The social responsibility of profits
By Paul Driessen
"The social responsibility of business," Milton Friedman famously said, "is to increase its profits."
Some extol this view. Others condemn it. More simply misunderstand Dr. Friedman's 1970 aphorism or quote it out of context, often to serve anti-business ideologies or misguided legislative initiatives.
A more accurate interpretation reflects basic principles behind free enterprise, profits and returns on investments – principles that were well understood long before Adam Smith described them so eloquently in The Wealth of Nations. Like codified and common laws, the principles are violated on many occasions, but the perpetrators usually pay a price.
Companies do not earn consistent profits or even a supposed "license to continue operating" by subscribing to fads, political schemes, or "corporate social responsibility" initiatives that reflect and promote the agendas of social or environmental activists. They do so by providing goods, services and technologies that society needs and values – legally, ethically, and by offering superior quality, lower cost, greater reliability, outstanding customer care and other benefits, while protecting the environment. They thereby stay in business and reward investors who made their innovations and products possible.
This is the most fundamental way companies are socially responsible – to employees, customers, families and communities that have been improved by the companies' actions. It also ensures that businesses, officers, shareholders and employees have the financial wherewithal to engage in other activities that we recognize and applaud as "good deeds" on behalf of their communities.
Thousands of businesses do this on a regular basis. Here are just a few examples.
BB&T Corporation of Winston-Salem, NC operates 1,500 branches, insurance agencies and financial services companies, with combined assets of over $125 billion. Its fundamental strategy, CEO John Allison told me, is to emphasize quality over price via personal relationships with clients, employee education, and banking operations organized as groups of community banks, to make employees "more responsive, reliable and empathetic."
The company's goal is to "help clients make sound business, banking and investment decisions, improve their lives and gain financial security," Allison said. If the community doesn't do well, neither does the company. That's the best reason he knows for supporting civic projects like BB&T's reduced-rate loans and other support to low and moderate income housing projects, and small businesses and farms.
A basic BB&T ethical principle is defending free enterprise and property rights. In the wake of Kelo v. New London, it gained respect, media coverage and probably new customers by refusing to lend to projects that use government eminent domain powers to acquire private property, by redefining "public purpose" to include private enterprises that might increase tax revenues. "We just don't do it," Allison said flatly.
Skier's Choice of Maryville, TN employs 400 people, manufacturing Moomba and Supra inboard ski boats that make the joy of getting out on the water affordable to more families in the US and beyond. Its focus on innovation, quality and dependability have made this privately held company an industry leader that strives for steady improvements in performance, fuel efficiency and lower emissions in its boats, and reduced energy use and waste streams in its production processes. The 2007 boats' Indmar ETX/CAT-equipped Assault 340 engines feature the best emissions rating ever in a marine engine.
The company doesn't boast or post its civic programs, but they include support for local sports teams, therapeutic horse riding for handicapped children and adults, Boy Scout boating and boat safety programs, and preservation of Appalachian arts and crafts. It also offers free boating safety classes through the Coast Guard Auxiliary. It commitment to reliability and service is likewise quiet, but unwavering.
I've always been more at home in a canoe or kayak, but my son wanted something better suited to his version of fun with college friends. A used Moomba met his needs. When it developed serious engine problems, Skier's Choice simply helped get them fixed, even though the warranty had long since expired. "We just want to keep our customers happy, and get them back in the water," said customer service director Rob Loucks.
CVS Caremark employed expansions, mergers, acquisitions and commitment to affordable healthcare service to become the nation's largest retail pharmacy chain, with over 6,000 stores in 38 states. CVS now fills more than one of every seven prescriptions in the United States for individuals, corporations, unions, government employee groups, insurance companies and managed care organizations.
The company's community involvement programs include helping pediatricians and families improve access to healthcare for lower income children and people with Down syndrome, improving early literacy skills among homeless children, and providing nutritional and fitness education to reduce obesity. A few months ago, my daughter sought help for a school project: getting toiletries and other personal items to wounded warriors in the Walter Reed Army Medical Center. The response of our local CVS store was far beyond our expectations.
We had barely outlined the project when the manager began filling a shopping cart with several hundred travel-sized containers of shampoo, toothpaste, mouthwash, shaving cream, skin lotion and other items – to augment the $200 worth of watches, hair brushes, deodorants and other products we were purchasing. He then gave us a discount on our items, saying simply that "helping our wounded service men and women is one of the most important things we can do. They have given us so much. We need to give a little something back."
All these actions and heartfelt sentiments speak more loudly than the philosophies behind them. They represent the best that free enterprise and corporate America have to offer, in pursuit of profits and a commitment to improving lives through products, services and community involvement.
It is therefore ironic that highly regulated for-profit corporations are so frequently subjected to intense criticism for real, perceived and even invented transgressions. More ironic is the fact that the criticism often comes from nonprofit corporations that enjoy tax-exempt status but are often guilty of dishonesty, "greenmail" campaigns, and a troubling absence of transparency and accountability that harms poor families and calls into question whether their own "license to continue operating" should be renewed.
Paul Driessen is senior policy advisor for the Congress of Racial Equality and Atlas Economic Research Foundation, and author of Eco-Imperialism: Green power ∙ Black death (www.Eco-Imperialism.com)