### TL;DR
In this essay Milton Friedman argues that the only soc...
You can find the link to the New York Times:
[The Social Respons...
In a free market system the main responsibility of a corporate exec...
Checks and balances refers to a system separates the power to impos...
Shareholders choose a corporate executive to run the company so tha...
A private company can only benefit others at their own cost thus pe...
> ***"The situation of the individual proprietor is somewhat differ...
Business leaders are excellent at managing the internal workings of...
Friedman is warning that if we expect businesses to solve all socia...
The Social Responsibility of Business is to
Increase its Profits
Milton Friedman
September 13, 1970
Originally published in The New York Times Magazine
When I hear businessmen speak eloquently about the “social responsibilities of business in
a free-enterprise system,” I am reminded of the wonderful line about the Frenchman who
discovered at the age of 70 that he had been speaking prose all his life. The businessmen
believe that they are defending free enterprise when they declaim that business is not
concerned “merely” with profit but also with promoting desirable “social” ends; that
business has a “social conscience” and takes seriously its responsibilities for providing
employment, eliminating discrimination, avoiding pollution and whatever else may be the
catchwords of the contemporary crop of reformers. In fact they are or would be if they or
anyone else took them seriously preaching pure and unadulterated socialism. Businessmen
who talk this way are unwitting puppets of the intellectual forces that have been
undermining the basis of a free society these past decades.
The discussions of the “social responsibilities of business” are notable for their analytical
looseness and lack of rigor. What does it mean to say that “business” has responsibilities?
Only people have responsibilities. A corporation is an artificial person and in this sense may
have artificial responsibilities, but “business” as a whole cannot be said to have
responsibilities, even in this vague sense. The first step toward clarity in examining the
doctrine of the social responsibility of business is to ask precisely what it implies for
whom. 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.
Needless to say, this does not mean that it is easy to judge how well he is performing his
task. But at least the criterion of performance is straight-forward, and the persons among
whom a voluntary contractual arrangement exists are clearly defined.
Of course, the corporate executive is also a person in his own right. As a person, he may
have many other responsibilities that he recognizes or assumes voluntarily to his family, his
conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel
impelled by these responsibilities to devote part of his income to causes he regards as
worthy, to refuse to work for particular corporations, even to leave his job, for example, to
join his country’s armed forces. If we wish, we may refer to some of these responsibilities
as “social responsibilities.” But in these respects he is acting as a principal, not an agent; he
is spending his own money or time or energy, not the money of his employers or the time
or energy he has contracted to devote to their purposes. If these are “social
responsibilities,” they are the social responsibilities of individuals, not business.
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.
The stockholders or the customers or the employees could separately spend their own
money on the particular action if they wished to do so. The executive is exercising a
distinct “social responsibility,” rather than serving as an agent of the stockholders or the
customers or the employees, only if he spends the money in a different way than they
would have spent it.
But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the
tax proceeds shall be spent, on the other.
This process raises political questions on two levels: principle and consequences. On the
level of political principle, the imposition of taxes and the expenditure of tax proceeds are
governmental functions. We have established elaborate constitutional, parliamentary and
judicial provisions to control these functions, to assure that taxes are imposed so far as
possible in accordance with the preferences and desires of the public after all, “taxation
without representation” was one of the battle cries of the American Revolution. We have a
system of checks and balances to separate the legislative function of imposing taxes and
enacting expenditures from the executive function of collecting taxes and administering
expenditure programs and from the judicial function of mediating disputes and interpreting
the law.
Here the businessman self-selected or appointed directly or indirectly by stockholders is to
be simultaneously legislator, executive and jurist. He is to decide whom to tax by how
much and for what purpose, and he is to spend the proceeds all this guided only by general
exhortations from on high to restrain inflation, improve the environment, fight poverty and
so on and on.
The whole justification for permitting the corporate executive to be selected by the
stockholders is that the executive is an agent serving the interests of his principal. This
justification disappears when the corporate executive imposes taxes and spends the
proceeds for “social” purposes. He becomes in effect a public employee, a civil servant,
even though he remains in name an employee of a private enterprise. On grounds of
political principle, it is intolerable that such civil servants insofar as their actions in the
name of social responsibility are real and not just window-dressing should be selected as
they are now. If they are to be civil servants, then they must be elected through a political
process. If they are to impose taxes and make expenditures to foster “social” objectives,
then political machinery must be set up to make the assessment of taxes and to determine
through a political process the objectives to be served.
