CHAPTER TWENTY-FOUR

Social Impacts and Social Problems

SOCIAL RESPONSIBILITIES—WHETHER OF a business, a hospital, or a university—may arise in two areas. They may emerge out of the social impacts of the institution. Or they arise as problems of the society itself. Both are of concern to management because the institution which managers manage lives of necessity in society and community. But otherwise the two areas are different. The first deals with what an institution does to society. The second is concerned with what an institution can do for society.

The modern organization exists to provide a specific service to society. It therefore has to be in society. It has to be in a community, has to be a neighbor, has to do its work within a social setting. But also it has to employ people to do its work. Its social impacts inevitably go beyond the specific contribution it exists to make.

The purpose of the hospital is not to employ nurses and cooks. It is patient care. But to accomplish this purpose, nurses and cooks are needed. And in no time at all they form a work community with its own community tasks and community problems.

The purpose of a ferroalloy plant is not to make noise or to release noxious fumes. It is to make high-performance metals that serve the customer. But in order to do this, it produces noise, creates heat, and releases fumes.

Nobody wants to create a traffic jam. But if a lot of people are employed in one place and have to enter and leave at the same time, a traffic jam will be a totally unintended and yet inescapable by-product.

These impacts are incidental to the purpose of the organization. But in large measure they are inescapable by-products.

Social problems, by contrast, are dysfunctions of society rather than impacts of the organization and its activities.

The steel company discussed in the preceding chapter did, of course, practice racial discrimination. But racial discrimination was not caused by its activities; it was not an impact. On the contrary, the racial problem of the old South has all along been considered by business a major obstacle to industrialization and economic development. It had been an external condition to which any institution operating in southern society had to conform. Similarly, Swift do Argentina—or the Argentinian meat-packers as a whole—did not cause the long-time secular decline of the Argentinian livestock industry and the resulting unemployment in the Port of Buenos Aires. On the contrary, they fought the government policies responsible for the decline.

Still, both the U.S. steel company operating in the South and Swift do Argentina could not escape concern. Such problems are the degenerative diseases or the toxic wastes of the society and community in which a business exists. Since the institution can exist only within the social environment, is indeed an organ of society, such social problems affect the institution. They are of concern to it even if, as in the steel company’s case, the community itself sees no problem and resists any attempt to tackle it.

A healthy business, a healthy university, a healthy hospital cannot do well in a sick society. Management has a self-interest in a healthy society, even though the cause of society’s sickness is none of management’s making.

Responsibility for Impacts

One is responsible for one’s impacts, whether they are intended or not. This is the first rule. There is no doubt regarding management’s responsibility for the social impacts of its organization. They are management’s business.

In the Union Carbide story in the preceding chapter, the main reason why the community became so incensed against the company was probably not the pollution it caused. The community knew as well as Union Carbide that the pollution was incidental to production, and thereby to the jobs on which the community depended. But what the community bitterly resented, and with reason, was Union Carbide’s refusal for long years to accept responsibility. This is indeed irresponsible.

Because one is responsible for one’s impacts, one minimizes them. The fewer impacts an institution has outside of its own specific purpose and mission, the better does it conduct itself, the more responsibly does it act, and the more acceptable a citizen, neighbor, and contributor it is. Impacts which are not essential, and which are not part of the discharge of one’s own specific purpose and mission, should be kept to the absolute minimum. Even if they appear to be beneficial, they are outside the proper boundaries of one’s function and will, therefore, sooner or later be resented, be resisted, and be considered impositions.

One of the main reasons why management should, in its own self-interest, foster self-government of the work community is precisely that the community functions of the plant are incidental to the purpose of the business. They are not essential to it. The business exists to produce shoes or candy, or to turn out insurance policies. Any control that goes beyond what is strictly necessary to get the work done is incidental to the main function. It is an impact. And it should, therefore be minimized, if it cannot be eliminated.

