Do you agree with Milton Friedman’s (1970) claim that : « the only responsibility of business is to increase its profits » ?
Milton Friedman was an American economist, statistician and writer, who had a massive impact on the research agenda of the economics profession. His famous words “the only responsibility of business is to increase its profits” (Friedman, Milton. 1970) led to many controversial debates on whether businesses should have ethics or if profit should be their main goal. Corporate social responsibility has many definitions, as its interpretation is quite loose, so I have chosen one that relates the most to this essay, given by the World Business Council for Sustainable Development, in 2000: “Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large” (Dahlsrud, A. 2006).
In Milton Friedman’s article 'The Social Responsibility of Business Is to Increase Its Profits', Friedman’s central message is that the main responsibility for a business is to create wealth; and that the corporation is an instrument of maximising profit and that their priorities should be to maximise shareholder value, have a high competitive advantage and use whatever means, as long as it remains legal, to increase their sales and profitability. In this essay I will be arguing to what extent I agree with Milton Friedman’s claim “the only responsibility of business is to increase its profits”(Friedman, Milton. 1970) and then I will reach a conclusion in which I will give my own point of view on the topic.
On one hand, I agree with certain concepts related to Friedman’s claim. Firstly, and most importantly, any executive of a big corporation has direct responsibilities to its owners, which would be its stockholders. Friedman argues that “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 society, both those embodied in law and those embodied in ethical custom (Friedman, Milton. 1970). Shareholder’s main role is to hire executives, that they will then expect to act as their agent. Therefore if they go against their will, by performing actions that do not comply with their main objectives, would be in itself unethical, as it would go against their freedom of choice. Friedman argues that executives should not be spending a company’s resources on social causes the shareholders would not support, because it is effectively like imposing taxes on the stockholders and would provide lower profits (Cosans. C, 2008). Friedman proposes as examples that abstaining from a price increase to help prevent inflation, reducing pollution by more than it needs to be, to the point where it conflicts with the interests of the corporation and at the expense of corporate profits, to help improve the environment could go against the stockholders goals (Mulligan, T. 1886). Consequently, executives spending corporate resources on social causes, that are not compatible with stockholder’s objectives, simply because the executives has his own personal ethical agenda, is a violation of trust, as the executive is not doing what he has been hired to do in the first place.
Secondly, Friedman argues that spending money and resources on social interest should be the function of the government, through taxation and not of the executives in a company (Mulligan, T. 1886). For example if a company decides that it wants to lower its CO2 emission, to support the fight against global warming and that subsequently it leads to an increase in price of their product, it can be argued that this is like an indirect tax for consumers: “He is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent.” (Friedman, Milton. 1970). This is unfair...
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Dahlsrud. Alexander, 2006, “How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions”, Published online in Wiley InterScience (www.interscience.wiley.com)
Friedman, Milton. 1970 'The Social Responsibility of Business Is to Increase Its Profits ', New York Times Magazine, 13 September 1970
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