This is the basic reason why 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.
On the grounds of consequences, can the corporate executive in fact discharge his alleged
“social responsibilities”? On the one hand, suppose he could get away with spending the
stockholders’ or customers’ or employees’ money. How is he to know how to spend it? He
is told that he must contribute to fighting inflation. How is he to know what action of his
will contribute to that end? He is presumably an expert in running his company in
producing a product or selling it or financing it. But nothing about his selection makes him
an expert on inflation. Will his holding down the price of his product reduce inflationary
pressure? Or, by leaving more spending power in the hands of his customers, simply divert
it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply
contribute to shortages? Even if he could answer these questions, how much cost is he
justified in imposing on his stockholders, customers and employees for this social purpose?
What is his appropriate share and what is the appropriate share of others?
And, whether he wants to or not, can he get away with spending his stockholders’,
customers’ or employees money? Will not the stockholders fire him? (Either the present
ones or those who take over when his actions in the name of social responsibility have
reduced the corporation’s profits and the price of its stock.) His customers and his
employees can desert him for other producers and employers less scrupulous in exercising
their social responsibilities.
This facet of “social responsibility” doctrine is brought into sharp relief when the doctrine
is used to justify wage restraint by trade unions. The conflict of interest is naked and clear
when union officials are asked to subordinate the interest of their members to some more
general purpose. If the union officials try to enforce wage restraint, the consequence is
likely to be wildcat strikes, rank-and-file revolts and the emergence of strong competitors
for their jobs. We thus have the ironic phenomenon that union leaders at least in the U.S.
have objected to Government interference with the market far more consistently and
courageously than have business leaders.
The difficulty of exercising “social responsibility” illustrates, of course, the great virtue of
private competitive enterprise it forces people to be responsible for their own actions and
makes it difficult for them to “exploit” other people for either selfish or unselfish purposes.
They can do good but only at their own expense.
Many a reader who has followed the argument this far may be tempted to remonstrate that
it is all well and good to speak of Government’s having the responsibility to impose taxes
and determine expenditures for such “social” purposes as controlling pollution or training
the hard-core unemployed, but that the problems are too urgent to wait on the slow course
of political processes, that the exercise of social responsibility by businessmen is a quicker
and surer way to solve pressing current problems.
Aside from the question of fact I share Adam Smith’s skepticism about the benefits that
can be expected from “those who affected to trade for the public good” this argument
must be rejected on the grounds of principle. What it amounts to is an assertion that those
who favor the taxes and expenditures in question have failed to persuade a majority of their
fellow citizens to be of like mind and that they are seeking to attain by undemocratic
procedures what they cannot attain by democratic procedures. In a free society, it is hard
for “evil” people to do “evil,” especially since one man’s good is another’s evil.
I HAVE, for simplicity, concentrated on the special case of the corporate executive, except
only for the brief digression on trade unions. But precisely the same argument applies to the
newer phenomenon of calling upon stockholders to require corporations to exercise social
responsibility (the recent G.M. crusade, for example). In most of these cases, what is in
effect involved is some stockholders trying to get other stockholders (or customers or
employes) to contribute against their will to “social” causes favored by the activists.
Insofar as they succeed, they are again imposing taxes and spending the proceeds.
The situation of the individual proprietor is somewhat different. If he acts to reduce the
returns of his enterprise in order to exercise his “social responsibility,” he is spending his
own money, not someone else’s. If he wishes to spend his money on such purposes, that
is his right, and I cannot see that there is any objection to his doing so. In the process, he,
too, may impose costs on employes and customers. However, because he is far less likely
than a large corporation or union to have monopolistic power, any such side effects will
tend to be minor.
Of course, in practice the doctrine of social responsibility is frequently a cloak for actions
that are justified on other grounds rather than a reason for those actions.
