It's More than Just the Economy

19 July 2026

By Robert C. Hinkley

For nearly half a century, governments of every political persuasion have embraced the same idea: if we want prosperity, innovation and economic growth, we should leave business as free as possible to pursue its own interests and regulate only when necessary. The market will do the rest.

It was an attractive theory. It has also proved to be one of the great disappointments of modern public policy.

Consider the record. Tobacco companies spent decades denying the dangers of smoking while millions died from preventable disease. Lead paint manufacturers continued selling products they knew were hazardous long after evidence of the harm became overwhelming. Fossil fuel companies understood the risks posed by greenhouse gas emissions decades before climate change became a political issue, yet emissions continued to rise. Social media companies discovered that outrage and division generated profits while governments struggled to contain the social consequences. Artificial intelligence is following the same trajectory: astonishing innovation accompanied by increasingly urgent calls for regulation after problems have already emerged.

These are not isolated failures. They are symptoms of a deeper flaw in the relationship between business and liberal democracy.  Governments have effectively outsourced their obligation to advance the public interest to institutions that aren’t asked to protect it as well.

Modern corporations exist to pursue their own interests. Directors are legally required to act in good faith in the best interests of the company. They are not required to care for what is best for society, the environment or future generations. Indeed, when those broader interests conflict with the company's interests, corporate law generally expects directors to favour the company.

This is not a criticism of corporate directors. Most are conscientious people trying to fulfil the duties the law imposes upon them. The problem lies in the system itself. We create institutions with all the rights of citizenship, but none of its obligations.  To our chagrin, they then use those rights to shield themselves from new regulation which would stop their destructive behaviour.

The consequence is a never-ending cycle. Businesses innovate. Sometimes harm emerges. Public concern grows. Governments investigate. New laws are debated. Industry resists. When regulations are eventually enacted, it’s often too little too late.

Climate change illustrates this cycle perfectly. Since the Paris Agreement was signed more than a decade ago, the fossil fuel industry has frustrated attempts to legislate the reduction of global greenhouse gas emissions at every turn.  Emissions have continued to increase.

The difficulty is not simply weak political leadership. It is structural. Governments are forever trying to catch up with organisations whose legal duty is to maximise their own success within the limits of existing law.  Perhaps it is time to address the flaw in the underlying structure.

Liberal democracy is built on freedom, but freedom carries responsibility. We expect citizens to exercise self-restraint. We do not attempt to regulate every selfish act through legislation because we expect citizens to self-regulate their behaviour when they see it harming the environment or other citizens.  However, we expect government to step in when that self-regulation is absent—especially when the harm that results is severe.

Corporations should be no different.

Instead of continually expanding the regulatory state in response to the latest corporate abuse, we should ask whether every citizen—individual and corporate alike—should be subject to one simple civic principle: the freedom to pursue their own interests without causing severe damage to the public interest.

For corporations, this would require a modest but profound change to directors' duties. Directors should continue to pursue the best interests of their companies. That remains essential to economic prosperity. But they should do so subject to an equally clear obligation not to cause severe damage to the environment, public health and safety, human rights, the dignity of employees, or the wellbeing of communities.

This is the principle embodied in the proposed Code for Corporate Citizenship.

A few may see it as "more regulation." In reality, it is the opposite. Rather than requiring governments to write thousands of increasingly complex rules in a futile effort to anticipate every new technology and every new business model, it establishes a broad duty of responsible conduct and leaves directors free to determine how best to comply. Just as the Business Judgment Rule allows directors wide discretion in pursuing corporate success, courts would intervene only where severe harm had been ignored or deliberately inflicted.

The result would be a major shift from external regulation to internal responsibility. Directors would have every incentive to ask not merely, "Is this legal?" but also, "Could this cause severe damage?" Employees, investors, customers and community activists would reinforce the same expectation. Prevention would replace endless attempts at cure.

We have spent decades asking governments to regulate faster and businesses to behave better. Neither expectation has proved realistic because each is working against the logic of the system in which they co-exist.

The real challenge is not to choose between capitalism and democracy, or between free markets and government regulation. It is to restore the balance between freedom and responsibility on which successful society ultimately depends.

It is time to stop assuming that the public interest will best be served by corporations unburdened by the obligations of citizenship and instead require them to pursue their own interests, but never by causing severe damage to everyone else's.

That single principle could accomplish more than another generation of regulations ever will.