Isak Rindahl

Short Paper Assignment #3

5/21/2021

In his article The Social Responsibility of Business is to Increase its Profits, Milton

Friedman presents the assertion that the primary goal of business is to make as much money as
possible while abiding by the generally held ethical customs of society and by the law. Friedman
explains that a business is an artificial entity and therefore has the inability of possessing a
“social conscience” so there is no way for business to be able to have a focus on social
responsibility.

In his point of view, there is a way for a business to have a concern for social
responsibility as it is socially agreed upon that for a business to contribute to these efforts, funds
would need to be taken from the beneficiaries of the business’s operations. “In each of these
cases, the corporate executive would be spending someone else's money for general social
interest. Insofar as his actions in accord with his "social responsibility" reduce returns to
stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is
spending the customers' money. Insofar as his actions lower the wages of some employees, he is
spending their money.” (Friedman) In his statement, Friedman is appealing to the ethical
standpoint that a corporate social responsibility would impose on business. He claims that for a
company to focus on social responsibility, there would be unofficial taxation placed on the
stockholders, customers, and employees. This unofficial taxation is without representation of the
beneficiaries and lacks any official checks and balances needed to self-govern these decisions.
He argues that for a corporate executive to be able to impose this sort of unofficial taxation, they
should need to be an elected official as they are acting as a sort of “public employee”. By his
rationale, Friedman claims that unless the shift of the argument is to implement a political
structure in business where these checks and balances would see fruition, the opposing argument
is fundamentally wrong. Friedman would point out that this would lead to the demise of business
as government imposition would do nothing but destroy the current system. Friedman argues this
is obviously ludicrous, concluding that the responsibility that a business has is simply to make as
much money as possible while abiding by the generally held ethical customs of society as well as
abiding by the law, and all accordingly other social efforts should be held separate.

The strongest objection to Friedman’s argument is the question of whether his conclusion
is conceptually flawed in its real-world application. An example of where Friedman’s conclusion
may not be entirely valid is in his statement” Or that he is to make expenditures on reducing
pollution beyond the amount that is in the best interests of the corporation or that is required by
law to contribute to the social objective of improving the environment.” (Friedman) Through this
rationale, if pollutive contaminants are legally able to be dumped in a way that might harm the
environment but increase the companies’ profits then the responsibility of the company would be
to dump the contaminants and increase profits. Friedman’s opinion would be that without the full
consent of all parties affected by expenditures on the effort to find a solution other than dumping
the contaminants, the company should by default dump the contaminants. He would state that if
shareholders would want to put an effort towards the cleanup of the contaminants, they can do it
with the dividends they receive. This is however counterintuitive to the solution, as it would be
much harder to clean the contaminants once they have been dumped relative to if another
solution would have been sought out first. In turn, this would end up becoming more costly for
shareholders to fix than if the company had acted in favor of its corporate social responsibility
not to pollute by dumping the contaminants. This would be deemed unethical by Friedman’s
definition concerning the corporation’s duty to serve shareholders' interests.

Friedman’s strongest objection to the argument I raised would be that there is no way for
a corporate executive to decide what the appropriate share of the burden between stockholders,
customers, and employees the effort would be. I believe that this response is still undermined by
his own words in saying “In a free-enterprise, private-property system, a corporate executive is
an employee of the owners of the business. He has direct responsibility to his employers.”
(Friedman) Through this assertion, we can determine that the corporate responsibility is not to
make the most money possible, rather act in the best interests of shareholders. In this example,
the opinions of the employees and customers do not matter as Friedman has explained and the
company does not need to consider their interests in deciding. The only interests that need to be
represented are the shareholders, which is easily achievable through the integration of a voting
system. The voting system would operate democratically and allow multiple parties to decide the
course of action for plausibly substantially impactful courses of action such as the dumping of
pollutant contaminants to increase profits.
Citation

Friedman, M. (1970, September 13). The social responsibility of business is to increase its
profits. TIME.