How Institutions Support Markets

CORPORATIONS

Combine capital and labor, encourage risk

by limiting liability, and have continuity beyond

individual lives.

THE MARKET

JUDICIAL

Protect property rights, encourage

investment by making dispute resolution

predictable.

REGULATORY

Protect the public and investors from

dishonesty, danger, and fraud.

CULTURAL

Impart values, habits, and norms in family,

religious, or educational institutions.

Inform the public and stimulate

commerce with advertising.

MEDIA

POLITICAL

Make economic policy, collect taxes, provide social safety

nets, check and balance business power.

FINANCIAL

Mobilize capital for saving, borrowing,

and lending.

17 Joseph E. Stiglitz, Globalization and Its Discontents (New York: W. W. Norton, 2002), p. 140.

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Chapter 1 The Study of Business, Government, and Society 7

therefore, be managed to make a profit. A categorical statement of this point comes from Peter Drucker: “Business management must always, in every decision and action put economic performance first.” 18 Without profit, business fails in its duty to society and lacks legitimacy.

The third element in society is material things , including land, natural resources, infrastructure, and manufactured goods. These shape and, in the case of fabricated objects, are partly products of ideas and institutions. Economic institutions, together with the extent of resources, largely determine the type and quantity of society’s material goods.

The BGS field is the study of interactions among the three broad areas defined above. Its primary focus is on the interaction of business with the other two ele- ments. The basic subject matter, therefore, is how business shapes and changes government and society, and how it, in turn, is molded by political and social pres- sures. Of special interest is how forces in the BGS nexus affect the manager’s task.