Impacts are at best a nuisance. At worst they are harmful. They are never beneficial. Indeed they always carry with themselves a cost and a threat. Impacts use up resources, burn up or waste raw materials, or at the least tie up management efforts. Yet they add nothing to the value of the product or to the customer’s satisfaction. They are “friction,” that is, non-productive cost.

But even minor impacts are likely to become “crises” and “scandal” and to result in serious damage to business—or to any other institution that disregards its impacts. What only yesterday seemed harmless—and indeed even popular—suddenly becomes offense, a public outcry, a major issue. Unless management has taken responsibility for the impact, thought it through, and worked out the optimal resolution, the result will be punitive or restrictive legislation and an outcry against the “greed of business” or the “irresponsibility of the university.”

It is not enough to say, “But the public doesn’t object.” It is, above all, not enough to say that any action to come to grips with such a problem is going to be “unpopular,” is going to be “resented” by one’s colleagues and one’s associates, and is not required. Sooner or later society will come to regard any such impact as an attack on its integrity and will exact a high price from those who have not responsibly worked on eliminating the impact or on finding a solution to the problem.

Here are some examples.

In the late forties and early fifties, one American automobile company tried to make the American public safety-conscious. Ford introduced cars with seat belts. But sales dropped catastrophically. The company had to withdraw the cars with seat belts and abandon the whole idea. When, fifteen years later, the American driving public became safety-conscious, the car manufacturers were sharply attacked for their “total lack of concern with safety” and for being “merchants of death.” And the resulting regulations were written as much to punish the companies as to protect the public.

Several large electric-power companies had tried for years to get the various state utility commissions to approve low-sulfur fuels and cleaning devices in smokestacks. The commissions discouraged them again and again with the argument that the public was entitled to power at the lowest possible cost. They pointed out that neither a more expensive fuel nor capital investment to clean the smoke could be permitted in the rate base as a legitimate cost under the state laws. Yet when eventually air pollution became a matter of public concern, the same power companies were roundly berated for “befouling the environment.”

Public-service institutions similarly pay the price of neglecting impacts or of dismissing them as trivial. Columbia University was almost destroyed because it did not take responsibility for an impact but had comforted itself with the notion that the impact was trivial. The explosion which rocked Columbia to its foundation in 1968 came over a perfectly harmless and minor matter: a plan to build a new university, gymnasium which would be available equally to university students and to the residents of the Black ghetto which abuts Columbia. But the causes for the explosion lay much deeper. They were the conviction on the part of Columbia and of its faculty that a liberal educational institution does not have to concern itself with its relations with its Black ghetto neighborhood.

Another example of impact is the business that is “too big” for its own good and that of the community. The business that is too big, especially the business that is too big for the local community, is a threat to its community but, above all, to itself. It is incumbent on management to correct the situation in the interest of the business (or of the university or hospital). To ignore the problem is to put ego, desire for power, and vanity ahead of the good of the institution and of the community. And this is irresponsible.

Identifying Impacts

The first job of management is, therefore, to identify and to anticipate impacts—coldly and realistically. The question is not “Is what we do right?” It is “Is what we do what society and the customer pay us for?” And if an activity is not integral to the institution’s purpose and mission, it is to be considered as a social impact and as undesirable.

This sounds easy. It is actually very difficult. The best illustration is the problem of “technology assessment,” that is, the identification of social and economic impacts of new technology at the time of its introduction.

There is, these days, great interest in technology assessment, that is in anticipating impact and side effects of new technology before going ahead with it. The U.S. Congress has actually set up an Office of Technology Assessment. This new agency is expected to predict what new technologies are likely to become important, and what long-range effects they are likely to have. It is then expected to advise government what new technologies to encourage and what new technologies to discourage, if not to forbid altogether.

This attempt can end only in fiasco. Technology assessment of this kind is likely to lead to the encouragement of the wrong technologies and the discouragement of the technologies we need. For future impacts of new technology are almost always beyond anybody’s imagination.

