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Milton Friedman, death of a social responsibility critic

According to Wikipedia today: “Milton Friedman died at the age of 94 on 16 November 2006 of heart failure, after being taken to hospital near his home in San Francisco. He is survived by his wife and two children.” For background on Friedman, see:

http://en.wikipedia.org/wiki/Milton_Friedman

One of the most well known critics of the 1970’s social responsibility movement, Friedman’s now-legendary essay: “The Social Responsibility of Business is to Increase its Profits” is probably the most quoted attack on notions of business taking on social responsibility:

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

Friedman did the ‘CSR world’ a huge favour early on by forcing the movement to consider his attacks, add (some) more rigour to its approaches and justify itself from relatively early on.

However, some might say he also did the movement some harm, too, since his almost unrivalled reputation as an economist (monetarism etc) carried so much weight his views have influenced generations of sceptical business folks, many carrying MBAs.

Friedman called business and social responsibility a “fundamentally subversive doctrine” in a free society, and said that in such a society, “there is one and only one social responsibility of business–to use it 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.”

The most interesting piece of this last line is the reference to “the rules of the game”. Readers are invited to comment on these, what they were in 1970, how they have changed since, and on Friedman’s legacy, specifically to ethical business, or generally.

Toby Webb, Editor

2 Comments

  1. Anonymous

    Hi Tony, my name is Jessica Miller, I am a producer for a radio show in Cambridge. I’m writing a feature on responses to Milton Friedman’s death. Your post seemed very insightful, not to mention knowledgeable about Friedman’s legacy, and I was wondering if you would like to share with me your own personal response to Friedman’s death, or if you know someone who would like to. I realize this is also a response on Friedman’s life and policies, and I’m trying to understand why this one man could represent and encounter such a large movement. If you could e-mail me, my address is:
    jessica at radioopensource.org
    (except in email form)
    Thanks for your time,
    Jessica Miller

  2. Friedman clearly was a big believer in free markets and the price mechanism. His comments on CSR make him an easy target but perhaps you need to put his views into context. I think his views, along with others such as David Henderson, see business as an entity where the goal is to simply make profits on behalf of the owners and to be involved in activities outside that strict goal is not the role of business.

    That is a fair comment on the face of it but two issues arise: one is that businesses externalise many costs, some on purpose and some that they are not aware of. If these costs were internalised (ie the Trucost approach) then we would be looking at a more “responsible” business but still one that fitted Friedman’s paradigm. The same could be said about Adam Smith’s view of commerce. He understood very clearly the concept of the supply chain and how much labour and effort went into a product. However he was not aware at the time (1776) of the issue of environmental costs. He is much maligned over this and i believe quite unfairly. His book the Theory of Moral Sentiments written previously to the Wealth of Nations talked very clearly about the issue of morals within business.

    We are moving to a more Trucost approach to business where external costs such as carbon emissions and other forms of pollution and ecosystem services are starting to be internalised. I don’t think any free market economist would disagree with this concept (they may disagree with climate change but that is a different issue).

    The second point is that it has been shown that companies with a purpose beyond profit outperform those who simply focus on the bottom line (see Built to Last and Metawealth research). Companies organised around a clear purpose and set of values simply do better. Because of who they are they address issues of social responsibility as those values are embedded within the organisation.

    In summary we are heading towards a business world where all external costs will become internalised and where all business will operate around a set of values (they will differ from place to place) because it makes business sense as well as serving its stakeholders.

    In a strange way the free marketeers will have been proved correct but not in the way they would have imagined.

    Environmental and social responsibility will become the norm not because it feels good but because it IS more profitable for the whole system.

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