CHAPTER 1: THE ROLE OF BUSINESS IN SOCIAL AND ECONOMIC DEVELOPMENT

Chapter outcome-based Learning Objectives

1. Identify forms of business organizations and their characteristics
2. Explain the purpose of business organizations and their role in socio-economic
development
3. Explain the core principles of fairness, accountability, and transparency in the
socioeconomic development of a country
4. Craft simple “Codes of Ethics” or “Codes of right conduct.”

1.2 THE PURPOSE OF BUSINESS ORGANIZATIONS AND THEIR ROLE IN SOCIO-

ECONOMIC DEVELOPMENT

What is the role of business in the economy? (https://www.enotes.com)

In any market economy, business plays a huge role. Business is the engine of an economy.
Business provides jobs that allow people to make money and goods and services that people can
buy with their money. Without business, the economy would be very inefficient and/or very
primitive.

In any economy, people need jobs. In any but the most primitive economies, people need to be
able to buy goods and services. Businesses provide for both of these needs. Most businesses
provide people with jobs. If I open a restaurant, I will need to hire cooks, wait staff, dishwashers,
and other people. My business is providing jobs for many people. Now imagine how many people
get their jobs from large companies. A large company can provide thousands of jobs. This is
incredibly important to an economy.

These businesses also provide the things that people need to buy. If you need a cell phone, you
have to buy it from a business because you certainly cannot make your own. Most people cannot
make their own clothes and must buy them from a business. Most people do not cut their own
hair and must pay a business for their haircuts. Without businesses, people would not have goods
and services that they could buy.

Economies can exist without businesses, but they are not nearly as strong. Imagine an economy
where every person works only for themselves. No one starts a business and hires other people.
This economy would be very primitive as people would only buy and sell things they could make
themselves. Alternatively, imagine an economy where there are no businesses because the
government is in charge of the economy. The government will provide jobs and goods and
services, but it will not do so efficiently. The government might not provide the things that people
want. It might run its factories and other operations poorly because they could not go broke if
they failed to satisfy their customers. This would be an inefficient economy.

Business, then, plays a central role in any market economy. It is the engine that allows an
economy to run because it provides jobs as well as goods and services.

Based on the above information, the primary role of business in economic development is the
creation of jobs. Employment advances economic development and boosts social indicators to
satisfactory levels. The observance of business ethics, where business and industry look out for
their stakeholders, assures this advancement. Safe and affordable products and services for
customers, honest wages for employees, reasonable returns for investors and owners, and
decent transactions with suppliers certify income allocation.

Adherence to corporate governance practically guarantees this progress, as the integrity of

business transactions allows for dedicates investment and offers a vibrant securities market.
In the Philippines, business and industry leaders who serve as models for economic development
and thrusts through their companies are given recognition by the Sycip Gorres Velayo & Co.
(SGV) Foundation through its Entrepreneur of the Year (EY) Philippines Program. The EY
Philippines program aims to recognize the inspiring men and women who demonstrate the
winning vision, determination, and innovative mindset that empower them to transform industries
and drive social and economic change.

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan

The EY names and companies represent a wide scope of industries such as the following:
 Agriculture and food manufacturing for Bacani’s La Frutera, Uytengsu’s Alaska Milk
Corporation, and Cheng’s Bounty Fresh Food, Inc.
 Transportation- Gokongwei’s Cebu Pacific Air
 Finance- Tambunting’s Planter’s Development Bank
 Retail Trade- Chan’s Suyen Corpotation, and Ramos’ National Book Store.

Author’s illustrative definition of ‘Business’.

Categories of human activities

Differentiation between economic and non-economic activities

Basis Economic activities Non-economic activities
Meaning Those by which we can earn Those performed out of love, sympathy,
our livelihood sentiments, patriotism, among others

Purpose, These activities are under These activities are undertaken to satisfy
motivation, taken to earn money and to social, psychological and emotional needs.
expectation create wealth
Examples A worker working in a factory A housewife cooking food for her family
A doctor operating in his clinic A boy helping an old man cross the road
A teacher teaching in a school A person goes to temple to offer his prayer
Outcome Production, distribution and Mental/psychological satisfaction
consumption of goods and
services
Types Business, profession and Religious, social, parental and patriotic
employment activities

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan

 Business objectives are something which a business organization wants to achieve or
accomplish over a specified period of time.
 Business objective is the purpose or the reason for which a business exists and operates.
 These may be to earn profit for its growth and development, to provide quality goods to its
customers, to protect the environment, among others.
- According to McFarland, “Objectives are the goals, aims or purposes that organizations wish
to achieve over varying periods of time.”
- the most effective business objective meets the following criteria-
1. Specific-Objectives are aimed at what the business does, e.g. a hotel might an objective
of filling 60% of its beds a night during October, an objective specific to that business.
2. Measurable- the business can put a value to the objectives, e.g. 10,000 in sales in the
next half year of trading.
3. Agreed- Agreed by all those concerned in trying to achieve the objective.
4. Realistic- the objective should be challenging, but it should also be able to be achieved
by the resources available.
5. Time Specific- They have a time limit of when the objectives should be achieved, e.g. by
the end of year.