DDT is an example. It was synthesized during World War II to protect American soldiers against disease-carrying insects, especially in the tropics. Some of the scientists then envisaged the use of the new chemical to protect civilian populations as well. But not one of the many people who worked on DDT thought of applying the new pesticide to control insect pests infesting crops, forests, or livestock. If DDT had been restricted to the use for which it was developed, that is, to the protection of humans, it would never have become an environmental hazard; use for this purpose accounted for no more than 5 or 10 percent of the total at DDT’s peak, in the mid-sixties. Farmers and foresters, without much help from the scientists, saw that what killed lice on soldiers would also kill lice on plants and made DDT into a massive assault on the environment.

Another example is the population explosion in the developing countries. DDT and other pesticides were a factor in it. So were the new antibiotics. Yet the two were developed quite independently of each other; and no one “assessing” either technology could have foreseen their convergence—indeed no one did. But more important as causative factors in the sharp drop in infant mortality which set off the population explosion were two very old “technologies” to which no one paid any attention. One was the elementary public-health measure of keeping latrine and well apart—known to the Macedonians before Alexander the Great. The other one was the wire-mesh screen for doors and windows invented by an unknown American around 1860. Both were suddenly adopted even by backward tropical villages after World War II. Together they were probably the main causes of the population explosion.

At the same time, the technology impacts which the experts predict almost never occur. One example is the “private flying boom,” which the experts predicted during and shortly after World War II. The private plane, owner-piloted, would become as common, we were told, as the Model T automobile had become after World War I. Indeed, experts among city planners, engineers, and architects advised New York City not to go ahead with the second tube of the Lincoln Tunnel, or with the second deck on the George Washington Bridge, and instead build a number of small airports along the west bank of the Hudson River. It would have taken fairly elementary mathematics to disprove this particular technology assessment—there just is not enough airspace for commuter traffic by air. But this did not occur to any of the experts; no one realized how finite airspace is. At the same time, almost no experts foresaw the expansion of commercial air traffic and anticipated, at the time the jet plane was first developed, that it would lead to mass transportation by air, with as many people crossing the Atlantic in jumbo jets in one day as used to go in a week in the big passenger liners. To be sure, transatlantic travel was expected to grow fast—but of course it would be by ship. These were the years in which all the governments along the North Atlantic heavily subsidized the building of new super-luxury liners, just when the passengers deserted the liner and switched to the new jet plane.

A few years later, we were told by everyone that automation would have tremendous economic and social impacts—it has had practically none. The computer offers an even odder story. In the late forties nobody predicted that the computer would be used by business and governments. While the computer was a “major scientific revolution,” everybody “knew” that its main use would be in science and warfare. As a result, the most extensive market research study undertaken at that time reached the conclusion that the world computer market would, at most be able to absorb 1,000 computers by the year 2000. Now, only thirty years later, there are some 250,000 computers installed in the world, most of them doing the most mundane bookkeeping work. Then a few years later, when it became apparent that business was buying computers for payroll and billing, the experts predicted that the computer would displace middle management, so that there would be nobody left between the chief executive officer and the first line supervisor. “Is middle management obsolete?” asked a widely quoted Harvard Business Review article in the early fifties; and it answered this rhetorical question with a resounding “Yes.” At exactly that moment, the tremendous expansion of middle-management jobs began. In every developed country middle-management jobs, in business as well as in government, have grown three times as fast as total employment in the last twenty-five years; and their growth has been parallel to the growth of computer usage. Anyone depending on technology assessment in the early 1950s would have abolished the graduate business schools as likely to produce graduates who could not possibly find jobs. Fortunately, the young people did not listen and flocked in record numbers to the graduate business schools so as to get the good jobs which the computer helped create.

But while no one foresaw the computer impact on middle-management jobs, every expert predicted a tremendous computer impact on business strategy, business policy, planning, and top management—on none of which the computer has, however, had the slightest impact at all. At the same time, no one predicted the real revolution in business policy and strategy in the fifties and sixties: the merger wave and the conglomerates.

