Tuesday, March 08, 2011

Corporate Social Responsibility: "A Fundamentally Subversive Doctrine In a Free Society," Friedman

Target's Subversive Policy of Corporate Responsibility
(Click to enlarge)
Milton Friedman writing in the New York Times Magazine in 1970, "The Social Responsibility of Business is to Increase its Profits":

"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.

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 doctrine of "social responsibility" taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. “Social responsibility” is a fundamentally subversive doctrine in a free society. In such a society, there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

23 Comments:

At 3/08/2011 11:12 PM, Blogger PeakTrader said...

There may not be much free enterprise to defend. Here's something I heard on the radio that I had to look up:

TrimTabs Says Americans Increasingly Relying on U.S. Social Welfare Programs for Income
March 08, 2011

In a research note, TrimTabs highlights that government social benefits —including Social Security, Medicare, Medicaid, and unemployment insurance—were equal to 35% of all private and public wages and salaries in the 12 months ended January, up from 10% in 1960 and 21% in 2000.

“We think very few market participants understand that the economy has become heavily dependent on government largesse,” cautions Schnapp. “We are hardly convinced that the recovery can persist without outside aid, so we expect the Fed to roll out QE3 shortly after QE2 ends at the close of June.”

 
At 3/08/2011 11:49 PM, Blogger Rob said...

Mark, if you supported the Citizens United ruling, then you support the doctrine of corporate personhood. And if you support that, then you cannot support Friedman's argument that businesses are "artificial people" with only "artificial responsibilities." (And what exactly is an artificial responsibility?) A business' priority should first and foremost be to increase profits — but it cannot do so at the expense of the environment or the 14th amendment.

 
At 3/08/2011 11:56 PM, Blogger PeakTrader said...

"Corporate Social Responsibility" is what more Americans want, even when it means lower wages, higher prices, and bigger profits. Afterall, it sounds good.

 
At 3/09/2011 12:07 AM, Blogger Benjamin said...

I agree with Friedman on this. The role of corporations is to make profits, but only within the law. Corporations should not, for example, off the competition.

Pollution is another interesting topic. Pollution is a cost imposed on the broader community and economy, for example, without compensation. Pollution violates property, water and air rights, and is, in effect, a type of communism. The whole community supports a corporation by bearing the costs of pollution--we are all in this together.

Friedman is not a communist, and thus advocated taxing pollution.

It is nice to see Friedman reviewed from time to time.

 
At 3/09/2011 12:48 AM, Blogger Pan said...

Every country that has attempted to implement Milton Friedman's ideas has enriched a few at the top and eviscerated the middle class.

Our first social responsibility is to recognize the abject failure of Friedmanomics in the real world.

Only then can we discuss whether people matter, or only numbers.

 
At 3/09/2011 1:00 AM, Blogger PeakTrader said...

Peter, I mean Pan, does the number of starving people matter?

Have you recognized any "abject failure of Friedmanomics in the real world" yet?

 
At 3/09/2011 1:04 AM, Blogger Klockarman said...

I find Friedman's argument kind of anti-libertarian. Let me explain: Friedman (a disinterested third party) is effectively chastising a company who is voluntarily practicing "social responsibility". The Target corporation is not being coerced into sharing it's profits with charitable organizations, it's doing it voluntarily, and if any of their customers or shareholders don't agree with Targets choice, then those customers or shareholders can surely spend their money on products or stock shares of Wal-Mart or some other retailer. Nobody is being coerced to do anything; everyone is engaging in voluntary activities, so what's the problem? Friedman may think that practicing social responsibility is not the wisest business decision for the long term profitability of Target (or whatever company he was really writing about in 1970), but if he's not a shareholder of said company, his opinion really shouldn't matter a whit.

 
At 3/09/2011 2:19 AM, Blogger PeakTrader said...

Klockarman, the objective of a firm is to maximize profit or value, which tends to cause efficiencies in production. So, consumers can buy better products at better prices.

Typically, a small stockholder only wants to make as much money as possible. He may not want corporations to jump into social responsibility bandwagons.

Why should a corporation decide to take 5% or 50% of his profits for ideas of social responsibility, unless they were to make more profit, which would be deceptive (as Friedman stated).

