In a climate of opinions favoring the concept of “Corporate Social Responsibility,” I read an essay by the Nobel Prize-winning economist Milton Friedman titled, “The Social Responsibility of Business is to Increase its Profits” that argues against it.
The argument shook me. But perhaps I shouldn’t be so surprised. It belongs to another era of business practices, first gracing the pages of the New York Times magazine nearly 40 years ago, on September 13, 1970.
Friedman describes it as a “fundamentally subversive doctrine,” an Achillean heel, which can, in the long-term, bring down the entire house of the free-market system. Businessmen—and by that, he’s referring to corporate executives—who tout this principle, he writes, are “unwitting puppets of the intellectual forces that have been undermining the basis of free society these past decades.”
Calling it a “hypocritical window-dressing,” he explains why it’s self-destructive to businesses:
[For] in practice, the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.
[He illustrates this point by stating that] it may well be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government.
That may make it easier to attract desirable employees; reduce the wage bill; lessen losses from pilferage and sabotage; or have other worthwhile effects.
Or, it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to charities they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.
[C.S.R. is] one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interests.
But this only facilitates a takeover by the governmental machinery, by strengthening “the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces.”
Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of government bureaucrats.
Take Daktronics, a leading maker of electronic signboards, based in the small university town of Brookings, South Dakota. It’s powered by a vast student population from the local South Dakota State University, who work everywhere from the shop floor to the corporate division. It’s a powerful economic locomotive in this rural town of 19,000 as well as a generator of employment to the scores of people there.
But its ostensible, altruistic goal of community development masks a well-hidden commercial interest, as Friedman might argue.
By filling its facilities with temporary interns, who’re happy to work at minimum wage, the company saves itself a ton of expenditure, which it’d have to otherwise, shell out on a professionally experienced labor force.
Put crudely, Friedman argues that businesses are better off sticking to their own turf, doing what they do best—that is, manufacturing, selling, or marketing a product, and not attempt to take on the tasks that are the government’s fundamental duties.
[That] there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game. Which is to say, engage in open and free competition without deception or fraud.