Political Economy Students' Journal

In his article for The New York Times “The social responsibility of business is to increase its profit” Milton Friedman argues that companies should only care about maximizing their shareholder value and only be restricted by the law while disregarding any other concerns. This article had a huge impact on the business community by shaping their ethics to focus just on maximizing profit and shareholder value without almost no regard for any kind of consequences whether social or environmental and even legal.

 

Reading the article, it is interesting to notice that Friedman makes an interesting observation only to then, in my view, derailing his conclusion.

 

At first, he realizes an interest in business people to comply with their activity to social, environmental, and ethical constraints. He is not wrong on that, the idea businesses maximize profits is, in my view an oversimplification of how entrepreneurs and business people view business in general, when talking to people who own businesses or thinking about creating them it is more complex than that. In some cases, there is a sentiment of legacy, so the sons and daughters want to fill the parents’ shoes. In this case, the goal is to maintain the reputation the company already has or live up to it. In other cases, the person has a hobby that wants to be known and people already approve of how good the person is at it, here the business goal becomes more about the sentiment of the person concerning the product, meaning it wants the product to be the best as possible. In other cases, the goal is for the provision of the service because of the influence it has on people. In a darker tone, the opening of a business can also be seen as a way to run other illegal activities on the back end and therefore the goal is to provide cover for those activities. The point is, the goal of a company is political and can vary from case to case, therefore it is not surprising businesspeople have concerns about other constraints rather than profit. 

 

Later Friedman points out that seriously taking social constraints, meaning taking into account the consequences and keeping the thought logical would cause businesses to abandon the free market and embrace a form of socialism “..the doctrine of ‘social responsibility’ involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.”

 

While I disagree with market mechanisms not being political or embedded in politics, whether institutions or ideas, he is right to point out how businesses tend to not have a serious look on these issues, even when they profess concern about them. An example of this at its worst is greenwashing or purposely disinforming regarding an issue that could affect that business, the same happened with the tobacco industry in the sixties. Other way is when they engage in performative activism, by taking actions to follow trends and not adequate to the values of the causes they defend. 

 

Afterwards, it is where the conversation in my view derails since the author assumes the company is an apolitical entity and that the market is non-coercive therefore being able to defend how business should only care about maximizing shareholder value and profits without any consequences to society, a term he also depoliticizes by defining as only the addition of individual actions. This absence of politics regarding this institution is what negates the possibility of seeing that if a company is able to grow as big as possible without any kind of restraint other than legal then it is inevitable it will grow large enough to change the political rules that restraints it to find space so it can continue to maximize profits. The underlying principle that allows this kind of ethics regarding business oddly enough is a blind confidence in governmental institutions to be able to keep the rules fair when the players are big enough to override them.

 

It is interesting to also look at the company itself, since central planning is highly criticized by the author, but he fails to see how the kind of enterprise he alludes to is also a centrally planned institution. I agree central planning fails to a certain extent because of how far the decisions from the top are from the phenomenon that happens on the ground, and therefore there is a gap in information on how things work to the decisions being made. The problem is since he ignores the politics of the company he doesn't have to address this issue regarding the company as well. Why would central planning fail only to the government and be acceptable in the private sector? If the free market is so efficient in how it allocates resources and people, shouldn't the company itself function in a free market way?

 

The possibility of making this institution true to those values would necessarily need to see the company as a political entity. If in a truly free society, coerciveness is absent, then the same should apply to the company unless one only sees coerciveness regarding the government. Is a centrally planned institution not coercive as long as is private? 

 

As said in the beginning this text had a big influence on shaping the ethics of business and as a consequence how it operates. Whether one thinks the change was positive or negative, it did make a societal change a concept the other rejects by defining it as just the agglomeration of individuals. It is true individuals make decisions, but in this case, the individual is not enough to explain the process, since it happened in the realm of ideas to later influence peoples' behavior as a whole. In other words, it wasn't an individual decision at a time that led to this conceptual change. 

 

While I disagree with Friedmans' ethics and views on the subject, I think he does bring to the table an interesting conversation that requires further analysis and action. The reflection of what the company is and its role in society is indeed a topic to further explore if we want to understand “the market”.

 

Is it time to start a Political Economy of the company?