Milton Friedman and Corporate Social Responsibility

Posted on December 3, 2010


As any graduate looking to enter the corporate world will soon realise, recent years have seen an explosion in popularity of the idea of ‘corporate social responsibility’ (CSR). On top of spending twenty-five hours a day at their desks, prospective recruits are well-advised to feign enthusiasm about the prospect of spending their weekends planting trees in the local park to offset carbon emissions. Indeed, if this is going to make you even half as happy as the employees on the websites look, who can object?

In 1970 Milton Friedman published a now famous essay deriding the idea that a business had any responsibility other than to maximise its profits within legally and ethically acceptable margins, arguing that ‘a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is 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 the society.’ Anyone daring to dissent is, de rigueur, labelled a ‘socialist’.

The argument has a certain appeal. If we can dismiss the concept of CSR as – in fact – irresponsible, we can save many overworked executives a lot of time on their days off, and increase the profits of shareholders. Yet, it must be said that Friedman simply begs the question. Of course, who doesn’t desire to make an unlimited return on his capital? But is this a good desire? The hidden assumptions here are that business is an activity to be exercised purely in the pursuit of unlimited private gain, that it has no social function, and that there is no limit beyond which returns on capital become unjust – practical definitions of greed, individualism, and usury.

Some of those in the CSR movement seem to have swallowed Friedman’s critique, and by implication his vision of what constitutes a good business. It is not unusual to see CSR justified less by ethical imperatives than by the argument that it is ‘good for business’, for which read ‘increases profitability’. Yet, perhaps both the Friedman critique and the common practice of CSR are missing something important.

It can argued that both Friedman’s thesis and the current practice of CSR lead to a lack of professionalism. Imagine we ask the question: what makes a good shoemaker? For Friedman, it is making plenty of money. For the CSR zealot, it is spending Saturday afternoon volunteering in the local animal shelter. Yet common sense tells us that neither is true, that the good shoemaker is the one who makes good shoes at affordable prices, because shoes are something that everyone in the community needs.

Medieval philosophers – unlike early Christian writers who generally took a dim view of mercantile trade – appreciated that merchants perform a useful social function, not by maximising the profits of their shareholders, but by relocating goods from areas of abundance to areas of scarcity, contributing to a more equitable distribution of the earth’s resources and to the satisfaction of legitimate wants. The function of a business – mercantile or otherwise – is not, according to this reading, to maximise private profit by making as much money as possible, but to maximise the common good by making goods and services available to those who are in need of them. True corporate social responsibility is not an ‘extra-curricular’ activity, but the practice of the virtues proper to a particular occupation and the will to act in accordance with the truth that the purpose of one’s profession is to fulfil as perfectly as possible some definite function within the community.

Ultimately, it could be Milton Friedman’s vision which leads to ‘pure and unadulterated socialism’. When the public perceive that businesses are not interested in providing them with quality goods or services, but only in taking as much money from them as possible whilst staying on the right side of the law, it creates a ‘them’ and ‘us’ mentality which is a fertile breeding ground for unrest, and eventually for socialism.

(Photo of Danhuang Market: CC: © T Chu. No endorsement implied.)