The new forums will be named Coin Return (based on the most recent vote)! You can check on the status and timeline of the transition to the new forums here.
The Guiding Principles and New Rules document is now in effect.
The Social Responsibilities of Business
Loren Michael
Registered User regular
Registered User regular
I just read this article by Milton Friedman from a while ago.
The core of the article is, I think, summed up in this passage:
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 engages in open and free competition without deception or fraud.
Friedman wasn't, I don't think, responding to any one particular criticism of business, but rather a number of sentiments that he read or heard or interpreted, and his characterizations of some of the views he takes on may amount to strawmen, but I tend to agree with the above sentiment, given the supports he offers it in the article.
This article actually changed my mind, so I'm kind of suspicious of my assessment--I feel like I'm missing or ignoring something obvious--but I wonder, what do you think, and how would you define the "social responsibilities of business"? Do you disagree with Friedman's assessment? Why and how?
The core of the article is, I think, summed up in this passage:
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 engages in open and free competition without deception or fraud.
Friedman wasn't, I don't think, responding to any one particular criticism of business, but rather a number of sentiments that he read or heard or interpreted, and his characterizations of some of the views he takes on may amount to strawmen, but I tend to agree with the above sentiment, given the supports he offers it in the article.
This article actually changed my mind, so I'm kind of suspicious of my assessment--I feel like I'm missing or ignoring something obvious--but I wonder, what do you think, and how would you define the "social responsibilities of business"? Do you disagree with Friedman's assessment? Why and how?
Loren Michael on
0
Posts
From the article:
1) Presumably, the individuals who are to be responsible are businessmen, which means
individual proprietors or corporate executives. Most of the discussion of social responsibility
is directed at corporations, so in what follows I shall mostly neglect the individual proprietors
and speak of corporate executives.
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. 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 their basic rules of the society, both those
embodied in law and those embodied in ethical custom. Of course, in some cases his
employers may have a different objective. A group of persons might establish a corporation
for an eleemosynary purpose--for example, a hospital or a school. The manager of such a
corporation will not have money profit as his objectives but the rendering of certain services.
In either case, the key point is that, in his capacity as a corporate executive, the manager is the
agent of the individuals who own the corporation or establish the eleemosynary institution,
and his primary responsibility is to them.
That is, the individuals in business have responsibilities to the people above them, to do their jobs. To the extent that they have responsibilities in regards to the business, it's to fulfill their obligations to the shareholders of that business.
2) (my emphasis at the bottom)
What does it mean to say that the corporate executive has a "social responsibility" in his
capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in
some way that is not in the interest of his employers. For example, that he is to refrain from
increasing the price of the product in order to contribute to the social objective of preventing
inflation, even though a price increase would be in the best interests of the corporation. 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 in order to contribute to the social
objective of improving the environment. Or that, at the expense of corporate profits, he is to
hire "hardcore" unemployed instead of better qualified available workmen to contribute to the
social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else's money for a
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.
This is my feeling as well. We can't and shouldn't trust businesses to regulate themselves or to "do the right thing", and we shouldn't trust businesses to have useful input on regulations (particularly given the problems of regulatory capture).
The words of a morally bankrupt individual on the social responsibility of business are worth less than the paper they are written on.
No, he's not right. And in fact, prior to his commentary, people believed that the people operating companies had responsibilities to society as a whole.
Ad hominem tu quoque is a fallacy dude. Please.
All that said. To engage directly: it is decently clear that for capitalism to function smoothly, there must be a certain amount of trust and flexibility within the system; tort and contract law is not enough. There is no plausible economy where all useful productive activity can be specified by contract; there is much human behavior that is determined by norms and tradition, not tort law. As such staying "within the rules of the game" is ill-defined. We're on a video game forum here; we can presumably recall examples of behavior by assorted people (not necessarily businesses) which were profitably scummy without being illegal, with the costs of (say) diminished levels of trust in a community of users.
We thus react and condemn and boycott. Unlike the popular attitude of the 1970s, we generally do not call for or expect policy intervention, relying instead on consumer action. But Friedman's blanket attack also criticizes such action.
Friedman's position here is not quite narrowly economically libertarian, as we would recognize it in a modern form; it packages an implicit theory of politics and ethics. Take this section:
Italics added. Behold, here is Friedman denouncing a tactic that increases profits as "approaching fraud".
The consequentialist reasoning given is, I think, weak:
But we, consumers and managers alike, can call for social responsibility without calling for legislation. It's what happened. We did not traipse down the merry road to Serfdom. That chocolate bar has Fair Trade stickers on it without the iron fist. Don't be too harsh on Friedman here, writing without four decades of history to look back upon, but I think we can agree that he was excessively pessimistic about social consciences.
