“When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are – or would be if they or anyone else took them seriously – preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.
The discussions of the "social responsibilities of business" are notable for their analytical looseness and lack of rigor. What does it mean to say that "business" has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but "business" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.
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What does it mean to say that the corpo¬rate executive has a "social responsibility" in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire "hardcore" unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his "social responsibility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money.
The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct "social responsibility," rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.
But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.”
Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine (13 September 1970).
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
Milton Friedman (1912–2006) was for many years professor of economics at the University of Chicago. He received the Nobel Prize in Economics in 1976 for his "for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilisation policy." Milton Friedman was an advocate of economic liberalism.
In this classic essay, Friedman makes the case that it is the responsibility of corporate executives to maximize profits rather than promote a social agenda focusing on solving poverty or saving the environment. Friedman’s argument as two main points. First, economic efficiency is enhanced when the firm pursues profits as this minimizes costs, directs resources to their most productive use, and raises the average level of real income in society. This is Adam Smith’s argument for the benefits of competition in a stable economy of relatively small firms interacting with large numbers of households in a free market that quickly drives down any extraordinary profits. His second point is political. The firm belongs to its stockholders, not some nebulous concept of “society” and certainly not the government. As such, the corporation’s executives must run the corporation in the stockholder’s interest, not with the vague and ever changing objectives of the political class in mind. This is in fact a political argument because, in Friedman’s mind, a corporate executive who makes decisions consistent with the priorities of politicians is pursuing a political agenda, not only at the expense of the firms shareholders but the general public, for the firm will not be producing at least cost.
Needless to say, Friedman’s position is not shared by everyone. Many point out the economy is hardly characterized by pure competition where each firm is struggling to make any profit at all. And firms that engage in “social responsibility” may even be seen by consumers as preferable to those that merely focus on profit and hence have higher sales and higher profits as a result. One can even argue that firms that simply chase profits at the expense of the environment or their employees welfare will find themselves facing boycotts and pickets. Finally, let me note that creating a positive image of the firm enhances the workplace and can improve employee retention, improving productivity. It is by no means clear that the raw pursuit of profit is necessarily the best strategy for the firm.
Friedman may be on firmer ground that the social responsibility of business flirts with a soft kind of socialism. Certainly corporate executives enjoy the attention that comes from their philanthropic activities and the power that comes from making decisions that yield complimentary write-ups in the newspapers. And they get to do it with other people’s money, just like a real politician. On this, Friedman may have a point.
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