Friday, February 5, 2010

Economic Ecosystems

Yesterday in my Corporate Social Responsibility and Business Ethics class we were going over the economic theories of Milton Friedman and Ed Freeman regarding Shareholder vs Stakeholder in Business organizations. Now everyone is quite familiar with the current capitalistic process that we understand from ROI's to NPV evaluations. Friedman generally favored the idea that money was a high (if not sole) factor for evaluating output produced. The idea basically that "money" is what makes the world go round.

However there has been a greater push as of late for businesses (in particular American) to seek alternative driving forces. A former Smith B-School Professor (Now at BU) Chris Dellarocas noted to us in class that there were three driving forces that motivate people: 1) Money, 2) Love, and 3) Pride/Glory. I would argue it is these forces that help make the argument for why stakeholder theory would play an important role in economic development.


When you look at the graph above (similar to the one showed to us in class last night) it is analogous to a food-web and it dawned on me that the modern day business environment has transformed (partially due to globalization and even limited resources) that we are no longer dealing with a competitive "dog eat dog" world, but looking at an "economic ecosystem". This is similar to what Dr. Shirley Ann Jackson (President of RPI) has been arguing in addressing the quiet crisis with respect to innovation and entrepreneurship.

Economic ecosystems have driving and reactionary forces that we need to be cognizant of in rebuilidng America's economy. I argue that three critical elements in local business eco-systems required to really work would include Research Universities, Active Local Government, and Entrepreneurial Businesses. These three ingredients can create a mixture of growth and development in a localized sense. I would present Silicon Valley and Tech Valley as examples of this concept from a mature (Silicon) to a new-born (Tech) perspective.