Basically, the free market is like an optimization algorithm, taking into account laws, consumer demands, resource availability, etc. in complex ways. Letting this optimizer run is much more efficient than trying to calculate the local optimum by hand at most scales (hence why command economies tend to suck), but we have to be really careful of how we construct the problem we're feeding into the optimizer. This means we need to manipulate the system indirectly--by changing the environment and letting a different solution emerge. E.g if you construct the problem such that CO2 emissions are free, there's going to be a lot of CO2 emitted.
Some people believe that any attempt by the government to change the rules in this way is unethical, but I don't think this is a very defensible position.
Okay, then I'll put it thus - Friedman's argument is bullshit because we all have to live together. If we say that corporations and their officers should not have an obligation to society at all, but only to the owners, then we are giving them a license to operate amorally and recklessly.
It's less altruism and more not shitting one's bed. While I don't expect companies to become do-gooders at the cost of their bottom line, I do expect that they would have a vested interest not fucking up the communities they are in.
Ta-da!
If Exhibit A - who, I think it is safe to say, comes from a distinctly left part of the 21st century spectrum of political attitudes - does not expect companies to become do-gooders at the cost of their bottom line, I think it is also safe to say that Friedman was wrong about the government bureaucrats.
Nowhere in mainstream discourse or policy thought circa 2011 is central planning thought useful, or beneficial, but the 1970s was a different world (1971: Nixon imposes across-the-board wage and price controls, to fight inflation).
Yes, in a completely free market, there would be no need for wage controls, workplace safety standards, or collective bargaining, because each individual would be able to make an informed decision for himself about where to work and how much that work was worth to him. If a company offers unusually high wages, it will be flooded with job applicants, who will constantly undercut each other until a temporary market equilibrium is reached; if a particular job is highly dangerous, the employer may need to increase the compensation it offers its workers in order to attract individuals willing to accept the risk.
The trouble is, that line of thinking goes completely out the window when you introduce any complicating factors whatsoever. For example, the standard argument that gets trotted out whenever someone has the audacity to complain about working conditions at Wal-Mart is "well, why don't you just get a better job somewhere else?" But for a lot of people, it's not that easy. If they're living paycheck to paycheck, they might not be able to afford to take time off to find something else. More significantly, there's a massive fundamental inequality in the flow of information between employers and employees that violates the basic principle of capitalism. It's supposed to be a voluntary, informed, mutually beneficial exchange, but that's not possible when one side controls all the information. A worker who applies for a job at Wal-Mart must provide accurate biographical details, a work history, a residential address, employment or character references, and a goddamned urine sample for a mandatory drug test; Wal-Mart, on the other hand, doesn't even disclose the hourly wage they're offering, or what benefits they provide. The would-be worker doesn't even have the option to behave like a rational, logical, economically self-interested party: they can't make an informed decision, because they don't have the information.
Sorry, bit of a tangent there, but it's a subject close to my heart. And very much the same argument can be made against the statement "the only social responsibility of business is to increase its profits." CycloneRanger made an excellent point about the externalization of costs, which are almost always not factored into the cost of doing business. If a company can make $20 billion per year profit by barely scraping past bare minimum environmental regulations and shitting the maximum allowable amount of sulfur into the air from their smokestacks, or $15 billion per year profit by installing state-of-the-art carbon filtration systems in the stacks to scrub out the sulfur, Friedman's position would be that the social responsibility of the company would be to go for that $20 billion per year, because if the CEO were to divert any profit to things like not spewing toxins into the air, he would be spending his shareholders' money, and he doesn't have the right to do that.
But the problem is, somebody is paying for that shit in the air either way. If the company pays for it by implementing safeguards to cut it off at the source, sure, the shareholders lose a little value. But if the company doesn't pay for it, the rest of us do. We breathe the air, we develop asthma, we pay the medical bills. The sulfur condenses into clouds a hundred miles downwind, and falls as acid rain, gradually defoliating a thousand hectares of prime timber owned by a different corporation, ruining it; the timber corporation posts a loss for three consecutive quarters, and its shareholders suffer.
If corporations were legally required to internalize all of the costs of them doing business, then sure, the only thing left for them to pursue would be profit, so it would make sense for that to be their only responsibility. As it is, though, there are just too many ways for them to use the single-minded pursuit of profit to justify fucking over the rest of the world, and any philosophy that actively encourages that is abhorrent.
My understanding of him calling that "approaching fraud" is that the intent and the explanation don't jive. It's often a wholly self-interested PR tactic, and occasionally one that does harm to the free market that he fundamentally cherishes. In the paragraph after, he alludes to regulatory capture as one consequence:
Whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense
spoken in its name by influential and prestigious businessmen, does clearly harm the
foundations of a free society. I have been impressed time and again by the schizophrenic
character of many businessmen. They are capable of being extremely far-sighted and clear-
headed in matters that are internal to their businesses. They are incredibly short-sighted and
muddle-headed in matters that are outside their businesses but affect the possible survival of
business in general. This short-sightedness is strikingly exemplified in the calls from many
businessmen for wage and price guidelines or controls or income policies. There is nothing
that could do more in a brief period to destroy a market system and replace it by a centrally
controlled system than effective governmental control of prices and wages.
