Milton Friedman wrote a critical article in the Sunday New York Times on September 13, 1970 that appears in virtually every collection of articles on corporate social responsibility (CSR). The article’s title is “The Social Responsibility of Business is to Increase its Profits.” Friedman’s message is thus: there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game. For Friedman, the responsibility of business is to make profits for its stockholders.
Friedman’s avers that “in a free-enterprise and private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be 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.”
For Friedman, only people can have responsibilities and 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 question that begs to be asked is for whom is the social responsibility of business.
The corporate executive is beholden, first and foremost, to the corporation that he serves. While his social responsibility conscience or moral may urge him to lower the price of a product, his being a member of the business corporation mandates him not to if it will adversely affect the business’ bottom line. Or if the executive wishes to hire workers who may not be qualified just so he can provide employment to reduce poverty, he may not do so because he will be exercising his social responsibility at the expense of the company’s profits and potential growth.
Friedman espouses profit. Desire for profit, in today’s backdrop can be seen this way: Bear Stearns was swallowed by JPMorgan Chase, Fannie Mae and Freddie Mac are in conservatorship, Lehman Brothers has filed Chapter 11, Bank of America buys Merrill Lynch. AIG has been rescued, with the rather mind-blowing twist that it’s now 79.9% owned by the government.
Friedman’s critics are very well validated today in the light of the current financial crisis in the United States. Profits often translate to unbounded desire for profit. This is what greed is all about. The capitalists and free marketeers today are realizing that the system of profit and greed can topple an entire financial system and economic order.
