Toward a 21st Century Social Contract
Article first published online: 19 JUL 2012
Copyright © 2012 Morgan Stanley
Journal of Applied Corporate Finance
Volume 24, Issue 2, pages 8–13, Spring 2012
How to Cite
Ferenbach, C. and Pinney, C. (2012), Toward a 21st Century Social Contract. Journal of Applied Corporate Finance, 24: 8–13. doi: 10.1111/j.1745-6622.2012.00372.x
- Issue published online: 19 JUL 2012
- Article first published online: 19 JUL 2012
This article makes the case for a new contract between business and government that will help us address the critical challenge of our time: the globalization of commerce, and its disruptive effects on labor, local communities, and the environment. The authors begin by showing how globalization has created a new playing field for government and business in which our current governance models and a social contract that proved remarkably effective during the 20th century can no longer ensure economic stability and social progress. While the private sector has for the most part demonstrated its ability to adapt and flourish in a global economy, governments have struggled, thanks in large part to complex decision-making processes and centralized bureaucracies that were created in response to 20th-century realities. The result has been ever more indebted nations and governments that have been unable to maintain the core foundation and social investments on which their economic competitiveness and the social well-being of their citizens depend.
Our challenge now is to create a new social contract between business and government that is equal to the challenges of a global economy. The authors identify a number of key issues that must be addressed in creating this new framework, and explore recent and emerging business leadership initiatives that are working to address them. These range from initiatives that encourage greater self-regulation by business of its impact on society and the environment to those that explore ways for the private sector to help governments deliver services more cost effectively.
As part of the fallout from the recent financial crisis, business, broadly speaking, no longer enjoys the level of public trust it once did, which has added significantly to the challenges it now faces in taking on greater social responsibility. To direct its considerable resources to the greater public good while continuing to produce a competitive return to shareholders will require a degree of innovation and leadership that many companies will find difficult. But without this increased participation of business and its leaders, it is hard to see how we will prosper in the increasingly uncertain future we now face.