetic,  all of the costs of providing the good must be considered, and as a society becomes more sophisticated and prosperous, it has better tools to measure and more resources to address the costs which have traditionally been overlooked.  Professor Porter is correct that some profits are more noble than others.  Yet it is not the product or the customer that is the determining factor, it is the completeness of the costs being accounted in measuring the profit. For if all of the expenses have not been paid, then society has not been left better from the transaction.

I am with Professor Friedman on this one.  There is a place for philanthropy in our society, but it is separate from commerce.  Philanthropy is in the business of sharing the wealth in society.  Commerce is in the business of growing it.