Milton Friedman's View on Social Responsibility

Milton Friedman ( $1912$ – $2006$ ), a Nobel Prize-winning economist, provides one of the most famous and influential critiques of the concept of Corporate Social Responsibility (CSR).
His views were most prominently articulated in his $1970$ article for The New York Times Magazine entitled, "The Social Responsibility of Business Is to Increase Its Profits."
The central thesis of the Friedman Doctrine is that the primary—and only—social responsibility of a business is to use its resources and engage in activities designed to increase its profits, provided it stays within the "rules of the game."

Friedman argues from the perspective of agency theory, focusing on the relationship between corporate executives (the agents) and the owners of the firm (the shareholders/principals).
Status of the Executive: A corporate executive is an employee of the owners of the business. Their primary responsibility is to conduct the business in accordance with the owners' desires.
The Owners' Desire: Friedman asserts that the owners' desire is generally to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.
Misappropriation of Funds: If an executive spends company money on "social" causes (such as reducing pollution beyond what is required by law or hiring the hard-core unemployed to combat poverty), they are essentially spending someone else's money: * Spending Shareholders' Money: By reducing the returns (dividends) available to the owners. * Spending Customers' Money: By raising prices to cover the costs of social initiatives. * Spending Employees' Money: By potentially lowering wages to account for non-productive expenditures.

Friedman characterizes the pursuit of social responsibility by businessmen as a form of "taxation."
The Political Argument: Taxation is a governmental function. When an executive spends funds for social purposes, they are effectively deciding how to tax the shareholders/customers and how that tax money should be spent.
Lack of Democratic Mandate: Executives are not public officials. They are not elected, and they have no democratic mandate to make decisions about the allocation of scarce resources for the public good.
Lack of Expertise: Friedman argues that even if an executive wanted to be socially responsible, they lack the expertise to do so. A businessman is trained to manage a firm, not to solve complex societal issues like inflation, environmental degradation, or structural poverty.

Friedman does not advocate for an "anything goes" approach to profit-making. He explicitly identifies boundaries that must be respected.
Legal Compliance: Businesses must adhere to the laws of the land.
Ethical Custom: Businesses should operate within the norms of ethical behavior established by the society in which they function.
Open and Free Competition: The pursuit of profit must occur within a framework of "open and free competition without deception or fraud."
The Role of Government: For Friedman, the government is the appropriate entity for setting the rules, establishing the legal framework, and addressing social problems through legislation and taxation, which are subject to political debate and democratic processes.

Friedman argues that the term "social responsibility" is often used loosely and lacks analytical rigour.
Individual vs. Collective: Individuals can have responsibilities. A person might choose to give their own money to a charity or a political cause. However, a "business" as a whole is an artificial legal construct; it cannot have responsibilities in the same sense that a person does.
Subversion of the Free Market: Friedman suggests that requiring businesses to pursue social ends is a "fundamentally subversive doctrine" because it shifts the economic system away from a free market and toward a socialist or collectivist model where the state or "public interest" dictates the use of private property.

The Friedman Doctrine serves as the cornerstone of Shareholder Theory, which posits that the purpose of the corporation is to maximize shareholder wealth.
It stands in direct contrast to Stakeholder Theory, which suggests that managers have a responsibility to balance the interests of all parties affected by the business, including employees, customers, suppliers, and the local community.
Friedman acknowledged that some activities labeled as "social responsibility" might actually be "hypocritical window-dressing." For example, if a firm provides amenities to a small community to attract high-quality labor, it is an investment in the business's long-term interest rather than a purely altruistic act of social responsibility.