WHAT IS THE BUSINESS–GOVERNMENT–SOCIETY FIELD?

In the universe of human endeavor, we can distinguish subdivisions of economic, political, and social activity—that is, business, government, and society—in every civilization throughout time. Interplay among these activities creates an environ- ment in which businesses operate. The business-government-society (BGS) field is the study of this environment and its importance for managers.

To begin, we define the basic terms. Business is a broad term encompassing a range of actions and institutions. It

covers management, manufacturing, finance, trade, service, investment, and other activities. Entities as different as a hamburger stand and a giant corporation are businesses. The fundamental purpose of every business is to make a profit by providing products and services that satisfy human needs.

business Profit-making activity that provides prod- ucts and ser- vices to satisfy human needs.

12 Daniel Gross, “There Will Be Blood Orange Juice,” Slate, April 30, 2008.

13 Jad Mouawad, “Can Rockefeller Heirs Turn Exxon Greener?” The New York Times, May 4, 2008, p. B2.

14 “ExxonMobil Invests in Algae for Biofuel,” Nature, July 2009, p. 449.

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Chapter 1 The Study of Business, Government, and Society 5

Government refers to structures and processes in society that authoritatively make and apply policies and rules. Like business, it encompasses a wide range of activities and institutions at many levels, from international to local. The focus of this book is on the economic and regulatory powers of government as they affect business.

A society is a cooperative network of human relations, organized by flows of power and relatively distinct in its boundaries from other, analogous networks. 15 Every society includes three interacting elements: (1) ideas, (2) institutions, and (3) material things.

Ideas, or intangible objects of thought, include values and ideologies. Values are enduring beliefs about which fundamental choices in personal and social life are correct. Cultural habits and norms are based on values. Ideologies are bundles of values that create a worldview. They establish the meaning of life or categories of experience by defining what is considered good, true, right, beautiful, and accept- able. Sacred ideologies, or theologies, include the great religions that define human experience in relation to a deity. Secular ideologies, such as democracy, liberalism, capitalism, socialism, or ethics, all of which will be discussed in this book as they relate to business, explain human experience in a visible world, a world ordered by values based on reason, not faith. The two kinds of ideology can overlap, as with ethics, an ideology rooted in both faith and reason. All ideologies have the power to organize collective activity. Ideas shape every institution in society, sometimes coming in conflict as when capitalism’s practiced values of exploitation, ruthless competition, self-interest, and short-term gain abrade values of love, mercy, charity, and patience in Christianity.

Institutions are formal patterns of relations that link people to accomplish a goal. They are essential to coordinate the work of individuals having no direct relationship with each other. 16 In modern societies, economic, political, cultural, legal, religious, military, educational, media, and familial institutions are salient. There are multiple economic institutions such as financial institutions, the corpo- rate form, and markets. Collectively, we call these business.

As Figure 1.1 shows, markets are supported by a range of institutions. Capital- ism has wide variation in nations where it abides because supporting institutions grow from unique historical and cultural roots. In developed nations these institu- tions are highly evolved and mutually supportive. Where they are weak, markets work in dysfunctional ways. An example is the story of Russia, which introduced a market economy after the fall of communism in the early 1990s. In the old sys- tem workers spent lifetimes in secure jobs at state-owned firms. There was no un- employment insurance and, because few workers ever moved, housing markets were undeveloped. A free market economy requires a strong labor market, so workers can switch from jobs in declining firms to jobs in expanding ones. But Russia’s labor market was undeveloped. Because the government did not yet

government Structures and processes in society that authoritatively make and apply policies and rules.

society A network of human relations composed of ideas, institu- tions, and material things.

idea An intangible object of thought.

value An enduring belief about which funda- mental life choices are correct.

ideology A bundle of values that creates a partic- ular view of the world.

institution A formal pat- tern of relations that links peo- ple to accom- plish a goal.

15 See Michael Mann, The Sources of Social Power, vol. I: A History of Power from the Beginning to A.D. 1760 (New York: Cambridge University Press, 1986), pp. 1–3.

16 Arnold J. Toynbee, A Study of History, vol. XII, Reconsiderations (London: Oxford University Press, 1961), p. 270.

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

provide unemployment benefits to idled workers, there was no safety net. And housing markets were anemic. Company managers, out of basic humanity, were unwilling to lay off workers who would get no benefits and who would find it difficult to move elsewhere. 17 As a result, restructuring in the new Russian economy was torpid. The lesson is that institutions are vital to markets.

Each institution has a specific purpose in society. The function of business is to make a profit by producing goods and services at prices attractive to consumers. A business uses the resources of society to create new wealth. This justifies its ex- istence and is its priority task. All other social tasks—raising an army, advancing knowledge, healing the sick, or raising children—depend on it. Businesses must,