Published: economist.com | Jun 9th 2011 | NEW YORK | from the print edition
http://www.economist.com/node/18802844
Editor’s note: A fascinating and brilliant article from the Economist June 11 issue. I’ve seen many arguments about non-profit versus profit social impact but never one that based in 100 years of activity of two companies (IBM and Carnegie) that took opposite approaches to social change, both with significant results. An interesting read for all of us who study the issue. [more]
Both IBM and the Carnegie Corporation will turn 100 this month. Has the multinational business or universal philanthropy done more for society?
“ONE simple way to assess the impact of any organisation is to answer the question: how is the world different because it existed?” That is the test set out by Sam Palmisano in the foreword to a new book celebrating the 100th birthday of IBM, the firm he has run since 2002. But another organisation is also turning 100 this month—the Carnegie Corporation of New York, a flagship of American philanthropy. Mr Palmisano’s insight is too good to limit to only one of the centenarians. A better question is: which has done more for the world, one of its leading companies or one of its most influential charities?
At first glance, IBM and the Carnegie Corporation seem to be engaged in such different endeavours that comparing them might seem about as sensible as comparing apple orchards and orange groves. Making money has always been the main aim of the company formed in 1911 by the merger of three small producers of mechanical accounting machines, scales and time recorders, and renamed International Business Machines 13 years later. By contrast, the Carnegie Corporation explicitly set out to create a better world by giving away what remained of the great fortune of its industrialist founder, Andrew Carnegie. Yet both can assert that they have made the world a better place during the past century, and it is far from obvious which claim is stronger.
The answer matters, and not just in order to award the historical bragging rights. Comparing the records of those giants of 20th-century American capitalism—or “philanthrocapitalism”—can shed light on a question that is keenly debated today: whether philanthropy or business is more effective at “Making the World Work Better”, to borrow the title of the book celebrating IBM’s centenary.
The comparison can also help answer an old question about the proper role of business in society. Many people would agree with Milton Friedman’s view that the “only social responsibility of business” is to “increase its profits”. But Michael Porter, a management guru, recently caused a stir by arguing that firms should seek instead to create “shared value” that simultaneously benefits both the firm and society. Andrew Carnegie would have shared Friedman’s view of business, saving the philanthropy until after the money has been made. IBM, at least after Thomas Watson senior took charge in 1914, has arguably been a case study in how to create shared value, both through its formalised giving, which is among the most generous in corporate America, but more fundamentally through its everyday business.