Regulatory capture, I think, has been extremely harmful to society, but it's not something that's apparent on a day-to-day basis. Similar anti-competitive legal shenanigans are also harmful to a free market. Licensing is another of Friedman's pet peeves that I'm surprised he didn't shoehorn into the article: it's ostensibly a socially responsible practice, but often acts as anti-competitive practices.
IIRC there's been some words written about things like organics and Fair Trade and the like, in that people are paying a premium that doesn't necessarily equate to what they are led to believe. I'll have to peek around though.
But again, from the article (and sorry to requote the same bit I just quoted):
I have been impressed time and again by the schizophrenic character of many businessmen. They are capable of being extremely far-sighted and clear-headed in matters that are internal to their businesses. They are incredibly short-sighted and muddle-headed in matters that are outside their businesses but affect the possible survival of business in general.
I agree with him here. We shouldn't expect them to have a vested interest in not fucking up the community, as they frequently don't see that as a vested interest.
It is not a person, and it astonishes me how widely they are anthropomorphised.
The people within the business all have the same ethical obligations that they've always had. We can argue about what they are - to care for one's fellow man, to be honest etc. Or not. To look out for number one may be your only rule, but if so putting on a tie or punching in don't change anything.
Morality doesn't stop because your job is X. You still have a responsibility to be honest even when your boss tells you to lie, and he has a responsibility to not be such a bullying douche.
The lie here - that businesses should act in X way - is twofold. One is the problem I mention above.
The other lie is that what the people within the business want to do, unfettered by morality, actually reflects the will of the business. The actions and desires of a business are actually those of the most powerful within it. The bosses and holders of capital. No-one actually acts in the (wholly fictitious) best interests of the company. They act in the interests of the leaders and owners, who pretend that these are one and the same. A lie within a lie. Bankruptcy and golden parachutes.
Anyway, this kind of discussion reminds me of this quote from Blue Mars:
Work is no different to any other part of our lives. We should be as free, moral, and independent as we are in our social lives and our political lives.
Free-market proponents will tell you that moral restrictions on business decrease economic efficiency. That may or may not be true. But what it definitely is, is irrelevant. The goal of humanity is not to maximise economic output. We're not sure what that goal is, but I'm sure it's not that.
In addition: an individual's ethical responsibilities, unwritten as they may be, do not cease when they clock in. Unethical behavior should not be present in a business because a business is wholly composed of those individuals. Further, those responsibilities are not only to be considered in the short-term, but also long-term. Companies that make vast profit today for horrible effects fifty years down the line are incredibly destructive.
It needs to also be kept in mind that any rules in place that obstruct profit for the sake of human benefit are under constant attack by companies who are playing strictly "by the rules," which makes their ability to prevent unethical behavior rather precarious.
The problem is that business isn't stupid. Or, rather, not THAT stupid.
They inject themselves wholesale into the political process in order to remove the checks and balances on themselves so they can attain more profit at the expense of ... well, everyone. Including, often, themselves in the long term. The players are bribing the refs to change the rules of the game. Inmates, asylum, etc, etc.
Because of this, the idea that "Business can just play the game and we'll set the rules" doesn't work. The rules themselves are part of the game.
We shouldn't trust business to be ethical, but we should damn well fucking expect it.
This strikes me as a problem of a failure to regulate effectively. We need businesses to have social responsibilities because we're not willing to use the appropriate structure to account for the costs of externalities, such as via a cap-and-trade system or something similar.
That is a woefully inadequate system, businesses will only do that to the extent that there is demand for such services and products.
Actually, a good deal of the time they inject themselves into the political process in order to regulate themselves. Businesses are not friends of the free market.
I've never gotten how people can say that businesses are amoral and such.
Unless your corporation is run by unfeeling robots, you're still a group of people. And human beings have moral responsibilities.
Except it's not so much that we aren't willing to do it as that business is actively working to stop us from doing it.
You can't just say "All we need to do is construct a better rules framework" because business is writing those rules. They are working damn hard and spending a shitload of money to do it.
And, in fact, that's the big thing here. They spend time and money on it. They divert funds from maximizing profit within the rules towards political causes because changing the rules is a "legitimate" way of maximizing profit for them.
This has nothing to do with what I said though. Who cares about the mythical "free market".
Business injects themselves into the political process to make bigger profits. They do not simply work within the framework the government constructs. They actively work to change that framework to their own benefit.
