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Do businesses have an obligation to contribute to society?

By Libbi Wu
web posted September 17, 2018

What is the social responsibility of businesses? Is it to contribute to reducing poverty? Is it to overcome income inequality? Is it to aid in saving the turtles by reducing pollution? In its title alone, the argument by Milton Friedman that “The Social Responsibility of Business is to Increase its Profits” seems counterintuitive. After all, shouldn’t the social responsibility of businesses be to contribute to society by promoting social objectives?

From a philosophical perspective, Friedman argues that only individuals have responsibilities and businesses, which are not individuals, cannot have social responsibilities. Rather the individual in charge, the corporate executive, has “direct responsibility to his employers” to make money “while conforming to the basic rules of society.” At first, I didn’t fully agree with this point because businesses are formed by individuals, some of whom do have a “social conscience.” Moreover, the government, which is also a body of individuals, has a social responsibility. However, unlike businesses, the government’s role is not to make profits, and Friedman clarifies that it is not that the individuals in businesses can’t have social responsibilities, but that the collective group of individuals in a corporation can only have a social responsibility without it evolving into socialism by agreeing on the exact social objective they wish to contribute to, how to contribute, and the amount to contribute. On the other hand, individuals in a business can spend their own personal money to support society in some way.

Furthermore, what I found especially interesting was Friedman’s assertion that the idea that businesses have social responsibility is a socialist concept that political rather than market mechanisms are the approach to allocate scarce resources to alternative uses. The scarce resource of money or clean air should not be allocated by businesses but is under the jurisdiction of individuals and to a certain degree, the government. When the corporate executive attempts to contribute to social objectives, he is not only spending someone else’s resources, that of the stockholders, customers, and employees, but is also acting in a way contrary to the interest of his employers. In other words, he is “imposing taxes...and deciding how the tax proceeds shall be spent.” My parents would not be pleased if I imposed my personal objectives on the family and used their money on a $200 Rubik’s Cube. When one individual makes decisions for other individuals, he is moving beyond total individual control to socialism.

The idea of the social responsibility of business actually relates to the distinction of the unique way economists approach choice compared to other social sciences. Economists believe that when individuals make choices, they aim to maximize the value of an objective from the terms of their self-interest. While the popular view is that if the businesses only have their self-interest in mind to make profit, society won’t benefit, it’s actually for most of the time the other way around. Like what was mentioned in the Timothy Taylor lectures, by pursuing his own self-interest, the individual often aids society more than when he intends to help. Similarly, when a business pursues its self-interest, it is also contributing to society with its goods, the jobs it provides, and the competition it creates for other businesses to raise the quality of their goods. Corporations do have a reputation for exploiting customers; however, people often don’t consider their contributions to society. After all, think of how much enjoyment the world receives because of the businesses for Rubik’s Cubes.

Last week, I watched a few episodes from the video series Poverty Cure by Michael Miller because this year’s team policy resolution in my debate league is on foreign aid. What surprised me then was that the United States’ foreign aid to countries like Africa doesn’t cure poverty in the least. The key areas that those countries and regions needed support in was their businesses. When the U.S. floods those foreign markets with free goods, the businesses in those foreign market lose business because it’s virtually impossible to compete with free goods. Expanding on Milton Friedman’s article, the social responsibility of businesses is to act its part and increase its profits not just because they can’t have social responsibilities since they aren’t individuals but also because by doing so, the economy is benefited, which in turn raises the quality of life, reduces poverty, and so on.

On the other hand, when businesses or others promote this idea of social responsibility for corporations, they are promoting socialist beliefs and market controls. According to Milton Friedman, there is nothing more effective in a brief period to destroy a market system than effective governmental control of prices and wages. As businessmen speak on about their social responsibilities, they promote the view that the “the pursuit of profits is wicked...and must be...controlled by external forces,” which leads to maybe price controls, which destroys the market system. So, if you want to save the turtles, spend your own money, not someone else’s. ESR

Libbi Wu is studying AP Macroeconomics in high school. This is her first contribution to Enter Stage Right. © 2018 Libbi Wu.

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