It is not only that a human being has the gift of prophecy no more with respect to technology than with respect to anything else. The impacts of technology are actually more difficult to predict than most other developments. In the first place, as the example of the population explosion shows, social and economic impact are almost always the result of the convergence of a substantial number of factors, not all of them technological. And each of these factors has its own origin, its own development, its own dynamics, and its own experts. The expert in one field—e.g., the expert on epidemiology—never thinks of plant pests. The expert on antibiotics is concerned with the treatment of disease, whereas the actual explosion of the birthrate resulted largely from elementary and long-known public health measures.

But equally important, what technology is likely to become important and have an impact, and what technology either will fizzle out—like the “flying Model T”—or will have minimal social or economic impacts—like automation is impossible to predict. And which technology will have social impacts and which will remain just technology is even harder to predict. The most successful prophet of technology, Jules Verne, predicted a great deal of twentieth-century technology a hundred years ago (though few scientists or technologists of that time took him seriously). But he anticipated absolutely no social or economic impacts, only an unchanged mid-Victorian society and economy. Economic and social prophets, in turn, have the most dismal record as predictors of technology.

The one and only effect an Office of Technology Assessment is therefore likely to have would be to guarantee full employment to a lot of fifth-rate science-fiction writers.

The Need for Technology Monitoring

The major danger is, however, that the delusion that we can foresee the impacts of new technology will lead us to slight the really important task. For technology does have impacts and serious ones, beneficial as well as detrimental. These do not require prophecy. They require careful monitoring of the actual impact of a technology once it has become effective. In 1948, practically no one correctly saw the impacts of the computer. Five or six years later, one could and did know. Then one could say, “Whatever the technological impact, socially and economically this is not a major threat.” In 1943, no one could predict the impact of DDT. Ten years later, DDT had become worldwide a tool of farmer forester, and livestock breeder, and as such, a major ecological factor. Then thinking as to what action to take should have begun, work should have been started on the development of pesticides without the major environmental impact of DDT, and the difficult trade-offs should have been faced between food production and environmental damage—which neither the unlimited use nor the present complete ban on DDT sufficiently considers.

Technology monitoring is a serious, an important, indeed a vital task. But it is not prophecy. The only thing possible with respect to new technology is speculation with about one chance out of a hundred of being right—and a much better chance of doing harm by encouraging the wrong, or discouraging the most beneficial new technology. What needs to be watched is “developing” technology, that is, technology which has already had substantial impacts, enough to be judged, to be measured, to be evaluated.

And monitoring a developing technology for its social impacts is, above all, a managerial responsibility.

But equally important—and totally overlooked by the advocates of technology assessment—are the impacts of nontechnological, that is social and economic innovations and developments. They are just as hard to predict until they have emerged and can be identified, evaluated, and measured. They too, therefore, need being monitored. And that too is a management responsibility.

How to Deal with Impacts

Identifying incidental impacts of an institution is the first step. But how does management deal with them? The objective is clear: impacts on society and economy, community, and individual that are not in themselves the purpose and mission of the institution should be kept to the minimum and should preferably be eliminated altogether. The fewer such impacts the better, whether the impact is within the institution, on the social environment, or on the physical environment.

Wherever an impact can be eliminated by dropping the activity that causes it, this is therefore the best—indeed the only truly good—solution.

Managerial authority over, and control of, work-community affairs is perhaps the one area where this can be done—and with direct benefit to institution and management themselves.

In most cases the activity cannot, however, be eliminated. Hence there is need for systematic work at eliminating the impact—or at least at minimizing it— while maintaining the underlying activity itself.

The ideal approach is to make the elimination of impacts into a profitable business opportunity. One example is the way Dow Chemical, one of the leading U.S. chemical companies, has for almost twenty years tackled air and water pollution. Dow decided, shortly after World War II, that air and water pollution was an undesirable impact that had to be eliminated. Long before the public outcry about the environment, Dow adopted a zero-pollution policy for its plants. It then set about systematically to develop the polluting substances it removes from smokestack gases and watery effluents into salable products and to create uses and markets for them.

