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A look at Milton Friedman's famed article

Milton FriedmanMilton Friedman’s article entitled The Social Responsibility of Business is to Increase its Profit is one of the most often used counter arguments for people who would eschew the idea that a corporation should consider more than just shareholders. Business and human rights professors frequently assign this article to students to show the “other side” of the business and human rights debate. What makes this article particularly remarkable is that 1) it is incredibly short and 2) it was written over 40 years ago. In one small package, Friedman crystallized many of the themes that scholars would continue to wrestle with decades later.

Milton Friedman, published his piece over forty years ago in The New York Times Magazine. In this article, Friedman discusses how corporations and their agents should not concern themselves with having social consciences, but should try simply to increase their profitability. Friedman suggests that corporate executives have responsibilities to their employees, stockholders, and principals to maintain the highest financial intake possible while acting within the bounds of the law of social mores, but these executives should not perpetuate their own social agendas (or the popular social agenda of the day) with the corporations’ finances. According to Friedman, if corporate executives start pandering to the desires and whims of society (desires such as ” eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers”), then they will be elevating socialist doctrines and corrupting the free market economy.

First of all, Friedman contends that corporate executives have a primary responsibility back to her (although, in the ‘70s it would probably have been “his”) employers or principals of the company and not to the overarching notion of the greater good of society. The general primary goal according to Friedman is “to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” He claims that if the executive pursues to mollify social ills with company funds, the executive will be performing something like a tax collecting duty and then a tax distribution all with the proper representation from the people from whom the money is being generated. In essence, Friedman is saying that social responsibility in a business setting sets up a scheme of “taxation without representation.” But, Friedman does not address the idea that people in that industry might choose to maintain aspects that increase the social conscience of the business, nor does he address the idea that some employees or stockholders chose that particular business for its social concerns.

Second, Friedman has little patience for those corporations who seem to practice a form of social responsibility solely for the purpose of covering their tracks or for making improvements in the community mainly for the business’s own self-interest. He makes the example of providing amenities to a community such as parks or recreational facilities or in order to attract desirable employees. Friedman says that while these expenditures are good ones in the long run, it would be better for business if the corporations were honest about them. In the climate in the day he wrote the article and continuing into today, there is a current of the population that thinks of big business as “soulless corporations” and people can have aversions to maximization of profits above all else. Friedman suggests that the goodwill that is generated by those self-interested expenditures would be more aptly placed in business if they were honest about their nature and that might also help the overall image of the business world as a whole.

Lastly, Friedman discusses the “cloak of social responsibility” and how it has done harm to the foundations of free society. According to Friedman, pioneers in business have a “schizophrenic” nature. (This idea of businesses as “schizophrenic” is particularly insightful given Prof. Joel Bakan’s deduction of corporations as psychopathic in the 2000s). While the leaders can be very “far-sighted and clear-headed” about the trajectory of the internal workings of their businesses, they can be “near-sighted and muddle-headed” when it comes to the trajectory of business in general. Friedman says that when these business leaders make decisions based on the modern trend of what is important in the world of social responsibility, they are doing so simply to gain “kudos in the short run.” Friedman fears that these kinds of decisions will lead to more external or government controls or regulations on business, and that would be the death of business as it was once known.

Forty years later, Friedman’s article remains a valid read. There is some credence behind the notion that if business sticks to business, then others will probably be affected positively. However, it seems that Friedman successfully eliminated the human as an aspect of business in his narrative of the social responsibility of business. Given the law’s increased focus on human rights as inextricably linked to business, focusing solely on profits may not only be short-sighted but may also, in the long run, cost the company millions in profits when accountability structures catch up with human outrage. It makes me wonder what his thoughts would be today if he were still alive.

**Image from http://www.achievement.org/autodoc/photocredit/achievers/fri0-006

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