The social responsibility of business is to increase its profits - Friedman
The Social Responsibility of Business to Increase its Profits
Author and Source: Milton Friedman, The New York Times Magazine, September 13, 1970.
Introduction to Business Social Responsibility
Comments on businessmen's views regarding the social responsibilities of business.
Reference to a Frenchman who learned he had been speaking prose all his life as an analogy to businessmen who believe they are defending free enterprise.
Critique that businessmen claiming other obligations beyond profit maximization are unwittingly supporting socialism.
Understanding Responsibilities in Business
Key Concepts
Corporate Responsibility:
Responsibility is fundamentally attributed to individuals, not to a corporation as an entity.
The article emphasizes the lack of clarity in what is meant by business having responsibilities.
Individual Roles
Corporate executives are employees of the business owners, whose primary duty is profit maximization and adherence to societal rules and ethics.
Different purposes for establishing businesses (e.g., charitable organizations) exist, which can alter the executive’s objectives.
Judgment of Performance
Performance of corporate executives is measurable, defined by the desires of their employers and societal rules.
Individual executives also bear personal responsibilities separate from their business duties (family, conscience, etc.).
Distinction made between acting as an agent of the corporation vs. acting as an individual.
Examples include charitable giving and social contributions from personal resources.
Social Responsibility of Corporate Executives
Corporate Executives as Agents
Acting against employers’ interests while claiming social responsibility means spending stakeholders' resources not aligned with their preferences (e.g., avoiding price increases or increasing hiring costs).
This would amount to the executive exercising a form of taxation on shareholders, customers, and employees without their consent.
Political and Economic Ramifications
Imminent conflict arises when corporate executives assume roles akin to public servants by making evaluations and expenditures meant for social benefit, undermining established political processes.
Referencing society's justifications for corporate executives being selected to act as agents for stockholders.
Asserting social responsibility can distort their roles and judgment in strictly business contexts.
The Limits of Corporate Social Responsibility
Challenges in Execution
The article questions whether corporate executives can adequately discharge social responsibilities due to their lack of expertise outside their immediate business interests.
Lack of insight could lead to unintended negative consequences, such as inflation, shortage, or loss of profits.
Repercussions of Social Responsibility Demands
Corporate executives risk losing their positions if their social responsibility actions adversely affect profits.
Corporate accountability severely constrains individual freedoms and undermines the foundations of a free market.
Individual Proprietor vs. Corporate Executive
Differentiation between actions of individual proprietors, who can voluntarily decide to spend on social causes affecting only their wealth, compared to executives with shareholders' funds.
Hypocrisy of Social Responsibility
Criticism of the social responsibility doctrine as a facade for practices justified under self-interest instead of moral conviction.
Instances where businesses engage in social responsibility rhetoric to counter puported capitalistic greed or generate goodwill.
Business Implications and Market Dynamics
Businessmen's public calls for social responsibility often lead to detrimental policies like wage and price controls that threaten market stability.
The concept of social responsibility has the potential to wield significant influence over market dynamics by imposing external constraints on businesses.
The Political Principle of Business
Free Market Principles
In a free market, collaboration is voluntary; societal norms arise from individual actions and motives.
Contrasting political obligations where individuals may be coerced to act against personal preference for broader social benefits (e.g., taxation).
Conclusion
Fredman's assertion that the only ethical obligation of business is to increase profits while adhering to societal rules.
He critiques the social responsibility doctrine as subversive to freedom, proposing that collective good cannot replace individual responsibility effectively.