Archive for the ‘Friedman’ Category

Social Responsibilities of Business

The question of what a company’s social obligations are is an interesting one, and a vexed one. Unfortunately, the question is complicated by the fact that the very term “Corporate Social Responsibility” (“CSR”) has come to be associated with a particular view about the right answer to that question. As I’ve argued here before, the term “CSR” is now (regrettably) typically used to refer to the particular point of view that says that companies have an obligation to contribute socially, beyond the contribution they make by providing a valued product or service, by providing jobs, by providing investment opportunities, and by paying taxes.

That point of view was preemptively (but, to many, unconvincingly) criticized by economist Milton Friedman, in his famous 1970 article The Social Responsibility of Business is to Increase its Profits. Friedman asked whether it made sense to say that a corporation (or rather, a corporation’s management) has responsibilities to engage in such pro-social activities as:

  • keeping their prices low, in order to fight inflation;
  • spending more than required by law to reduce pollution;
  • hiring the hard-core unemployed (rather than simply focusing on hiring the most-qualified candidates).

Oversimplifying somewhat, Friedman argued that a corporation’s managers have neither skill-set, nor the obligation, nor indeed the right, to use shareholders‘ money for such objectives. What they ought to do, according to Friedman, is to stick to what they know best — which also happens typically to be the job they were entrusted to do, namely to make profits for shareholders within the boundaries of law & general ethical rules.

Here are 2 modern examples of opportunities for companies to do business in a way that is explicitly aimed at positive social outcomes:

  • Pharmaceutical companies have choices about how to focus their research & development efforts. For example, they can focus their efforts at producing lifestyle drugs (for things like erectile dysfunction or hair loss), or they can aim at producing “me-too” drugs in categories that are already well supplied (e.g., ), Or they can focus on cures for so-called “orphan” diseases. Or they can search for new antibiotics in response to the growing problem of drug-resistant infections. The latter would meet a real social need. I don’t know how promising such lines of research would be, nor how lucrative. In the absence of such information, could we still say that pursing the development of new antibiotics is a social responsibility of drug companies?
  • With U.S. unemployment rates just below the double-digit mark (and Canada’s just slightly lower), governments are looking to industry (and sometimes to particular industries, such as biotech) to boost employment. And some people are liable to point to a social responsibility on the part of corporations to do some hiring. Certainly, people are prone to call it socially irresponsible when profitable companies lay off employees. But then, employment for its own sake is unlikely to be good for a company. If employees aren’t needed, then hiring them (or keeping them) is liable to reduce profits, and indeed liable to reduce the viability of the company as an entity that produces all kinds of benefits for a range of stakeholders.

Whatever you think of such purported social responsibilities, one thing is clear. If they really are responsibilities, they are at very least genuine examples of social responsibilities — responsibilities to promote the interests of something like society as a whole (as opposed to the interests of one particular stakeholder, like customers or employees).

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