Exploring the role of the private sector in shaping institutions of capitalism

Business and the Public Sector

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Please see below for summaries of the sessions so far and some of our thoughts as to the questions they raise. If you would like to add to this conversation, please email Katherine Talbot at ktalbot@hbs.edu.


1.   Introductory session - Moderator Paul Healy - January 30, 2014 
Rebecca Henderson (HBS), Discussant Jan Rivkin (HBS)​​​​​​​​​​​

2.   Global governance - Moderator Karthik Ramanna- February 6, 2014
Rafael Di Tella (HBS), Discussant John Ruggie (HKS)

Global Governance 1​The objective of the session “Global Governance 1” was to lay out the state of our understanding of the range of institutions and cultures that define governance throughout the world today, as well as their effectiveness or ineffectiveness in providing outcomes that sustain democratic capitalism. Our commentator for the evening was Professor Rafael Di Tella of Harvard Business School. Our discussant was Professor John Ruggie of Harvard Kennedy School. Both speakers were asked to discuss “the status quo” on global governance – as they saw it – and to spend some time exploring how the private sector engages (effectively or ineffectively) in global governance. 

Professor Di Tella spoke first and raised the proposition that business could not play a productive role in the public sphere. He noted that public surveys from several different countries suggested that business was generally perceived as corrupt and that there was little public trust in the capacity of business to “do the right thing.” He argued that the United States was one of the few countries in the world where business leaders could legitimately meet privately with regulators without facing populist reprisals. In most other countries, he noted, capitalists were associated – rightly or wrongly – with corruption and that the political response to greater perception of corruption was greater constraints on capitalism. He argued that fairness – more than prosperity or efficiency – legitimizes capitalism in the minds of the general public – so that the idea of business engaging in public policy could backfire. 

These comments raised a number of questions from the audience. Several participants noted that there was no one dominant model of capitalism and that Professor Di Tella’s characterization of capitalism outside the U.S., while valid in certain geographies, did not apply in others. There were also comments about the historical evolution of U.S. capitalism and the need for more dynamic models of capitalism. Finally, some participants questioned the proposition that the private sector rather than the public sector was most implicated in corruption in emerging markets. 

Professor Ruggie spoke next and offered a counterpoint to Professor Di Tella’s main thesis. Professor Ruggie argued that there were numerous examples of firms and industries working cooperatively with public institutions to advance the cause of the commons. These examples included efforts to advance institutions such as Transparency International, to define environmental and labor practices in the mining and chemicals industries, and to build common global standards for arbitration and settlement of commercial disputes. Professor Ruggie closed with a call for a richer inductive model for business engagement in the commons. 

-- Karthik Ramanna, session moderator​

3.   Inequality/Poverty -  Moderator David Moss - February 13, 2014 
Christopher Jencks (HKS), Discussant Mary Jo Bane (HKS)

4.    The Environment​ - Moderator Rebecca Henderson - February 20, 2014 
Jody Freeman (HLS), Discussant Michael Young (FAS) ​

5.    Sociology/History - Moderator Rakesh Khurana - February 27, 2014 
Frank Dobbin (FAS), Discussant Sven Beckert (FAS)

6.   Economics - Moderator Karthik Ramanna - March 6, 2014 
Andrei Shleifer (FAS), Discussant Tarun Khanna (HBS)

7.   Comparative political economy - Moderator David Moss - March 13, 2014 
Bruce Kogut (Columbia), Discussant Suzanne Berger (MIT)

8.   Psychology - Moderator Joshua Margolis - March 27, 2014 
Cass Sunstein (HLS) & Max Bazerman (HBS), Discussant Joshua Greene (FAS)

9.   Political philosophy - Moderator Nein-he Hsieh - April 3, 2014
Arthur Applbaum (HKS), Discussant Marshall Ganz (HKS)

To date, the seminar series has largely centered around understanding some of the major challenges facing society today (e.g.,. global governance, inequality, and sustainability) and examining the potential for business to address these challenges. The assumption has been that it would be appropriate for business to actively address these challenge, but on many views about the role of business in society, this assumption is far from obvious. The aim of this session was to make this assumption explicit and to subject it to scrutiny. 

Professor Arthur Applbaum addressed the topic by building on John Rawls’s theory of justice. For Rawls, the subject of justice is the “basic structure,” which includes the various social, political and legal institutions that set the rules for cooperation among private citizens. This view of the subject of justice puts into place a kind of division of moral labor between the background institutions and private actors. When the basic structure supports background justice (the realm of ideal theory), the obligations of private economic actors are to obey the law and to support just institutions, which includes not undermining them. Beyond that, private economic actors have no obligations regarding distributive justice (though they may have other obligations). This division of labor extends to when the background conditions are unjust. When the basic structure fails to support background justice (the realm of non-ideal theory), the role of private economic actors is not to assume the functions associated with background institutions or to correct the resulting injustice. Rather, private economic actors are obligated to support changes in the basic structure that establish background justice and to aid the disadvantaged no more than what would be required of them under the conditions of ideal theory. 

In many ways, Professor Applbaum’s account reinforced the points raised by participants in previous sessions. In previous sessions, participants have argued that many of the societal challenges being discussed are in part the result of the actions of business – an example of Professor Applbuam’s point about business undermining the proper functioning of background institutions. Participants also have argued that the potential for business to address these challenges is limited, and that change needs to happen at the level of background institutions. 

Professor Lynn Paine offered an alternative perspective, one that was much supportive of a role for business in addressing the major challenges facing society today. Professor Paine began by calling attention to the fact that the debate largely places the burden of proof on those who hold that business has a moral responsibility to address these challenges. That is, the underlying assumption seems to be that absent a positive argument, business has no responsibility to either the “capitalist system” or the society in which they are embedded. But as she pointed out, when it comes to individuals, rarely do we assume that the burden of proof is on the side of attributing any moral responsibility to them. In fact, it is the opposite. The starting point is that individuals have moral duties and the debate concerns the conditions under which they are exempt from those duties. So, why should it be any different for business, and more specifically, business managers? Having distinguished these two perspectives, Professor Paine introduced what she argued would be a more promising and action-oriented perspective, which was to ask, “whether – or under what circumstances – is it desirable for private firms to assume a moral responsibility to either the ‘capitalist system’ or the society in which they are embedded, and if so, how should this responsibility be exercised?” She termed this, the “business leader’s question.” 

While Professor Paine’s account carved out space and made the case for business to be engaged more directly in the public sector, the question arose as to what was meant by “desirable.” Was it to be understood from the perspective of business or did it carry with it a sense of imperative or obligation, in which case, more work needs to be done on specifying just what are the responsibilities of business to society and the public sector.

-- Nien-hê Hsieh, session moderator

10.  Inequality/Poverty - Moderator David MossApril 10, 2014 

      Larry Katz (FAS), Discussant Jeffrey Liebman (HKS)

​​11. Global governance - Moderator Paul Healy - April 17, 2014 

      Daniel Carpenter (FAS), Discussants Richard Freeman and Larry Summers (HKS)

12. The Environment - Moderator Rebecca Henderson - April 24, 2014 
Henry Lee (HKS) & Michael Young (FAS)

13. Conclusions and Next steps - May 1, 2014