 Types of Business Objectives -Global Objectives, National Objectives, Human Objectives,

Social Objectives, Economic Objectives, Organic Objectives

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan

 Author’s illustration on business objectives

A. ORGANIC OBJECTIVES • Survival • Growth • Goodwill and Image

- Every business is established with the hope that it will exist, survive and thrive for a pretty
long period.
- Therefore, every business has the 4following organic objectives: -
1. Survival- Every business has the objective of its own survival and existence. It is the basic
objective of every business.
It should be noted that if a business succeeds in surviving over a fairly long period of time, it
would be in a position to achieve all its objectives, otherwise not.
2. Growth-Growth means expansion of business activities by introducing new products or
expanding and diversifying existing product lines or by entering into new market.
When a business succeeds in surviving, it would pursue the objective of growth.
Businessman should do-
 Increase its investment
 Increase its production capacity
 Increase its market share
 Increase its geographical area
 Use innovative production and marketing strategies
3. Goodwill and Image- Every business makes every effort to enhance its goodwill and image.
Businessman should do-
 To deal with all the customers with honesty and integrity.
 To take care of the interests of all its stakeholders properly.
 It should be noted that satisfied customers and other stakeholders are the
strongest means of goodwill and image of a business.

B. ECONOMIC OBJECTIVES
- Business is an Economic activity therefore Economic objectives of business refer to the
objective of earning profit and also other objectives that are necessary to be pursued to
achieve the profit objective, which include, creation of customers, regular innovations and best
possible use of available resources.

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan

1. Profit earning -Profit is the lifeblood of business, without which no business can survive in a
competitive market. In fact, profit making is the primary objective for which a business unit is
brought into existence.
- Profits must be earned to ensure the survival of business, its growth and expansion over time.
- Profits help businessmen not only to earn their living but also to expand their business
activities by reinvesting a part of the profits.
- In order to achieve this primary objective, certain other objectives are also necessary to be
pursued by business, which are as follows:
2. Creation of customers- A business unit cannot survive unless there are customers to buy
the products and services.
- Again, a businessman can earn profits only when he/she provides quality goods and services
at a reasonable price. For this it needs to attract more customers for its existing as well as
new products. This is achieved with the help of various marketing activities.
3. Regular innovations -Innovation means changes, which bring about improvement in
products, process of production and distribution of goods.
- Business units, through innovation, are able to reduce cost by adopting better methods of
production and also increase their sales by attracting more customers because of improved
products.
- Reduction in cost and increase in sales gives more profit to the businessman. Use of power-
looms in place of handlooms, use of tractors in place of hand implements in farms etc. are all
the results of innovation.

4. Best possible use of resources - As you know, to run any business you must have sufficient
capital or funds. The amount of capital may be used to buy machinery, raw materials, employ
men and have cash to meet day-to-day expenses. Thus, business activities require various
resources like men, materials, money and machines.
- The availability of these resources is usually limited. Thus, every business should try to make
the best possible use of these resources.
- This objective can be achieved by employing efficient workers, making full use of machines
and minimizing wastage of raw materials.

C. SOCIAL OBJECTIVES
- Business exists and operates in society. It draws all its resources from the society and sells
its product/ services to the member of the society.
- Social objectives are those objectives of business, which are desired to be achieved for
the benefit of the society.
- Since business operates in a society by utilizing its scarce resources, the society expects
something in return for its welfare. No activity of the business should be aimed at giving
any kind of trouble to the society.
- Social objectives of business include production and supply of quality goods and services,
adoption of fair trade practices and contribution to the general welfare of society and provision
of welfare amenities.
1. Production and supply of quality goods and services -Since the business utilizes the
various resources of the society, the society expects to get quality goods and services from
the business.
- The objective of business should be to produce better quality goods and supply them at the
right time and at a right price. It is not desirable on the part of the businessman to supply
inferior goods which cause injuries to the customers.
- They should charge the price according to the quality of the goods and services provided to
the society. Again, the customers also expect timely supply of all their requirements. So, it is
important for every business to supply those goods and services on a regular basis.
2. Adoption of fair trade practices - In every society, activities such as black-marketing and
over-charging are considered undesirable. Besides, misleading advertisements often give a
false impression about the quality of products. Such advertisements deceive the customers
and the businessmen use them for the sake of making large profits. This is an unfair trade
practice. The business unit must not create artificial scarcity of essential goods or raise prices
for the sake of earning more profits.
- All these activities earn a bad name and sometimes make the businessmen liable for penalty
and even imprisonment under the law. Therefore, the objective of business should be to adopt
fair trade practices for the welfare of the consumers as well as the society.
- https://www.quora.com/What-are-some-examples-of-real-world-black-markets

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan

3. Contribution to the general welfare of the society- Business units should work for the
general welfare and upliftment of the society. This is possible through running of schools and
colleges for better education, opening of vocational training centers to train the people to earn
their livelihood, establishing hospitals for medical facilities and providing recreational facilities
for the general public like parks, sports complexes etc.

