Reading Notes: The Social Responsibility of Business is to Increase It’s Profits

Milton Friedman

Check it out.

A lot of people these days are talking about “social responsibility” in business, but that basically amounts to poorly executed socialism. A “socially responsible” corporation takes profits- that is money that would be going to shareholders- and spends it on what are deemed to be socially just endeavors. This spending occurs at the whims of the CEO,  how much money is spent and how it is spent reflect her individual sense of “responsibility.”

CEOs don’t have the right to take other people’s money and spend it as they choose, they have a fiduciary responsibility to maximize returns to their shareholders. Any returns that they fail to make for “socially responsible” reasons constitute a tax on shareholders (those poor, poor rich people) which is levied and spent by the CEO. No one elected the CEO to levy and spend taxes, we have politicians for that. If socially good stuff is going to happen it needs to happen in a way that’s publicly accountable- either by individuals using their own money or by the government raising taxes to take action. 

Friedman accepts that some corporations may cave to public pressure and look socially responsible to protect their brand and profits, but he calls this a “fraud”, since it’s corporations taking a role that corporations aren’t built to take in our society. 

Ok, Milt, there are a million angles on this one but let’s take a new one. This argument assumes that $ spent outside of a corporation are essentially equivilent to dollars spent in it, even when those dollars are directly related to the corp’s operations. Say, for instance, that a corp is polluting. Which is cheaper in the end for society- for the corp to stop polluting, or for an activist group to put pressure on the government to create an ugly beaurocratic oversight mechanism which forces the corporation no to pollute? If the ONLY way that corporations interacted with society was delivering returns to shareholders this would make sense, but that’s just not true. Shareholders still have the right to fire CEOs if they spend too much on social programs, but we should not assume that socially aware shareholders are an “activist minority”, or even that they have a democratically efficient mechanism of exercising control. 

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