Free to Choose?

In the article “The Social Responsibility of a Business is to Increase Profit” Milton Friedman presents the idea that a corporation is fulfilling its “social responsibility” by using its resources to increase production and to improve growth.  Some would argue that corporations, technically treated like individuals under accounting principles, have additional “social responsibilities”.  These arguments present ideas of changing normal business activities to fight social pressures such as inflation and unemployment.  Though fighting these social pressures is a very just cause corporations should not be held to a higher responsibility.

The argument that a CEO should take responsibility or direction for the companies pursuit of their “social responsibilities” has very light weight.  A CEO is working along with the stock holders and investors in a direction that will increase the share price, so that all parties involved with benefit.  This is a very honest and acceptable practice that is conducted in almost all large corporations and businesses around the world.  If this pursuit of monetary gain was to be clouded by the addition of the idea that corporations have “social responsibilities” it would create many more problems.  If a corporation and CEO had to attend to “social responsibilities” it would take the focus off of what is driving the every market around the world; that is, the pursuit of money.  Though it appears evil under some lights, the pursuit of producing a  product in exchange for money has been the driving factor in the economy since the beginning of the United States.

I agree with Friedman’s point that a corporation is fulfilling its social responsibility by increasing profits.  People start businesses to make money.  If money is not the main motivator for starting a business, then it is a crucial factor in the survival of the business, such as a hospital or school.  If a corporation is to be treated like an individual than it has the right to act and pursue a venture with accordance to the law just like any other person that is living with in the United States of America.  Every person in the United States is given the choice whether they want to spend the time and resources fighting the social issues that plague the economy.  They have a choice, just like a corporation should have a choice as well.  If a corporation wants to uses its resources, time, and employees to fight the social issues then it is that corporations choice, not something that is forced onto them because it seems to be a quick fix to a much larger problem.

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8 Responses to Free to Choose?

  1. Jordi says:

    You write that a corporation is fulfilling its social responsibilities by making money. I assume you mean legally, of course. Is that the sum of its responsibilities?

    How does a company, like Enron, that seeks to change the rules of business through legal action or lobbying fit into Friedman’s theory?

    How can we square the concerns about short-termism the Aspen Institute raised with Friedman’s argument? Is it always clear when to pursue short-term versus long-term gain?

  2. Pingback: Your Business Can Survive – in Any Economy! | Blog

  3. mcardinute says:

    I do not think money should be the motivating factor in starting a business. When you start a business, certainly, you want to make money, but also you look to build relationships. These relationships start with the customers. Without a solid, loyal customer base it is impossible to make money, legally; hence, there will be no business to run.

  4. aml028 says:

    I understand where Josh is coming from about money being one of the important factors for any business. I also agree with Jordi’s comment that making money is a legal “social responsbility”. He uses a school or hospital as examples. A school like Bucknell University responsbility is to allow the students to reach their greatest potential academically. But if this school’s tuition was much lower than there is no way they could afford the high quality faculty on campus. Obviously Bucknell wants to make as much money as possible each year so they can afford their faculty, make this campus as beautiful as possible, etc.

  5. cornerback5 says:

    Okay. I can buy the idea that companies go into business to make a profit. However, I believe the problem occurs when companies become too greedy. It is a company’s right to make money, but when that money making begins to make companies blind to the social consequences that sometimes occur as a result of their operations is where the problem lies. For example, many companies sometimes decide to adopt new processes to manufacture goods that will increase their profits. However, these new processes sometimes create pollution that significantly harm people after certain amounts of exposure. This is where I believe that a company’s social responsibility should kick in. A company that is only after profits will neglect the consequences and undergo the new process. This is the problem. I believe that companies should be in business to make money while properly balancing social responsibility because no amount of money is worth a life. All people have social responsibility not only because it betters the world for others, but also because being socially responsible betters the world for themselves. Therefore, if a company is to be treated as a person then it should be held accountable to be responsible socially.

  6. tesoman says:

    I find what Jordi mentioned in regards to whether it’s always clear about when to pursue short versus long term gains interesting. A lot of the times there is no choice in what strategy one pursues because of the stockholders. Firms that are primarily run by stockholders have CEOs that are earning huge bonuses based on what they can profit over a certain period of time. With the economy as tight as it is now, CEOs are forced to become even more creative in how they go about creating more profits for the company. Many of the times this “creativity” leads to the company entering a grey area of “social responsibility” that has negative effects over the long term but creates great profits in the short term
    The long term profits require a CEO to methodically think out and plot a plan for the future of the company that includes making sure that nothing that the company does now will have negative repercussions in the long term. Thinking in the long term usually means not having large amounts of profit now, but a sustainable plan that sees the company prosper in the future.
    Going back to the question, “Is it always clear when to pursue short-term versus long-term gain?” I don’t think it is. During economic highs we see companies looking for short gain while people are spending but others opting for long term gains as it might be considered easier to implement while the economy is up. In a downturn however, stockholders put more pressure on CEOs for returns which forces short term gains strategies while some look to the future of the company and decide that long term gains is what the company needs to capitalize on the economy when it eventually becomes healthy again.

  7. Cander says:

    While I am of the belief that the purpose of business is to increase profits, the main issue for me with regards to social responsibility is are those profits coming at the expense of others? When a company saves money (in the name of increasing profits) by pollution, child or illegal labor, unsafe work environments; who is going to bear those costs? Typically, it will be the general public through government for clean up and health care.

  8. mnickels says:

    A company’s main goal is to make a profit, but it shouldn’t be the only thing they think or worry about. Companies can be very greedy today and taking shortcuts often has devastating effects on other people or communities. I agree with the post above in that the general public is usually the one who is bearing the effects of a company’s decisions, especially when they save money. I think the effects of cost-cutting can create even more problems for a company and spending the extra money might be worth it in the long run. Just think about Nike and their sweatshop allegations; they might not look so bad in the public eye when things like that come out if they spent their money on legal or higher wages.

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