Businesses, not government, have the ultimate power to create social good.

Topic: The Origins of Wealth

Michael Porter: I’ve developed the worldview that actually most wealth and good is really created by organizations who are at the micro level. That is, it’s entities that can create products and services and add value through doing that profitably.

But I’ve come to understand that, in a sense, the market and the organizational entity that competes in that market is the ultimate source of really good, and wealth, and prosperity, and a good standard of living.

One of the things that I like to tell my government friends when we’re doing economic development discussions is government doesn’t create wealth. Government is pretty good at reallocating it, or spending it. But ultimately wealth can only be created by firms that actually create valuable products and services, or other entities that create valuable products and services.

I’ve come to have a real reverence for, if you will, the economy and economic development as really the most basic of the success factors. If you can get that working, then there’s resources to do a lot of other things to address social needs and to improve the quality of lives of people. But unless you can get that economic piece, that value creation piece working, then the other stuff becomes sort of a holding action and unsustainable. So I’ve come to have a passion about the importance of business.

I used to think that business was just, “Gosh everybody should think business is important.” But there’s a lot of people in the world who don’t think business is good. There are a lot of people who attack multinationals, or think that firms are the root of all evil.

And I’ve come to believe very passionately that without successful businesses that compete appropriately, there can be no good societies. And I tell my corporate friends, “Look. We can’t be defensive in the business community.” Business has the power, and the ability, and the skills to actually do enormous amounts of social good; but we’ve got to understand how to think about that.

And I increasingly have the view that the social and the economic are inextricably intertwined. That is, we can’t pull them apart. And every time we try, we make mistakes. Every time companies ignore the social and just think about the economic, they have trouble. Every time the folks in government and NGOs think only about the social and ignore the economic, and the ability of companies to create productive goods and services, the more they fail.

Recorded on: June 11, 2007