The new Creative Capitalism blog created by Bill Gates, Michael Kinsley and Conor Clarke is quickly making an interesting corner of the blogosphere. Today, Martin Wolf, the associate editor and chief economics commentator at the Financial Times, pens this remarkable blog post about what a company is, and what it is not, under different political systems. In so doing, Wolf provides a an engaging overview of the underlying forces that drive market economies. Read the entire post, but here here is a taste:

First, one has to distinguish the goal of the firm from its role. The role of companies is to provide valuable goods and services – that is to say, outputs worth more than their inputs. The great insight of market economics is that they will do this job best if they are subject to competition. Profit-maximization (or shareholder value maximization, its more sophisticated modern equivalent) is NOT the role of the firm. It is its goal. The goal of profit-maximization drives the firm to fulfill its role.

Second, by creating a competitive market for corporate control, we more or less force companies to maximize shareholder value, or at least behave in ways that the market believes will lead them to do so.   .    .

Third, a company is viewed in the Anglo-American world as a bundle of contracts. But companies are also social organisms created by a highly gregarious mammalian species with a unique capacity for large-scale co-operation over time and space. Companies have cultures and histories. For many of those most closely associated with them, they also have (and offer) a certain meaning. Committed workers in successful companies do not work in order to maximize shareholder value or even to earn the largest possible living. Indeed, it is impossible to direct most companies solely by the goal of profit-maximization. (Goldman Sachs may be an exception.)  They have to be aimed at the intermediate goal of producing and developing goods and services that people want to buy and are worth more in the market than they cost to produce.

Fourth, the idea that a company is an entity that can be freely bought and sold is culturally specific. It is the view, above all, of Anglo-Americans. It is not shared in most of the rest of the world.  .   .

Fifth, in this perspective, shareholders are not genuine owners. They contribute nothing of value to the competitive strengths of the firm, enjoy the benefits of limited liability and are well able to diversify the risks they run. They are merely an (ever-shifting) group of people with a claim to the residual incomes. Those with the biggest (undiversifiable) investment in the firm — and thus the greatest exposure to firm-specific risks — are not shareholders, but core workers. The interests of the latter are, therefore, paramount.

And as if the foregoing wasn’t enough, Wolf follows that one up with this post on the issues involved in a company embracing social responsibility as a part of its role:

This is a point of considerable and, indeed, general importance. We live in a world of two fundamentally conflicting tendencies: between ever greater competition, as markets are liberalised and opened to the world, and greater demands on companies to bear social burdens of many kinds. But the latter is incompatible with the former. Extractive industries are in a relatively good position to meet such burdens, because they enjoy rent. In general, however, companies will be increasingly unable to bear them except to the extent that social obligations help them, rather than are costly to them.

That has an important consequence – positive and negative. The positive consequence is that many social goals can only be met through political action. That is also where they ought to be met. The negative consequences are two: first, where political systems are weak or defective, social goals will not be met; second, where companies feel forced by popular pressure to accept costly burdens – to pay higher than market wages, for example – they will feel obliged to lobby to spread those burdens onto all their competitors. The result could, at worst, be less efficiency and less economic growth than otherwise. In that case, therefore, social responsibility will become a machine for spreading anti-social outcomes. That is an end nobody should desire.

If you are involved or simply interested in business, my sense is that you should bookmark Creative Capitalism and check in often.