How business delivers the good

Policy Review, Jul/Aug 1996 by Hood, John

By anyone's definition, Jerome Lemelson is a great philanthropist. Lemelson has donated tens of millions of dollars over the years to organizations ranging from the Massachusetts Institute of Technology to local charities across the country. He has devoted much of his philanthropy to extolling the virtues of technological innovation. He has given millions of dollars to universities and the Smithsonian Institution, in Washington, D.C., to create programs to teach and promote invention. The first annual Lemelson-MIT Prize (a $500,000 "Nobel" of sorts for American inventors) was awarded in 1995. At his death, his foundation is expected to be worth at least $300 million.

By honoring invention, Lemelson's philanthropy merely reflects his life's work. Jerome Lemelson holds more patents than any living person. Since 1949, when he created a typewriter eraser as an undergraduate project at New York University, Lemelson has patented some five hundred inventions, from video telephones, audiocassette players, and videocassette recorders to spark plugs, ice skates, and Silly Putty.

We associate inventors with gadgets and "gee whiz" discoveries to such an extent that we often forget how important their innovations are to daily life. No matter how hard Lemelson tries, the value of his charitable work could not possibly match the value of his contributions to American society as an innovator and entrepreneur.

Take just one of his inventions, an automated system for reading bar-code labels. Without this seemingly modest technology, which Lemelson helped pioneer, much of modern industry simply would not exist. Manufacturers such as automakers and computer companies rely on bar codes to track the flow of parts in factories and the movement of finished goods in the distribution chain. Most Americans encounter bar codes every day in retail stores, where their use speeds up checkout lines and reduces errors.

Such information helps firms adjust production and distribution to the changing desires of consumers. This commonplace technology supplies new retailers with daily information about consumer demand and inventories, allowing them to cut prices, increase product offerings, and serve customers better. Wal-Mart, Toys 'R' Us, Blockbuster, and Home Depot all owe part of their success to the revolutionary impact of bar-code readers. Measuring the value that the bar code has added to the economy would be virtually impossible, but it must be billions of dollars, at least. Lemelson's praiseworthy philanthropic activities pale by comparison.

Lemelson understands the social value of entrepreneurship. "Innovation and invention have helped build the greatest industrial economy the world has ever known," he once told Entrepreneur magazine. "But inventors have always been left on their own. My goal is to make Americans more conscious of innovation." Meanwhile, however, the debate over the responsibility of business to society will continue to focus on noncommercial activities deemed socially beneficial, rather than on what firms actually make and sell.

So Vermont-based Ben &Jerry's Ice Cream is regarded by many as the prototype of a "socially responsible" corporation because it gives away 7.5 percent of its profits to charity (the average for U.S. corporations is a little over 1 percent), limits the salaries of its top executives, and conspicuously supports social causes. Yet its main enterprise is making and selling premium ice cream, a luxury good (unlike rice or shoes or electric power) that, one could say, harms the health of many Americans by filling their bellies with fat and sugar.

Most businesses exist to make or sell things, not to engage in political or social commentary, act as a philanthropic foundation, or even, it should be noted, to employ people. Focusing solely on the means by which businesses carry out their basic mission-such as their employment practices, their participation in community or cultural life, or their waste management-distracts us from the benefits that businesses confer on society. To satisfy the ever-changing needs of consumers, successful firms must constantly invent new products, new services, new ways of doing business more efficiently. This they do better than other social institutions, such as governments or charities. And the impact of such innovations on our society is massive, often far exceeding the benefits of governmental or charitable action.

Of course, journalists and politicians thrive on bad news. They continue, for example, to decry the inequality of men and women in the workplace, and blast American companies for unfair hiring and compensation practices. Yet business innovation historically has helped liberate American women. Technological advances have promoted greater equity in pay by reducing the value of physical strength and increasing the value of mental acuity and social skills, which are distributed more evenly between men and women. At the same time, labor-saving devices in the home have given married women more freedom to pursue education and employment.