Social responsibility maximising profits

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Social responsibility maximising profits

In his article The Social Responsibility of Business is to Increase its Profits 1970 Milton Friedman the Nobel laureate in economics argued for what was summed up in the title of his article the social responsibility of businesses is simply and solely to maximise profits

In the following different arguments for and against Milton Friedmans statement will be presented and criticized The inherent theories and principles will be presented as far as needed in order to discuss the extent to which this statement is true

Milton Freidman starts his famous article by describing the claim for a social responsibility of business by a pure and unadulterated socialism For him stating that business has a responsibility is looseness and lacks rigour A company is only an artificial person and can not have responsibilities like an individual can

In this regard only people in an organization which means only the individual proprietors or the corporate executives can have any social or moral responsibility

The managers of a company have a legal responsibility to manage the company in the best interests of the stockholders As those shareholders first interest in investing their money in a business is to increase their wealth then the managers sole responsibility is to maximize the profits for their shareholders It is the legal and moral obligation of the managers to concentrate solely on serving their employers best interest which means increasing profit

If the managers or the shareholders feel the need to fulfil any moral social or ethical duties they may very well devote some of their incomes or time to such activities They are in doing so acting as a principal not an agent They are spending their own money and time not those of the corporation they are working for and those of its shareholders

If an executive or a manager is fulfilling any social responsibility this means that he will act in a way that is not in the primary interest of his employer or worse that is violating his duty of maximizing the profit

Any money or time that is spent by an executive in any kind of social action will not be spent to increase the shareholders wealth to reduce prices or to increase wages Therefore this executive is spending someone elses money the shareholders the customers or the employees

Furthermore in doing so the manager is actually imposing a tax to the shareholders the customers and the employees He is also deciding on how those tax proceeds are to be spent

This is for Freidman a governmental function

In doing so executives are as per Freidman simultaneously legislators executives and jurists They become what Freidman calls public employees civil servants even though they are employees of a private corporation

It is therefore the governments responsibility to impose taxes and determine the expenditures to be spent by any and all businesses in social activities

Freidman also recognizes that some businesses might act socially contribute to charities or provide amenities This can be described hypocritically by social responsibility or social actions The real and hidden reason for businesses in doing so is to gain a longterm profit from such actions like attracting desirable employees reducing wage bill or tax proceeds

To summarize his thoughts and in his tribute to an ideal freemarket Freidman believes that no individual can coerce any other all cooperation is voluntary all parties to such cooperation benefit or they need not participate There are no values no social responsibilities in any sense other than the shared values and responsibilities of individuals Society is a collection of individuals and of the various groups they voluntarily form

Some others do believe all the same way that the sole responsibility of a company is to compete to maximize profit Adam Smith As reported by The Economist 2005 believes that benevolence is not necessary to advance the public interest Rather selfinterest and profitseekin

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