A variant is the Du Pont Industrial Toxicity Laboratory. Du Pont, in the 1920s, became aware of the toxic side effects of many of its industrial products, set up a laboratory to test for toxicity and to develop processes to eliminate the poisons. Du Pont started out to eliminate an impact which at that time every other chemical manufacturer took for granted. But then Du Pont decided to develop toxicity control of industrial products into a separate business. The Industrial Toxicity Laboratory works not only for Du Pont but for a wide variety of customers for whom it develops nonpoisonous compounds, whose products it tests for toxicity, and so on. Again, an impact has been eliminated by making it into a business opportunity.

When Regulation is Needed

To make elimination of an impact into a business opportunity should always be attempted. But it cannot be done in many cases. More often eliminating an impact means increasing the costs. What was an “externality” for which the general public paid becomes business cost. It therefore becomes a competitive disadvantage unless everybody in the industry accepts the same rule. And this, in most cases, can be done only by regulation—that means by some form of public action.

Whenever an impact cannot be eliminated without an increase in cost, it becomes incumbent upon management to think ahead and work out the regulation which is most likely to solve the problem at the minimum cost and with the greatest benefit to public and business alike. And it is then management’s job to work at getting the right regulation enacted.

Management—and not only business management—has shunned this responsibility. The traditional attitude has always been that “no regulation is the best regulation.” But this applies only when an impact can be made into a business opportunity. Where elimination of an impact requires a restriction, regulation is in the interest of business, and especially in the interest of responsible business. Otherwise it will be penalized as “irresponsible,” while the unscrupulous, the greedy, the stupid, and the chiseler cash in.

And to expect that there will be no regulation is willful blindness.

Whenever there has been the kind of crisis which the automobile industry ran into with respect to automotive safety or the public utilities with respect to air pollution, the penalty imposed on business in the end has been high. Such a crisis always leads to a scandal. It leads to governmental inquisition, to angry editorials, and eventually to loss of confidence in an entire industry, its management, and its products by broad sectors of the public. Finally, there is punitive legislation.

The fact that the public today sees no issue is not relevant. Indeed it is not even relevant that the public today—as it did in every single one of the examples above—resists actively any attempts on the part of farsighted business leaders to prevent a crisis. In the end, there is the scandal.

One example is the failure of the international petroleum companies to think ahead and develop the successor to the “petroleum concession,” the impacts of which could clearly be anticipated at the end of World War II. Another example is the failure of U.S. industry to think through the regulation of foreign investment which Canada might adopt to preserve both political identity and access to capital.

The American pharmaceutical industry knew, as early as 1955, that the existing rules and procedures to test new drugs needed critical review and updating. They had been written long before the arrival of the modern potent wonder drugs and their—equally potent—side effects. The U.S. had all along had the most stringent drug regulations among major nations. But were they still appropriate to a very different situation in pharmacology and in the use of drugs by the physicians? Yet any pharmaceutical company that tried to get the industry to face up to the problem was shushed by the other members of the club. “Don’t rock the boat,” the prospective innovator was told. One company, it is reported, actually worked up a comprehensive new approach and new regulatory procedures. It was prevailed upon to bury them in its archives.

And then came the Thalidomide scandal. It actually proved the effectiveness of the American control system; for while Thalidomide was approved for medical practice in the European countries, the U.S. regulatory authorities became concerned very early about the drug’s toxic side effects and withheld approval. As a result there are no deformed Thalidomide babies in the U.S. as there are in Germany, Sweden, and England. Still, the scandal released an enormous tidal wave of anxiety about drug testing and drug safety in the U.S. And because industry had not faced up to the problem and had not thought through and agitated for the right solution, Congress panicked into passing legislation that threatens seriously to impair the development and market introduction of new medicines—and yet, paradoxically, would probably not prevent another Thalidomide.

