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Critiquing Friedman's "social responsibility" 

By Sarah Becker
web posted September 15, 2014

Nowadays, corporations are involved in many activities that have come to be considered acts of "social responsibility," including philanthropic activism, attempts to produce products in an environmentally-friendly way, and the employment of workers not for the company's sake, but for the skill development of that employee. In his 1970 article entitled "The Social Responsibility of Business is to Increase its Profits," economist Milton Friedman argues that businesses who seek to fulfill so-called "social responsibilities" commit theft. "Only people can have responsibilities," he says, and he goes on to argue that, when a corporate executive makes a decision in favor of "social responsibility," he or she fails to act in the interest of profit, a decision that supposedly is unfair to consumers, stockholders, and employees. He goes on further to say that this executive is "imposing taxes" because he is doing a government responsibility at the expense of those associated with the corporation.

 Oftentimes, when I shop at my local Target, I see signs that inform customers of Target's social activism in the realm of education. For each dollar of profit Target makes, a certain amount of that profit goes towards local schools, usually public schools. Friedman might argue that this is a tax on the consumer--perhaps Target is simply raising prices in order to be able to donate to public schools, which is a responsibility of the government. Friedman would say that this "social responsibility" of supporting education is unfair to the employees and stockholders, as they lack a decision about whether or not to perform a certain "social responsibility." If Target gave less to education, employees could be paid more and stockholders could receive more dividends.

Friedman's argument here, however, does not make sense. Although he claims that a business engaging in a "social responsibility" acts against freedom, this business is simply exercising their freedom to do what they want with their proceeds. If a customer does not want to support public schools, they could shop at a different store or make a choice at the margin to shop a little less at that store. If an employee feels as if they are being unfairly treated in this situation, they have the option of leaving the company, and if a stockholder does not like the situation, they may recourse to their voting power or may simply invest elsewhere. When one family I know found out that Target supported a large abortion provider, they avoided shopping there and changed their purchasing margin. These customers were in no way bound to patronize Target; when corporate executives performed a "social responsibility" they did not agree with, they did business elsewhere. Money is a scarce good, and because of this scarcity, a customer, if they care enough, will assess the opportunity costs of their purchases (here, it could be a more expensive good but no support of abortion vs. a cheaper good that supported a cause they morally did not agree with).

Friedman mentions these options for those who are supposedly have no decision-making power, but still argues that "social responsibility" for businesses is wrong. What Friedman fails to miss is the way our economic system is self-regulating. In the end, corporate executives only do what their employees, stockholders, and customers allow them to do. In fact, "social responsibility" might not hurt profits, as some stockholders or customers might feel as if they personally are doing good in the world by supporting a business. Social responsibilities may be powerful marketing points for a corporation and therefore they may be decisions that will produce profits for the corporation. Individuals will act with self-interest here and patronize certain businesses based on what is important to them; if they desire to support education or an abortion provider through their normal shopping, they have the freedom to do so. Corporation also act in self-interest; they do not donate money for the sake of donating money; corporations donate money because it increases profits and attracts customers.

American society and the American economic system were originally based on many principles, one being the principle of freedom. Just as a corporation has freedom to advertise in the way they like, within certain rules, a corporation should also have the freedom to support any cause they choose. "Social responsibility" does not bind the freedom of customers, employees, or stockholders. "Social responsibility" is actually an expression of freedom. Whether or not businesses should exercise choices that support "social responsibility" is up to the business, and customers and other parties involved also have this freedom, too. In the end, that is the true beauty of the American economic system, the ability to do with one's money (and potentially, in the process, support a certain cause or "social responsibility") as one chooses. That decision must be left unhampered with if America desires a truly free economic system. ESR

This is Sarah Becker's first contribution to Enter Stage Right. © Sarah Becker, 2014

 

 

 

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