 
At 3/09/2011 8:50 AM, Blogger Sean said...

Mark, if you supported the Citizens United ruling, then you support the doctrine of corporate personhood. And if you support that, then you cannot support Friedman's argument that businesses are "artificial people" with only "artificial responsibilities."

I was about to say this. :) An entity with expansive rights but shrinking responsibilities is an abomination.

 
At 3/09/2011 9:31 AM, Blogger Michael Hoff said...

It's interesting to note that while Pepsi has gotten a lot of ad agency/media buzz for its "Pepsi Refresh" project, its sales and stock price are flat, where as Coke's stock is up 20% without such a program. So the public at large doesn't care about "giving back" nearly as much as the ad industry or the left-wing media does.

 
At 3/09/2011 10:56 AM, Blogger Che is dead said...

" ... if you supported the Citizens United ruling, then you support the doctrine of corporate personhood. And if you support that, then you cannot support Friedman's argument that businesses are "artificial people" with only "artificial responsibilities."

Wrong. The Citizens United ruling simply means that individuals, acting together in the form of a corporation, do not forfeit their First Amendment rights. The description of corporations as "artificial people" only suggests that those individuals, acting in concert, assume an "identity" in the corporation. His argument is that the people who comprise the corporation may have individual responsibilities, but the corporation has only one purpose or responsibility - making a profit. And any attempt to impose "social responsibilities" on a corporation is an attempt to seize it's owners property for collectivist ends.

 
At 3/09/2011 11:04 AM, Blogger Klockarman said...

@PeakTrader

I understand your point completely and I agree that the company's efforts at "social responsibility" may be counter productive, but my point is that I view it to be un-libertarian for a disinterested (or uninvolved) third party (such as Friedman, or you, or me) to expect a company (or a person) to spend their income/profits how we see fit, rather than how they may freely choose - no matter if that freely chosen act of so-called "social responsibility" may be counter productive to the long-term health of the company.

If I decide to spend some of my own time donating some of my money or time to a charity, rather than spend my money or time on growing my self-owned business, should Milton Friedman chastise me for not spending all of my time/money on maximizing my own profit? Shouldn't I be able to run my business as I please, if I'm not hurting anybody else (except perhaps myself)?

You say: "a small stockholder only wants to make as much money as possible. He may not want corporations to jump into social responsibility bandwagons."

Well, there are plenty of other companies out there to buy stock in, so that small stock holder has plenty of options.

I really think that I'm embracing Friedman's own "free to choose" philosophy here.

 
At 3/09/2011 11:19 AM, Blogger arthurfelter said...

@Klockarman

I agree with your first post, to an extent. I don't think Friedman was trying to convince a corporation that they don't have social responsibility, but to convince the layman that Target doesn't have social responsibility.

As a marketer, I see that Target is really using this as a marketing tool, and this works because people feel that Target is doing a good thing and may then in turn patronize a store that supports their ideals. If, however, the masses felt that Target's money is better spent on becoming a more efficient retailer, then Target wouldn't donate the money.

 
At 3/09/2011 2:48 PM, Blogger Ron H. said...

Klockarman

If you read the complete New York Times Magazine article linked in the post, you will see that Friedman is not targeting Target, (sorry, couldn't resist) or any other business by name, and has no "expectation", but is merely pointing out that in general, "social responsibility" isn't a function of business, which is, after all, only an agent for the owners.

You are correct that a person, or a group of people acting together, should be "free to choose" whatever course they desire, and spend their earnings as they see fit. Friedman wasn't arguing against that idea, only stating that a corporation, as an artificial entity, has no inherent "social responsibility".

"If I decide to spend some of my own time donating some of my money or time to a charity, rather than spend my money or time on growing my self-owned business...

You, as a principal, and as a natural person can do whatever you wish (ideally, anyway). Neither Friedman nor anyone else can criticize your choices. Your business, however, as an artifical entity, has no inhertent responsibility. Therefore it's incorrect to say: "business has a social responsibility".

Only people have social responsibilities. The NYT Magazine article makes this distinction clear.

 
At 3/09/2011 2:51 PM, Blogger Ron H. said...

Sean

"An entity with expansive rights but shrinking responsibilities is an abomination."

I'm glad to see that you finally agree that the federal government is out of control. :-)

 
At 3/09/2011 3:02 PM, Blogger AIG said...