The Trade-Offs

Any solution to an impact problem requires trade-offs. Beyond a certain level elimination of an impact costs more in money or in energy, in resources or in lives, than the attainable benefit. A decision has to be made on the optimal balance between costs and benefits. This is something people in an industry understand, as a rule. But no one outside does—and so the outsider’s solution tends to ignore the trade-off problem altogether.

Where is the trade-off between the overdue concern for a natural environment threatened by the strip-mining of coal and the lives saved in switching from underground mining to strip-mining? Underground mining can never be truly safe. It will always remain a health hazard because of the coal dust and the contaminated air in which underground work has to be performed. Strip-mining, on the other hand, should be a fairly safe occupation and has few health hazards. But where is the trade-off between lives and natural beauty and clean, unpolluted streams?

But there is, in the strip-mining issue, also a trade-off between the costs of environmental damage and the cost in jobs, living standards, and in the health hazard of cold homes and the safety of dark streets implicit in dear and scarce energy.

What happens when management fails to face up to an impact and to think through the trade-off is shown by the American experience with automotive emissions.

That such controls would be needed has been known since the end of World War II when smog first became a household word in Los Angeles. The automobile industry, however, relied on public relations, which told it that the public was not concerned about smog. Then, suddenly, in the sixties, the public panicked and forced through drastic emission control legislation. Whether the new controls will actually cut pollution is quite doubtful. For while they cut down on emission of old pollutants—provided the control equipment is maintained carefully—the new controls also cause substantial new pollution. They greatly increase the energy needed to drive the car and will therefore have to use more gasoline. This will require more petroleum refining—one of the most polluting of industrial activities. At the same time, they add substantially to the cost of the car and of automotive service. What the right trade-offs would have been we do not know—for industry did not do its work. But both industry and public will pay and suffer.

The public welcomes an intelligent solution for such a problem if management presses for one before the scandal. This has been the experience of the Committee for Economic Development (CED) in its twenty years of existence, and of any other business or industry group which took responsibility for an impact and brought to bear on it the knowledge, competence, and seriousness of its best people.

Most managers know this. And yet they hope against hope that the problem will go away. They postpone thinking about it, let alone taking action. At the most they make speeches. And they fight a rearguard action after they have lost.

Responsibility for social impacts is a management responsibility—not because it is a social responsibility, but because it is a business responsibility. The ideal is to make elimination of such an impact into a business opportunity. But wherever that cannot be done, the design of the appropriate regulation with the optimal trade-off balance—and public discussion of the problem and promotion of the best regulatory solution—is management’s job.

Social Problems as Business Opportunities

Social problems are dysfunctions of society and—at least potentially degenerative diseases of the body politic. They are ills. But for the management of institutions, and, above all, for business management they represent challenges. They are major sources of opportunity. For it is the function of business—and to a lesser degree of the other main institutions—to satisfy a social need and at the same time serve their institution, by making resolution of a social problem into a business opportunity.

It is the job of business to convert change into innovation, that is, into new business. And it is a poor business manager who thinks that innovation refers to technology alone. Social change and social innovation have throughout business history been at least as important as technology. After all, the major industries of the nineteenth century were, to a very large extent, the result of converting the new social environment—the industrial city—into a business opportunity and into a business market. This underlay the rise of lighting, first by gas and then by electricity, of the streetcar and the interurban trolley, of telephone, newspaper, and department store—to name only a few.

The significant opportunities for converting social problems into business opportunities may therefore not lie in new technologies, new products, and new services. They may lie in solving the social problem, that is, in social innovation which then directly and indirectly benefits and strengthens the company or the industry.

