The Social Responsibility of Business is to Increase its Profits, by Milton Friedman

I love this article.  It’s by the late Milton Friedman – a genius. 

Personally I believe Corporations have a mandate beyond simple profits.  But assume I am wrong – what is a Corporation’s responsibility?  To just make money, at any cost?  And can a company really be considered in the same light – with the same social responsibilities and expectations of “goodness” as individuals have?  Or are corporations somehow exempt from the Golden Rule?  Not just legally, but morally – do they answer to a different set of legal and moral expectations than we do as citizens?  If they do, should they?

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.

Source: The Social Responsibility of Business is to Increase its Profits, by Milton Friedman

Comments

  1. Victoria says:

    Friedman in his statement is promoting nothing more than egosim, which promotes selfishness. If corporations do not behave socially responsible in today’s business environment they would most likely fail. All because of perception. I agree with the golden rule, do unto others.

    • hodan mahamed says:

      how might corporations be forced to develop social consciences

      pleace answer me this question

      regards

  2. I saw a quote from Gandhi about “commerce without morality” it was part of his “Seven Deadly Social Sins:”

    “Politics without principle; wealth without work; commerce without morality; pleasure without conscience; education without character; science without humanity; worship without sacrifice. “

  3. @Paul – I disagree – if it is doing people good, it _cannot be_ just window dressing. Good is good – regardless of motive.

    And I agree – an Executive should operate withing the direction of it’s corporate governance.

    Rob

  4. No, doing good to others in itself is not window dressing, but if you do good in order to gain goodwill or avoid paying taxes (i.e. when it becomes a pure business transaction), then, from a corporate viewpoint, it IS window dressing.
    Furthermore it’s perfectly okay for a corporation to show social responsibility, laudable even, but that has to be decided upon by its owners (shareholders), NOT an executive.

  5. @Paul: Well, he obviously had access to better drugs than we do – the man rambles and rambles at times (which makes me wonder – an economist should you know – economize!). In any case, I don’t think it is “window dressing” to do good for others. I think it is a moral responsibility _for those that decide to choose to do it_ – be that an individual or a corporation. I certainly would hate to see “forced charity” – but if a company or person can and wants to – then more power to them (and I am more likely to be their friend and/or customer).

    Rob

  6. @Rob, yes I understand that the issue at hand is about more than giving money away: I chose that example to make it a bit more extreme, but the principle stays the same: according to Friedman, as long as the executive stays within the (legal) rules, he has no business other than to optimize profits. As for spending on charity for good will or tax purposes, THAT he calls window dressing and “actions cloaked as social responibilities”.
    Here he gets fuzzy though (and a bit contradictory): on one hand he says “…the use of the cloak of social responsibility, … , does clearly harm the foun­dations of a free society”, but he also says: “It would be inconsistent of me to call on corporate executives to refrain from this hyp­ocritical window-dressing”. In fact, he then completely loses me when he continues that last sentence with “That would be to call on them to exercise a “social re­sponsibility”!” .. So, okay, maybe I’m not completely ‘with’ Friedman after all, but I agree with the basic tenets of his column.

  7. @Paul: No, that would have been theft – however, every company I have every worked at included in my budget some amount of charity dollars – and generally left it up to me to see how those monies were spent. Usually, spending a few hundred or thousand on local good-will is worth the return to investors (and besides, it’s a tax write off).

    But I think Bruce might mean something deeper that just “giving money away” – something like putting the value of human beings above the value of the bottom line; making sane choices when it come to the way we use and abuse out planet’s limited resources, etc.

    Rob

  8. @Bruce: Apart from the issue of accountability, I think Friedman’s main point is that executives have NO social responsibilities. To put it all very simplisticly: their only task and focus should be to maximize (optimize if you want) profit. So if a certain executive, out of social responsibility, donates some of the corporation’s money to United Way, then he’s out of line, according to Friedman. Do I understand you correctly that YOU would call that action ‘moral courage’? If so, I think I have to disagree.
    Suppose I work for you and you tell me develop the next killer social networking app, something you, of course, pay me handsomely for. I, on the other hand, think that social networking is doomed, and instead I start working on the next killer wireless app, which I think has far greater potential. I probably can defend my decision as being ‘morally courageous’, but I’m sure you would see that differently! While there may be some truth in my opinion, it’s simply not what you hired (and paid!) me for.
    Question to Rob: What’s YOUR opinion? Can an executive donate company money to charity? Or: can you, as a Radio Shack store manager take a dollar from the cash register and give it to the Salvation Army?

  9. My point exactly. Corporations should not be considered persons, and should not have rights, because they cannot be responsible in the same way that persons can. There should be someone you can punch in the nose when they need it. Friedman would hold that managers of corporations are responsible only to the investors, and responsible only for making profits. I believe that managers and employees of corporations should be held accountable for the consequences of their actions, beyond those that can be quantified only in financial terms. “I was only following orders” is no defense. Moral courage is required of persons, and those who would hide behind a corporate veil are cowards whom the law should not protect.

  10. Slightly arrogant of Chief Justice Waite! If we are ALL of that opinion, then there IS no argument. To decline hearing an argument implies dissenting opinions.
    Anyway, if there’s no distinction between natural persons and corporations … how does one send a corporation to jail, along with their executives? And yesterday I had to deal with a corporation that I REALLY wanted to punch in the nose! Despite the legaleese .. I think I’m still with Friedman (and possibly Rob) on this one.

  11. I made an error. It was Southern Pacific.

    “MR. CHIEF JUSTICE WAITE said: The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does.”

    http://www.tourolaw.edu/patch/santa/

  12. @Bruce: Are you sure corporations are considered “natural persons” under the law?
    It was my understanding that they were considered to be a ‘corporate personhood’, which is not the same as a natural person. The corporate personhood being a legal entity with only a subset of the rights of human beings.
    ( see also: http://en.wikipedia.org/wiki/Legal_fiction#Corporate_personality )

  13. With respect to you, Friedman was totally wrong and his wrongness perpetuates a myth that harms every citizen of the US to this day. US corporations were initially created as compacts between state governments and groups of investors as a quid pro quo arrangement: the investors get limited liability in exchange for providing a social good, including employment and economic development. But since a law clerk in the corrupt pay of the railroads put notes in Union Pacific RR vs. Santa Clara County, the law has considered corporations “natural persons” under the law. Unfortunately, this has resulted in their having natural rights and artificial responsibilities. Not a good combination.