Fortunately, even though this whole "CSR" charade is taught in just about business program, and advertised by most companies, it is hardly ever taken seriously. Firedman hits the nail on the head on this.

Even decades after he made his case against this silly concept, "intellectuals" on the other side still find it necessary to vilify Friedman for it, since they can't actually refute or debate the points.

 
At 3/09/2011 3:09 PM, Blogger Ron H. said...

arthurfelter

"I don't think Friedman was trying to convince a corporation that they don't have social responsibility, but to convince the layman that Target doesn't have social responsibility."

Friedman didn't reference Target, or any other business by name. Prof. Perry is merely using Target as an example in this post. Read the NYT Magazine article.

No, Friedman wasn't trying to "convince" a corporation of anything,. His whole point was that a corporation is an artificial entity, therefore cannot be "convinced", nor does it have "social responsibility". Only people can have these human characteristics.

"As a marketer, I see that Target is really using this as a marketing tool..."

You are absolutely right about this. Target is hoping to enhance earnings by attracting customers who share the company's noble social goals. This is similar to BP claiming that they are now "beyond petroleum", and beautifully green.

 
At 3/09/2011 3:53 PM, Blogger Ron H. said...

"Even decades after he made his case against this silly concept, "intellectuals" on the other side still find it necessary to vilify Friedman for it, since they can't actually refute or debate the points."

Who was it that said:

"Everyone loves to argue with Milton, particularly when he isn’t there.”

 
At 3/10/2011 2:24 PM, Blogger randian said...

The reason Target shouldn't be giving corporate money to charity, or to anybody else other than its shareholders, is that management shouldn't be playing with shareholder's money to enrich themselves. "Enrichment" need not be money; reputation and fame also (in my mind) constitute unethical enrichment.

 
At 3/11/2011 12:09 AM, OpenID Sprewell said...

While I disagree with Friedman's sentiment in the excerpt that Mark quotes, which is unfortunately worded to give the impression that Milton thought only profit mattered, after skimming the whole linked essay, which is more nuanced and with more caveats, there is little there to disagree with. He essentially says that corporate executives shouldn't be making "social responsibility" decisions that are not explicitly mandated by their shareholders, not that profit is the only goal. Just like Rob's idiotic argument about corporate personhood (the Citizens United ruling never conferred or validated anything of the sort), the lefties exaggerate his argument to mean that profits should be the only goal of corporations, laws and pollution be damned.

Even if a majority of shareholders vote for a "socially responsible" move, it is right to regard such activism with suspicion because there are inevitably shareholders who didn't vote for it. For example, let's say a majority of shareholders want Target to donate $5 million to anti-abortion organizations, should the minority be forced to have their profits taken away to support a cause they don't believe in? In this way the CSR activists are basically just free riders, unable to convince all the shareholders to individually donate to their cause and so forcing the holdouts to do so through the corporation, essentially the basic problem with government writ smaller. The basic point here is that the corporation is not a good driver for social change, though of course it must fulfil the basic responsibilities not to pollute, etc, and shareholders can always take their profits and put them in nonprofits that push their agenda if they want.

 
At 3/11/2011 9:30 AM, Blogger Hydra said...

If 60% of the stockholders vote to give $5 million, the board should give 60% of the money.

 
At 4/06/2011 1:39 AM, Blogger Dr. Worden said...

You might be interested in Henry Adams (great grandson of President John Adams, USA), who wrote in 1869 about the need for corporate social responsibility given the railroad speculators having engineered a gold bubble that collapsed. See my essay at http://thewordenreport.blogspot.com/2011/04/on-birth-in-1869-of-corporate-social.html if you are interested. The responsibiity is for private individuals--not orgs--who have disproportionate power in transgressing societal norms and democratic institutions and offices. "With great power comes great responsibility," so the recognition of the former has entailed the recognition of the latter.

Dr. Skip Worden

 
At 4/06/2011 1:40 AM, Blogger Dr. Worden said...

I don't know if you got the comnent I sent. It was on the first recognition of CSR in 1869 in the wake of the gold bubble. See my essay at http://thewordenreport.blogspot.com/2011/04/on-birth-in-1869-of-corporate-social.html

 

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