Milton Friedman

“The Social Responsibility of Business is to Increase its Profits”


1.   Who is (was) Milton Friedman?

      a. Famous University of Chicago Economist, defender of capitalism and the free market with little government regulation, and a libertarian (government should not just stay out of the economic sphere, but also the social sphere)

      b. Obituary


2.   Does Friedman believe in Business Social Responsibility (=BSR) (that is, does he believe in business ethics)?


3.   The kind of BSR Friedman accepts (“narrow BSR”)

      a. Title of his article: “The social responsibility of business is to increase (maximize?) its profits”

      b. (P. 8): “Corporate executive . . . has . . . a responsibility . . . to make as much money as possible (maximize profits) while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.

      c. (P. 11, last sentence of article): “There is one and only one social responsibility of 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


4.   Maximizing profits is being socially responsible because:

5.   One: Profitable business activity benefits society in numerous ways (utilitarian argument --increases social welfare)

      a. Creates jobs for workers, new goods and services for customers, profits for shareholders, economic growth and taxes for society

      b. Note: The idea is that self-interested pursuit of profits leads to the social good (Adam Smith’s invisible hand view of the market)

                    (1)     Morality comes about through the structure of the institution of business, not via attempts by managers to be ethically good members of society

6.   Two: “The Agency Argument”: Business managers who maximize profits are also acting morally responsibility because they are employees of shareholders and have an obligation (moral and legal?) to do what their employers (shareholders) want (which is “generally” to maximize profits)


7.   For Friedman, rules of the society involve obeying the law & ethical custom (no fraud or deception)

8.   Note: Law and ethical custom needn’t be the same

      a. Many immoral practices are legal (e.g., deception) and laws can be immoral

      b. We wouldn’t want all immoral practices to be illegal

          i.        This would have the law intrude in our lives far too much and involve great sacrifice freedom

      c. If business acted on the belief that obedience to law was enough, they would find themselves with significant new laws/regulations

9.   Friedman’s view of ethical custom is more limited than the ordinary view; it involves:

      a. Engaging in open and free competition (no coercion)

      b. Without deception or fraud

      c. It does not involve being positively good

          i.        E.g., being charitable, sacrificing ones self-interest to help others in need, going beyond what the law requires to avoid harming others


10. Kind of BSR Friedman opposes (“broad” or “ordinary” BSR)

      a. Pursuing social/ethical objectives (1) when it is not required by rules of the society (no deception or coercion) and (2) when this fails to maximize profits (is not in interests of his shareholders)

      b. Friedman gives examples social responsibility he opposes(p. 9):

          i.        Giving to charity

                    (1)     E.g., contributing supplies or services after a hurricane

          ii.       Controlling inflation by voluntarily not raising prices when it would be profitable to do so

                    (1)     E.g., hospitals holding down prices

          iii.      Reducing poverty by hiring hard core unemployed who are not quite as skilled but really need the job

                    (1)     E.g., hiring a somewhat less qualified person because their family needs the income much more

          iv.      Controlling pollution beyond what the law requires (e.g., cutting CO2 emissions beyond what is allowed to support the fight against global warming)


11. Could Friedman ever approve of i.-iv. above?

      a. Friedman would be in favor of these four activities, if instead of costing a business money, they were actually profitable for it

          i.        Perhaps by increasing positive community feeling for the corporation

          ii.       But believes one ought to do this out of the motive of profit and that one should not cloak your actions in rhetoric of social responsibility (this is fraudulent, p. 10)




13. One: “Tax argument” and it is “intolerable as a matter of political principle” and is anti-democratic

      a. “Socially responsible executive” is unilaterally imposing costs (“taxes”) (on shareholders, workers or customers)

      b. Spending the proceeds on what he/she believes are worth causes

      c. But this is a government function and should be done by democratically elected officials and not private fiat

      d. Corporate official who acts “socially responsibly” is acting as a self-selected legislature, executive, and judiciary

          i.        Decides whom to tax (on whom to impose costs)

          ii.       How much to tax

          iii.      For what purpose to tax

          iv.      How to spend the proceeds

      e. Such executive is acting like a government official when in fact he/she is a private citizen

      f. “Taxation w/o representation”

      g. Anti-democratic: Those who call for corporate social responsibility can’t get what they want via the political process (could not get laws requiring this behavior to be enacted) so they pressure the corporations to do it


14. Two: Will help destroy free market and lead to socialism and “undermines a free society”

          i.        Socialism: Public and political control (and ownership) over productive resources (businesses)

          ii.       Capitalism: Private market mechanisms controls and allocates resources

      b. If corporate executives allocate corporate resources for social goals rather than private profit maximization

          i.        Then they should be democratically elected representatives of society and not employees of shareholders

          ii.       But if corporate executives are elected officials, that is socialism (public/governmental control over productive resources)

      c. Ordinary BSR involves public/political/social pressure controlling productive resources (socialism) rather than private, for profit motives controlling productive resources (capitalism)


15. Three: Bad consequences will result from ordinary BSR

      a. Corporate executives are experts at running their business not at achieving social objectives

      b. How are they suppose to know what is best for society?


16. Four: “Agency argument”

      a. Managers are employees of shareholders and have a fiduciary responsibility to them to do what they want

          i.        They want (generally) is for managers to maximize profits w/o consideration of broad social responsibility