The success of some of the most successful businesses is largely the result of such social innovation. Here are some American examples:

Julius Rosenwald, the “city slicker” who built Sears, Roebuck, invented and for many years financed the County Farm Agent. The social problem he identified was the poverty, ignorance, and isolation of the American farmer who still, in the early years of this century, constituted half the U.S. population. Knowledge to enable the farmers to produce more, to produce the right things, and to get more for their efforts was available. But it was inaccessible to the farmer. The County Farm Agent—rather than new technology, new machines, or new seeds—became a main force behind the “productivity explosion” on the American farm. Rosenwald saw a genuine social problem. But he also saw a genuine business opportunity. For the farmer’s poverty, ignorance, and isolation were major obstacles to Sears. As the farmer’s position and income grew, so did the Sears market. And Sears came to be identified by the farmers as the “farmer’s friend.”

Tackling a social problem as a business opportunity also played a substantial part in the meteoric rise of Ford in its early days.

The years immediately prior to World War I were years of great labor unrest in the United States, growing labor bitterness, and high unemployment. Hourly wages for skilled workers ran as low as 15 cents in many cases. It was against this background that the Ford Motor Company, in the dosing days of 1913, announced that it would pay a guaranteed $5-a-day wage to every one of its workers—two to three times what was then standard. James Couzens, the company’s general manager, who had forced this decision on his reluctant partner, Henry Ford, knew perfectly well that his company’s wage bill would almost triple overnight. But he became convinced that the workers’ sufferings were so great that only radical and highly visible action could have an effect. Couzens also expected that Ford’s actual labor cost, despite the tripling of the wage rate, would go down—and events soon proved him right. Before Ford changed the whole labor economy of the United States with one announcement, labor turnover at the Ford Motor Company had been so high that, in 1912, 60,000 workers had to be hired to retain 10,000 of them. With the new wage, turnover almost disappeared. The resulting savings were so great that, despite sharply rising costs for all materials in the next years, Ford could produce and sell its Model T at a lower price and yet make a larger profit per car. It was the saving in the labor cost produced by a drastically higher wage that gave Ford market domination. At the same time Ford’s action transformed American industrial society. It established the American worker as fundamentally middle class.

IBM also owes its rise largely to a frontal attack on a social problem. During the years of the Great Depression IBM was a very small company and had little visibility. Hence its action had none of the impact of Ford’s $5-a-day wage twenty years earlier. Yet in giving workers employment security and then putting them on a salary instead of an hourly wage IBM was as bold and innovative as Ford had been. IBM’s action too was aimed at a major social problem of the time, the fear, insecurity, and loss of dignity that the Depression inflicted on workers in America. It too turned a social disease into a business opportunity. It was this action, above all, which created the human potential for IBM’s rapid growth and, then, a decade later, for its aggressive move into the totally new computer technology.

And here is a European example.

The growth of Olivetti into one of the world’s leading producers of office equipment rests on two insights of the late Adrian Olivetti, who in the 1920s, inherited a small, unknown, and barely viable family company in the small town of Ivrea in northern Italy. Adriano Olivetti saw the opportunity to give his company and his products distinction through good design. Olivetti’s design gave him market recognition within a decade. He also saw in Italy’s corrosive class hatred an opportunity. The community in which he tried to fuse management and worker in Ivrea gave him exceptional labor productivity, high-quality production, and a work force willing to accept new technology and changes—and with it competitive strength and profitability.

In present-day society one area where a serious social problem might be solved by making it into an opportunity could well be the fatigue, frustration, and “burning-out” of middle-aged knowledge workers and their need for a second career. The hidden cost of the middle-aged knowledge workers—managers and knowledge professionals—who have “retired on the job,” have lost interest, and just go through the motions, may well be larger than that of Ford’s labor turnover in 1913. At the same time, the frustration and silent despair of these men and women may pose as great a social danger to society as the misery, bitterness, and despair of the suffering manual worker of yesterday. Nothing is as corrosive as success turned into frustration. The first company which tackles this problem as both a social problem and an opportunity might well reap benefits fully as great as those reaped by Ford sixty-five years ago and Olivetti and IBM fifty years ago.