D. HUMAN OBJECTIVES refer to the objectives aimed at the well-being as well as fulfillment of
expectations of employees as also of people who are disabled, handicapped and deprived of
proper education and training. The human objectives of business may thus include economic
well- being of the employees, social and psychological satisfaction of employees and
development of human resources.
1. Economic well-being of the employees - In business employees must be provided with fair
remuneration and incentives for performance, benefits of provident fund, pension and other
amenities like medical facilities, housing facilities etc. By this they feel more satisfied at work
and contribute more for the business.

2. Social and psychological satisfaction of employees - It is the duty of business units to

provide social and psychological satisfaction to their employees. This is possible by making
the job interesting and challenging, putting the right person in the right job and reducing the
monotony of work. Opportunities for promotion and advancement in career should also be
provided to the employees. Further, grievances of employees should be given prompt
attention and their suggestions should be considered seriously when decisions are made. If
employees are happy and satisfied they can put their best efforts in work.
3. Development of human resources -Employees as human beings always want to grow. Their
growth requires proper training as well as development. Business can prosper if the people
employed can improve their skills and develop their abilities and competencies in course of
time. Thus, it is important that business should arrange training and development programs
for its Employees.
4. Well-being of socially and economically backward people - Business units being
inseparable parts of society should help backward classes and also people those are
physically and mentally challenged. This can be done in many ways. For instance, vocational
training program may be arranged to improve the earning capacity of backward people in the
community. While recruiting its staff, business should give preference to physically and
mentally challenged persons. Business units can also help and encourage meritorious
students by awarding scholarships for higher studies.

E. NATIONAL OBJECTIVES
- Being an important part of the country, every business must have the objective of fulfilling
national goals and aspirations. The goal of the country may be to provide employment
opportunity to its citizen, earn revenue for its exchange, become self-sufficient in production
of goods and services, promote social justice, etc. Business activities should be conducted
keeping these goals of the country in mind, which may be called national objectives of
business. The following are the national objectives of business.
1. Creation of employment - One of the important national objectives of business is to create
opportunities for gainful employment of people. This can be achieved by establishing new
business units, expanding markets, widening distribution channels, etc.
2. Promotion of social justice -As a responsible citizen, a businessman is expected to provide
equal opportunities to all persons with whom he/she deals. She/he is also expected to provide
equal opportunities to all the employees to work and progress. Towards this objective special
attention must be paid to weaker and backward sections of the society.
3. Production according to national priority -Business units should produce and supply
goods in accordance with the priorities laid down in the plans and policies of the Government.
One of the national objectives of business in our country should be to increase the production
and supply of essential goods at reasonable prices.
4. Contribute to the revenue of the country - The business owners should pay their taxes and
dues honestly and regularly. This will increase the revenue of the government, which can be
used for the development of the nation.
5. Self-sufficiency and Export Promotion -To help the country to become self-reliant,
business units have the added responsibility of restricting import of goods. Besides, every

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan

 business unit should aim at increasing exports and adding to the foreign exchange reserves
of the country.

F. GLOBAL OBJECTIVES- Earlier the Philippines had a very restricted business relationship
with other nations. There was a very rigid policy for import and export of goods and services.
But, now-a-days due to liberal economic and export–import policy, restrictions on foreign
investments have been largely abolished and duties on imported goods have been
substantially reduced. This change has brought about increased competition in the market.
Today because of globalization the entire world has become a big market. Goods produced
in one country are readily available in other countries. So, to face the competition in the global
market every business has certain objectives in mind, which may be called the global
objectives.
1. Raise general standard of living - Growth of business activities across national borders
makes available quality goods at reasonable prices all over the world. The people of one
country get to use similar types of goods that people in other countries are using. This
improves the standard of living of people.
2. Reduce disparities among nations - Business should help to reduce disparities among the
rich and poor nations of the world by expanding its operation. By way of capital investment in
developing as well as underdeveloped countries it can foster their industrial and economic
growth.
3. Make available globally competitive goods and services -Business should produce goods
and services which are globally competitive and have huge demand in foreign markets. This
will improve the image of the exporting country and also earn more foreign exchange for the
country.

Busines Ethics and Social Responsibility- Module by: Angeline L. Labbutan