The Social Responsibility of Business

The article titled "The Social Responsibility of Business is to Increase its Profits" was published in The New York Times Magazine on September 13, 1970.
Friedman compares businessmen advocating for social responsibilities to a Frenchman who only discovers he has been speaking prose all his life, implying that these businessmen believe they defend free enterprise.

Social Responsibility Claims: Business leaders argue that companies should promote social causes in addition to making profits, which includes providing employment, eliminating discrimination, and avoiding pollution.
Friedman contests that when businessmen make such claims, they are unintentionally advocating for socialism.
He emphasizes that discussions around business social responsibility lack precision and analytical rigor, questioning what "business" having responsibilities actually entails.
Responsibility and Agency: Only individual people can have responsibilities, not corporations. Corporations are considered artificial entities, leading to confusion about the term "social responsibility".

Corporate executives are employees of the business owners, with a primary responsibility to the owners to maximize profits within the legal and ethical frameworks.
There are exceptions, such as non-profit organizations where the objective is to provide services rather than profits.
As agents, executives focus on fulfilling the goals set by the owners, leading to straightforward performance criteria.

Outside of their role as corporate executives, individuals may have personal social responsibilities that influence their decisions, such as contributions to charity or service in the military.
It's important to distinguish between acting in a personal capacity versus fulfilling corporate duties. Actions taken as personal responsibilities are not the same as corporate social responsibilities.

When stating that a corporate executive has a social responsibility as a businessman, it implies acting against the interests of the corporation’s owners.
Examples of Misaligned Actions:
- Not increasing product prices to support anti-inflation objectives, though beneficial for corporate profit.
- Investing in pollution reduction beyond legal requirements, which may not align with profit maximization.
- Hiring less qualified individuals to combat poverty rather than prioritizing corporate benefits.

If a corporate executive spends in ways that do not align with the preferences of shareholders, they are imposing taxes and deciding on expenditure without a proper framework.
Principle and Consequences:
- The roles involved in taxation and expenditure – legislating, executing, and adjudicating – are foundational to government, not businesses.
- The justifications for corporate executives acting as governmental functions disappear as they assume roles outside the market context.

Emphasizing social responsibility risks turning executives into public servants, thus diluting corporate accountability to owners and shareholders.
If corporate executives determine social spending autonomously, it raises questions about their qualifications in addressing broader societal issues.
Political Mechanisms versus Market Mechanisms:
- Friedman asserts that adopting corporate social responsibility principles aligns with a belief that political mechanisms are better for resource allocation than market mechanisms.
Challenge of Discharging Responsibilities:
- Executives might struggle to determine the right way to spend funds for social objectives, without specific expertise in these areas.

The conflict of interest becomes pronounced when workers’ unions are asked to prioritize broader social goals over members' interests.
Union leaders may resist pressures to restrict wages for greater social purposes, leading to tensions within the workforce.

The rationale for allowing corporate executives to position themselves as social benefactors is flawed; only through democratic processes should social responsibilities be enacted.
Social purposes should require collective agreement rather than unilateral corporate dictates based on presumed social good.

Friedman argues that there is a prevalent view that profit-making is immoral and must be regulated by external forces, which endangers the foundations of a free market society.
Corporate leaders often exhibit shortsightedness by advocating for price controls that could lead to market imbalances.

Individual proprietors acting in socially responsible ways are spending their money personally, differentiating them from large corporations which spend others' money.
The operational scale of small businesses limits the social impact they can impose while taking socially responsible actions.

Friedman's core assertion is that the quintessential social responsibility of business is to engage in profit-increasing activities, provided they comply with market rules of open and free competition, devoid of deception or fraud.
He emphasizes that invoking social responsibility can often be a guise for corporate behaviors driven by self-interest.