The rules of the game are part of the game itself.
And because of that, the idea that they can have no ethical obligations is ludicrous because if you take that approach there is nothing they can't justify. The rules you propose to regulate their amoral activity towards our own benefit are ones they actively work to change to benefit themselves. Often at our expense.
There is no perfectly ideal set of regulations which punishes everything worth punishing in such a way as to make morally upstanding behavior also maximally profit-pursuing. Given that there will always be the opportunity in some cases to do something unsavory in pursuit of profit (think of individual situations like cheating on a test where you won't get caught), the only check we can rely on is individual ethical sense.
I find corporate social responsibility extremely suspect in many ways--it does seem to be basically sleazy PR --however, "stealing from the shareholders" is not a rationale I accept.
Absolutely; I agree. Businesses want rules to help them, and they are extremely good at integrating themselves into the rulemaking process. This is a massive problem.
This is much the same. We should not expect or trust businesses to do the right thing. We should expect and trust them to have an eye to the bottom line. My reference to the free market was to business' tendency to regulate themselves via integration with the regulatory body, as a means to discourage competition, as a means to weaken regulation, as a means to put on a public face that says "look, we're acting responsibly!"
Far too many treat a business like some sort of act of God that simply IS and should neither be questioned nor fought.
Given, economics isn't a zero-sum game simply due to the increasing nature of populations, but in many places population growth isn't a given. Even if it is, annual growth (certainly in commodities markets) should more or less correlate with whatever value the growth in consumer population is.
Being profitable isn't the same thing as continually growing; profits can be readily turned on a static market, as well companies like Microsoft and Sony repeatedly have show that you can successfully operate when certain divisions of your company are designed to lose money. The natural endpoint of continued growth is monopoly, which is the one thing a free market cannot tolerate. And that's the really ironic part, isn't it? Monopolies are the big no-no of capitalism, yet it's the logical endpoint for the self-interested business. Companies will seek that end until they can't, because there is no incentive not to.
As well, bottom-line "growth" can be artificially created. The stockholders only care about stock price; whether that growth is created by expansion of product line and market demand, or created in the aggregate by massive layoffs and downsizing, it's all the same to them. This creates situations where literally people can get richer by damaging the economy in the short-term.
I don't know if it's the right thing to do, and I certain don't have a better alternative at immediate availability, but I'm strongly beginning to feel like market investment is ultimately more harmful than it is good. We need to, collectively, be investing in innovation of goods and services (and subsequently the companies that produce them) that are going enrich our lives and our society and our environment and our productivity and our economy . . . for everyone.
As it is now, Wall Street just exists for people to gamble their interests on which ever company is maximizing its market potential, regardless of end or aim. That's not stable, or sustainable, or even inherently good. It's more like a game of Frogger, where you put your money on a log and try to jump to the one ahead of you when the alligator shows up.
Ross, I'm not going to be snarky, but to my memory, you've claimed to have film studies, literature and medical qualifications. Possibly more, but that's just off the top of my head.
Now economics? I'm getting pretty skeptical, personally.
Economics isn't zero sum because of comparative advantage. Population growth has nothing to do with it.
Within the existing legal framework governing them.
Edit: Uuuh, I'm not disagreeing, just pointing out that it's not a case of "BUSINESSES RUNNING AMOK, OMG OMG OMG!".
I have five degrees and/or certifications.
- International & Healthcare Economics (double major)
- Business Management
- Registered Nursing Science
- Direction and Production for Film (Celluloid)
- MLA - Linguistics
I didn't say "exclusively due to population growth." I was alluding to the fact that under any circumstance except loss in population, economies naturally grow. I agree with you.
It doesn't matter. It is fundamentally illiberal, illibertarian, and anti-market to demand that all explanations given must jive with intent. The point of freedom of speech is that the foundations of a free society are quite resistant to babbling, however untrue; good speech is not a commons that is infected by bad contributions. One is quite free to stop listening.
To demand that, say, consumer advertising be a unbiased assessment of competitor's offerings is obviously absurd. We can demand that advertising not lie, under the rules of the game; but to expect it to advance anything less than a bald advocacy of its own product is precisely a shareholder-robbing tax that Friedman rails against.
(I should note that Friedman's choice of analogy here is unfortunate; the simple reason for calling for wage and price controls is enforced cartelization, which is very long-sighted of the businessmen involved. They, individually, would not suffer under a centrally controlled system, because their wealth entailed political influence. Friedman never really got the idea of wealth translating to broader market and political power, which does go toward accounting for his politics. Perhaps in the 70s, this was not obvious, but crony capitalism is certainly obvious today across the developing world)
Again, there was no road to serfdom; social responsibility ideas did not go away, but governments across the world generally deregulated. I reiterate that there is no longer a call for central planning.
edit:
yes, hence: