Milton Friedman is one of my favourite people, but I must say I found his 'A Friedman doctrine – The Social Responsibility of Business Is To Increase It's Profits' a little disappointing.
The title is not the problem. It is the points he makes and the logical leaps he takes. If his entire argument focused on 'Social Responsibility' I would agree with him in substance.
However, I argue it goes further than that. For instance, companies, known to help sick and hospitalised children, generate good will and that is good business. In fact, I dispute his assumption 'social responsibility' actions lower profits. It can do the complete opposite. 'Social Responsibility' may be a path to more.
Friedman wrote, 'Insofar as his [corporate executive engaging in 'social responsibility'] actions raise the price to customers, he is spending the customers' money'.
Spending the customers’ money
Yet, if the same executive simply raised the price to raise profits for shareholders, the impact on the customer would be the same. I do not believe Dr. Friedman would call it 'spending the customers' money'. He would note customers are free to buy or not buy and if they are willing to pay the higher price, it is because they believe it is worth it.
If a company spending money on anything raises the price of the goods, then by the logic used, it is 'spending the customers' money'. That theory is a very detrimental one. Advertising increases costs and thus increases the price of the product.
The hope of the company is that extra money spent on advertising will increase interest in the product and, over the long run, increase profits. But can the same not be true for what Dr. Friedman calls 'social responsibility'?
He also argued corporations that engage in various aspects of 'social responsibility' are in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other. But taxes are coercive not voluntary and buying is voluntary. Owning shares in a company is voluntary. Working for them is voluntary.
He would argue this is against the interests of the consumers, shareholders, and employees. But if that is the case, then one of the virtues of the free market is they can buy other products, sell their shares, or seek employment elsewhere.
That this does not happen implies those whose interests Dr. Friedman was protecting, do not quite feel the need for it. They have options that can put a stop to it, especially shareholders who can sell their shares by simply clicking a computer mouse.
Markets are inherently social
A corporation donating to an educational service based on the virtues of depoliticising markets would not be seen as engaging in 'social responsibility'.
Markets are one of the most intricate social webs in existence. A market is not some depersonalised system but the actions of millions of people interacting freely with one another. Markets are inherently social.
Consider any action which inhibits general well-being as an assault on markets. If you impose an authoritarian legal system, it will destroy wealth in private hands, reducing customer demand and inhibiting profits. Free people are more prosperous meaning more profits.
Many 'social' measures negatively impact minorities and reduce their ability to produce and trade. Defending their social freedoms helps reverse that. Is that 'social responsibility’ or 'profit seeking'? In my opinion, it is both because they largely overlap.
I learned this lesson long ago when conversing with an economist who gave up his usually generous honorarium to speak at a dinner I put together. When it was mentioned parking discounts at the venue were available to attendees, he leaned over to me and said, 'Make sure I get one of those'.
I assured him we would happily pay his parking fees and he did not need to worry. He said, 'I don't mind paying, I just don’t want to pay full price'. I laughed and when handing him the parking voucher said, 'This has to be one of the lowest fees you've ever received'.
He smiled and reminded me, 'A good economist will tell you there is more to profit than just monetary gain'. I never forgot that, especially since it was Dr. Friedman who told it to me.
Since then I stopped seeing markets purely in terms of financial profits, as necessary as they are. Many individuals have wealth sufficient to live a life of leisure, but they still find satisfaction and other kinds of profits in working.
As I see it, it is all interconnected. Markets make that clear. Your well-being directly impacts the well-being of others around you.
It is why I argue for free exchange of goods and services; it is also why a good businessman would defend social freedoms, equality of rights before the law and other principles of a sound liberal order.
This article was first published on BBrief on 5 May 2021.