The Social Responsibility of Business is to Increase its Profits

The Social Responsibility of Business is to Increase its Profits (full article) by Milton Friedman.  Also at http://www.umich.edu/~thecore/doc/Friedman.pdf

[But contrast the historical origin of keizai or “economy” in Japanese – Keizai comes from keisei zaimin, or “administering society and deliverance of people” in 18th century Osaka. Also Sen shows Friedman’s view is not that of Adam Smith].

The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.

When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system,” I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. 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.

The discussions of the “social responsibili­ties of business” are notable for their analytical looseness and lack of rigor. 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 first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.

Presumably, the individuals who are to be responsible are businessmen, which means in­dividual proprietors or corporate executives. Most of the discussion of social responsibility is directed at corporations, so in what follows I shall mostly neglect the individual proprietors and speak of corporate executives.

In a free-enterprise, 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. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for exam­ple, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.

Reading Amartya Sen (1)

Sen seems to be popping up everywhere these days. He was mentioned by a couple of speakers at the recent Roundhouse Critical Theory conference and his latest book The Idea of Justice will be the discussion topic at the BSA Theory study group at the forthcoming BSA conference in April. So I had a quick look at his 1987 book On Ethics and Economics.  This is a detailed critique of the narrow impoverishment of modern economics focused as it is on producing logistic and predictive models of markets based upon the notion of a purely self interested rational actor. “… there is nevertheless something quite extraordinary in the fact that economics has in fact evolved in this way, characterizing human motivation in such spectacularly narrow terms”.  Sen claims in its origins modern economics had both a practical ‘engineering’  aspect and  one concerned with human behaviour in the round and ethical considerations of what a good life should be. Both these aspects are fully present in Adam Smith for instance, but modern economics has expunged the ethical, normative aspects to produce a distorted orthodox “Smithian” view. To the extent Smith was at all sociological, this has been erased.

While looking for information about Sen on the web I coincidently found a blog entitled Adam Smith’s Lost Legacy (by-line “In 2009, we again saw why Adam Smith’s invisible hand often appeared invisible: it is not there.” Professor Joseph Stiglitz, 31 December 2009. The blog post I found was Amartya Sen’s Two Brilliant Essays on the Relevance of Adam Smith Today. I shall be looking at these soon. Thanks to Gavin Kennedy for bringing my attention to these, albeit via the beneficence of Google.