November 19, 2019
The idea that businesses exist only to earn profits is outmoded. Modern businesses have missions that aim higher than mere profits. Instead of a mindless pursuit of earning more and more every year, businesses are shifting to a purpose-driven culture. This lets them attract and motivate employees, retain customers, increase shareholder value, and still give back to society. This blog explores the social impacts of corporate investment.
Corporate Investment and Social Impact
More and more cities across the country, and even across the globe, increasingly invite private sector investment into their territories. However, in many cases, the social impact of this corporate spending is either uncertain or unknown. Therefore, both business managers and government officials need to understand how to measure the social impact corporate spending has on its surroundings.
Corporate Social Impact Explained
Let’s take a simplified example to get a better understanding of what social impact is before we can move on to measuring it. Let’s say a large corporation wants to establish a manufacturing and distribution facility just outside a mid-sized, rural American city. Let’s also say county officials, in an effort to ensure that the company opens its center and begins commercial operations, offer multi-million dollar tax incentives. After all, the local economy will likely see hundreds of new jobs created by the new facility. I could be lounging in my room to watch Cox TV online and seetons of new brands advertising in my area. These brands, in turn, are offering yet more jobs to the community. These are the economic impacts, which can usually be estimated or measured in monetary terms.
But looking beyond the new jobs and economic uplift, what are the social impacts the new facility will have on its surroundings? Will the company help with community problems like homelessness, poverty, civic work, public health, and education? There seems to be no definitive way to tell if the corporate investment will pay social dividends.
The Need to Measure Social Impact
With so many potential benefits and pitfalls to the community, it can become very difficult to ascertain the social effects of a significant new corporate investment. However, communities, businesses, and governments would benefit greatly from being able to measure and forecast social impacts on a case-by-case basis. In the past, this would have been virtually impossible. But today, harnessing the power of artificial intelligence, machine learning, and data analytics, it is possible to predict social impacts with unprecedented accuracy.
Examples of Good Corporate Social Impacts
Many people are of the opinion that corporate investment is an unalloyed boost for the community. They argue that significant economic investments can offer a much-needed lift to less prosperous communities. A common argument is that economic investment sets mechanisms in motion that help with poverty alleviation and increasing taxable income. The more people earn, the more taxes they pay. The more taxes they pay, the better schools, hospitals, police, fire, and other public services the community can afford.
Examples of Adverse Corporate Social Impacts
Not everyone agrees corporate investment can be good for the surrounding community. They point to the evidence that links significant investment with higher housing costs. They also say it makes schools overcrowded, reducing the quality of education schools can disseminate to ordinary students. It can lead to large scale urbanization, which brings with it its own set of impacts such as:
- Property crime
- Environmental degradation
- Higher costs of living
- Fewer resources for more people
The main thing to keep in mind is that like businesses, communities are constantly changing as well. That means to measure social impact, you need to account for community growth, prevalent economic cycles, and similar ambient socio-economic factors. This can be a very difficult task to accomplish using conventional means.
Instead, organizations like Deloitte have developed machine learning programs that can gather data on things as minute as carpooling. This allows the program to build models based on inferences across a range of social outcomes. The program makes use of matched pair testing, by studying “twin” counties. One with economic investment, and one without. This allows the program to reasonably quantify a range of social impacts with much more accuracy than ever before.
Governments and businesses everywhere are beginning to show interest in systems like Deloitte’s Social Impact Measurement Model (SIMM). Programs like SIMM can help governments manage local economies while balancing the social impacts against the perceived economic outcomes. The result is a much more balanced approach to both economic as well as social growth.
While any rural city might welcome an internet service provider expanding its coverage area to their community, they need to consider the fallout. I use my Cox internet specials, which offer thousands of jobs to people all over the country. Yet in setting up their infrastructure, they could push out smaller, local providers. That would lead to a loss of jobs, poverty, and even homelessness. The social impact of any economic investment needs careful and precise measurement before any decision is taken.