To cure social ills by making them into opportunities for contribution and performance is by no means a challenge to business enterprise alone. It is the responsibility as well of all the other institutions of our society of organizations.

There is a great deal of talk today about the crisis of the university; and the crisis is real. In some places, however, it has been seized as an opportunity. In Great Britain there is the Open University, which uses television to make university education available to anyone who is willing to do the work. In California the medium-sized and little-known University of the Pacific, in Stockton, is building a new kind of university. It utilizes the desire of young people to learn but also to be responsible participants in their learning.

Rosenwald, Ford, IBM’s Watson, and Olivetti were all initially ridiculed as visionaries. No one could solve the problems they tackled, they were told. Ten or fifteen years later, their solutions were dismissed as “obvious.” The right solution is always obvious in retrospect. What matters is that these men and their companies identified a major social problem and asked, “How can it be solved as a business opportunity?”

Any business, and indeed any institution, needs to organize innovative efforts to convert social problems into opportunities for performance and contribution.

In the last quarter century organized technological research has become common-place. Social innovation is still largely left to chance and to the individual entrepreneur who stumbles upon an opportunity. This is no longer adequate. In the society of organizations, every institution needs to organize its R & D for society and community fully as much as it had been organizing it for technology. Management has to organize to identify the issues, the crises, the problems in society and community, and to work at the innovations that will make their solution into a profitable opportunity.

The “Degenerative Diseases” of Society

Social problems that management action converts into opportunities soon cease to be problems. The others, however, are likely to become “chronic complaints,” if not “degenerative diseases.”

Not every social problem can be resolved by making it into an opportunity for contribution and performance. Indeed, the most serious of such problems tend to defy this approach.

No business could, for instance, have done much about America’s most serious degenerative disease throughout our history—the racial problem. It could not even be tackled until the whole society had changed awareness and convictions—by which time it was very late, if not altogether too late. And even if one management solves such a problem, the rest may not follow. There may be a solution; but while known and visible, it is not being used. The problem stays acute and unresolved.

America’s business had to follow Ford’s lead between 1914 and 1920—though the labor shortage of World War I had as much to do with this as Ford’s example. But few American companies imitated IBM and even fewer Italian companies imitated Olivetti, despite their visible success.

What then is the social responsibility of management for these social problems that become chronic or degenerative diseases?

They are management’s problems. The health of the enterprise is management’s responsibility. A healthy business and a sick society are hardly compatible. Healthy businesses require a healthy, or at least a functioning, society. The health of the community is a prerequisite for successful and growing business.

And it is foolish to hope that these problems will disappear if only one looks the other way. Problems go away because someone does something about them.

With any such problem, management had better find out whether someone has, in fact, done something that works. That few, if any, U.S. businesses have followed IBM, and few Italian businesses have followed Olivetti, is management failure. It is basically not too different from the management failure to keep technology and products competitive. And the reasons are not too different either; they are shortsightedness, indolence, and incompetence.

Yet there remain the big, tough, dangerous dysfunctions of society, the social problems for which no one has worked out a solution, and which cannot, it seems, be resolved, or perhaps not even assuaged, by being made performance opportunities.

To what extent should business—or any other of the special-purpose institutions of our society—be expected to tackle such a problem which did not arise out of an impact of theirs and which cannot be converted into an opportunity for performance of the institution’s purpose and mission? To what extent should these institutions, business, university, or hospital, even be permitted to take responsibility?

Today’s rhetoric tends to ignore that question. “Here is,” former Mayor Lindsay of New York said, “the Black ghetto. No one knows what to do with it. Whatever government, social workers, or community action try, things seem only to get worse. Therefore big business better take responsibility.”

That Mayor Lindsay frantically looked for someone to take over is understandable; and the problem that is still unsolved is indeed desperate and a major threat to this city, to American society, and to the Western world altogether. But is it enough to make the problem of the Black ghetto the social responsibility of management? Or are there limits to social responsibility? And what are they?