The Social Responsibility of Business is to Increase its Profits - Summary
The Social Responsibility of Business is to Increase its Profits
Introduction
Milton Friedman's article, published in The New York Times Magazine in 1970, addresses the social responsibilities of business within a free-enterprise system.
Friedman critiques businessmen who advocate for businesses to pursue social ends beyond profit, arguing that this stance unwittingly promotes socialism.
He emphasizes the importance of analytical rigor in discussions about the social responsibilities of business, clarifying what it implies for whom.
Responsibility and the Corporate Executive
Only Individuals Have Responsibilities: Friedman asserts that only individuals can have responsibilities, not abstract entities like "business."
Corporations as Artificial Persons: A corporation, being an artificial person, may have artificial responsibilities.
Corporate Executives as Employees: In a free-enterprise system, a corporate executive is an employee of the business owners and is directly responsible to them.
Primary Responsibility: The executive's primary responsibility is to conduct the business in accordance with the owners' desires, generally to maximize profits while adhering to legal and ethical norms.
Exceptions: Some corporations may be established for eleemosynary purposes (e.g., hospitals or schools), where profit is not the primary objective.
Acting as an Agent: The manager acts as an agent of the owners, with a primary responsibility to them.
The Corporate Executive as an Individual
Multiple Responsibilities: A corporate executive, as an individual, has various responsibilities to family, conscience, charity, church, community, and country.
Acting as a Principal: When fulfilling these responsibilities, the executive acts as a principal, using personal resources (money, time, energy) rather than the resources of the employer.
Individual vs. Business Responsibilities: These "social responsibilities" are those of individuals, not of the business.
Social Responsibility as Spending Someone Else's Money
Conflict of Interest: If a corporate executive pursues "social responsibility" in their capacity as a businessman, they act against the interests of their employers.
Examples:
Refraining from raising prices to prevent inflation.
Spending on pollution reduction beyond what is required by law.
Hiring "hardcore" unemployed at the expense of corporate profits.
Spending Other People's Money: In each case, the executive spends someone else's money for a general social interest.
Reducing returns to stockholders.
Raising prices to customers.
Lowering wages of some employees.
Imposing Taxes: The executive effectively imposes taxes and decides how to spend the proceeds, which raises political questions.
Political Implications
Governmental Functions: Imposing taxes and spending tax proceeds are governmental functions, subject to constitutional, parliamentary, and judicial controls.
The Executive as Legislator, Executive, and Jurist: The businessman becomes simultaneously legislator, executive, and jurist, deciding whom to tax, by how much, and for what purpose.
Justification for Stockholder Selection Disappears: The justification for allowing stockholders to select the executive disappears when the executive imposes taxes and spends the proceeds for "social" purposes.
Civil Servant: The corporate executive becomes a public employee or civil servant in effect, yet without the legitimacy of a political process.
Socialist View: The doctrine of "social responsibility" aligns with the socialist view that political mechanisms should allocate scarce resources.
Consequences of Social Responsibility
Lack of Expertise: Corporate executives may lack the expertise to address social issues like inflation.
Unintended Consequences: Actions taken to address social problems may have unintended negative consequences.
Accountability: Corporate executives may face resistance from stockholders, customers, and employees if they pursue social responsibility at the expense of profits.
The Virtue of Private Competitive Enterprise
Responsibility for Own Actions: Private competitive enterprise forces people to be responsible for their own actions.
Limited Exploitation: It makes it difficult for individuals to exploit others for selfish or unselfish purposes.
Doing Good at One's Own Expense: Individuals can do good, but only at their own expense.
The Impatience Argument
Argument: Some argue that social problems are too urgent to wait for political processes and that businessmen should exercise social responsibility to solve them quickly.
Rejection on Principle: Friedman rejects this argument, asserting that it seeks to attain undemocratically what cannot be attained democratically.
Adam Smith's Skepticism: Friedman echoes Adam Smith's skepticism regarding those who "trade for the public good."
"Evil" in a Free Society: In a free society, it is hard for "evil" people to do "evil," as one person's good is another's evil.
The Individual Proprietor
Spending Own Money: If an individual proprietor acts to reduce returns to exercise "social responsibility," they are spending their own money.
Limited Monopolistic Power: Side effects tend to be minor because individual proprietors are less likely to have monopolistic power.
Social Responsibility as a Cloak
Rationalization: The doctrine of social responsibility is often a cloak for actions justified on other grounds.
Examples:
Providing amenities to a community to attract employees.
Making corporate charitable contributions for tax benefits.
Generating Goodwill: Corporations may use social responsibility to generate goodwill in a climate averse to capitalism.
Hypocritical Window-Dressing: Friedman does not strongly condemn this hypocritical window-dressing.
Harm to a Free Society
Schizophrenic Character of Businessmen: Businessmen are often far-sighted internally but short-sighted regarding external factors affecting business survival.
Wage and Price Controls: Businessmen's calls for wage and price controls exemplify this short-sightedness and can destroy the market system.
Political Principles
Market Mechanism: Unanimity: The market mechanism is based on unanimity, voluntary cooperation, and mutual benefit.
Political Mechanism: Conformity: The political mechanism is based on conformity, serving a general social interest determined by a church, dictator, or majority.
Limitations of Unanimity: Unanimity is not always feasible, making some conformity unavoidable.
Scope of Political Mechanism: The doctrine of "social responsibility" extends the scope of the political mechanism to every human activity.
Collectivist Ends without Collectivist Means: It differs from explicit collectivism only by professing to believe that collectivist ends can be attained without collectivist means.
Fundamentally Subversive Doctrine: Friedman calls it a "fundamentally subversive doctrine" in a free society.
One Social Responsibility: The one and only one social responsibility of business is "to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
Please create a summary and write down the key highlight the importance
Milton Friedman's article emphasizes that the primary social responsibility of business is to increase its profits while adhering to legal and ethical norms. He argues that corporate executives should focus on maximizing returns for their shareholders, and cautions against using corporate resources for broader social objectives, which he views as akin to imposing taxes and potentially undermining the free market system. Friedman highlights that businesses operating within a competitive environment and focusing on their economic function ultimately contribute more effectively to societal well-being.
Simple Shorter Summary
Friedman's main point is that businesses should focus on making money while following laws and ethical practices. He believes company leaders should prioritize profits for shareholders and avoid using company funds for social goals, as this could disrupt the free market. According to him, businesses contribute more to society by concentrating on their economic role in a competitive market.