How can companies balance short-term and long-term profits and be socially responsible in a capitalist system?

This article emphasizes that in a capitalist economy, companies must balance short-term and long-term interests and fulfill their social responsibilities to meet the needs of their various stakeholders. This allows companies to grow in the long term and advance the interests of society as a whole.

 

The capitalist economic system maximizes the human desire for profit. Businesses are also created for the purpose of profit and play a key role in the capitalist system as agents of production. Profit is what motivates entrepreneurs to start a business.
There are two types of profits: those that are realized in the short term and those that are realized continuously over the long term. For a company to survive and grow in the long run, it is more important to pursue long-term profits than short-term profits. In fact, companies will even forgo short-term profits when maximizing short-term profits conflicts with maximizing long-term profits. Consider the case of a dentist who recommends brushing your teeth three times a day. If everyone brushed their teeth this way, people’s teeth would be in better condition, reducing the dentist’s short-term profit. However, many people will keep their teeth for a long time, and the dentist will have a long-term client. Conversely, if people don’t brush as often, short-term profits will increase, but long-term profits will decrease as more people wear dentures.
In the early days of capitalism, companies did not have to distinguish between short-term and long-term profits. In a state of free competition among small capital, the moment you give up short-term or long-term profits, you are out of the competition. As a result, in order to survive the fierce competition, companies utilized their resources as efficiently as possible to provide goods at the lowest price. This means that the pursuit of profits for the company also promotes the interests of society as a whole. At this stage, the purpose of the enterprise was centered on the pursuit of profit for the capitalist, since the owner of the enterprise was the manager.
However, as companies grew in size and business activities became more complex, managers with specialized management skills became necessary. This separation of ownership and management increased the efficiency of management, but it also caused companies to face conflicts between short-term and long-term interests. This is because professional managers who are entrusted with management as shareholders’ agents tend to show off their management abilities by focusing on short-term profits rather than the long-term prospects of the company. By monitoring such inefficient management activities, shareholders sought to maximize their own interests as well as the long-term interests of the company.
In the modern era, the complexity of management has increased, and it has become common for companies to pursue multiple objectives, including social benefits, rather than just economic ones. This reflects the fact that modern society has changed into a pluralistic society composed of many stakeholders rather than a single power. In particular, today’s companies must simultaneously consider the needs of many different interest groups, including labor unions, consumer groups, environmental organizations, local communities, and governments. These stakeholders are becoming increasingly influential in what companies do, and if they ignore their needs, their long-term growth and survival may suffer.
For companies to survive and thrive in the long term as members of this pluralistic society, they must not only maximize profits for shareholders, but also satisfy the needs and expectations of various interest groups. In this process, companies must fulfill their social responsibilities and pursue long-term interests by realizing sustainable management. Only then can the long-term interests of the company be guaranteed, and the interests of society as a whole can be promoted.