To illustrate, it may well be in the long-run interest of a corporation that is a major
employer in a small community to devote resources to providing amenities to that
community or to improving its government. That may make it easier to at tract desirable
employes, it may reduce the wage bill or lessen losses from pilferage and sabotage or have
other worthwhile effects. Or it may be that, given the laws about the deductibility of
corporate charitable contributions, the stockholders can contribute more to charities they
favor by having the corporation make the gift than by doing it them selves, since they can
in that way contribute an amount that would otherwise have been paid as corporate taxes.
In each of these—and many similar—cases, there is a strong temptation to rationalize these
actions as an exercise of “social responsibility.” In the present climate of opinion, with its
widespread aversion to “capitalism,” “profits,” the “soulless corporation” and so on, this is
one way for a corporation to generate goodwill as a by-product of expenditures that are
entirely justified in its own self-interest.
It would be inconsistent of me to call on corporate executives to refrain from this
hypocritical window dressing because it harms the foundations of a free society. That
would be to call on them to exercise “social responsibility”! If our institutions, and the
attitudes of the public make it in their self-interest to cloak their actions in this way, cannot
summon much indignation to denounce them. At the same time, can express admiration for
those in dividual proprietors or owners of closely held corporations or stock holders of
more broadly held corporations who disdain such tactics as approaching fraud.
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 incomes
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.
The short-sightedness is also exemplified in speeches by business men on social
responsibility. This may gain them kudos in the short run. But it helps to strengthen the
already too prevalent view that the ptirsuit of profits is wicked and im moral and must be
curbed and controlled by external forces. Once this view is adopted, the external forces
that curb the market will not be the social consciences, however highly developed, of the
pontificating executives; it will be the iron fist of Government bureaucrats. Here, as with
price and wage controls, business men seem to me to reveal a suicidal impulse.
The political principle that underlies the market mechanism is unanimity. In an ideal free
market resting on private property, no individual can coerce any other, all cooperation is
voluntary, all parties to such cooperation benefit or they need not participate. There are not
values, no “social” responsibilities in any sense other than the shared values and
responsibilities of individuals. Society is a collection of individuals and of the various
groups they voluntarily form.
The political principle that underlies the political mechanism is conformity. The individual
must serve a more general social interest whether that be determined by a church or a
dictator or a majority. The individual may have a vote and say in what is to be done, but if
he is overruled, he must conform. It is appropriate for some to require others to contribute
to a general social purpose whether they wish to or not.
Unfortunately, unanimity is not always feasible. There are some respects in which
conformity appears unavoidable, so I do not see how one can avoid the use of the political
mechanism altogether.
But the doctrine of “social responsibility” taken seriously would extend the scope of the
political mechanism to every human activity. It does not differ in philosophy from the most
explicitly collective doctrine. It differs only by professing to believe that collectivist ends
can be attained without collectivist means. That is why, in my book Capitalism and
Freedom, I have called it a “fundamentally subversive doctrine” in a free society, and have
said that in such a society, “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 is warning that if we expect businesses to solve all social problems we end up involving politics in every aspect of our lives. This approach is essentially similar to collectivism, where the government makes decisions for everyone.
> ***"The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his “social responsibility,” he is spending his own money, not someone else's. If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any objection to his doing so."***
You can find the link to the New York Times:
[The Social Responsibility of Business Is to Increase Its Profits](https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html)
In a free market system the main responsibility of a corporate executive is to run the business in a way that aligns with the owners' goals. This typically means making as much profit as possible while following the laws and ethical norms of society.
He acknowledges that not all corporations are created solely for profit. For example, if a group of people forms a corporation to run a hospital or a school, the primary goal isn't to make money but to provide services.
A private company can only benefit others at their own cost thus people are forced to be accountable for their actions. This setup prevents anyone from using someone else’s resources to advance their own ideas. Essentially, the competitive market ensures that any good deeds are paid for by the doer - keeping everyone responsible for their own actions.
Checks and balances refers to a system separates the power to impose taxes and to spend tax revenues among distinct branches
- legislative (making laws)
- executive (collecting taxes and administering programs)
- and judicial (interpreting laws and resolving disputes)
This systems prevents any single branch from unilaterally controlling fiscal policy.
### TL;DR
In this essay Milton Friedman argues that the only social responsibility of business is to boost profits for its shareholders as long as companies follow the law and ethical norms.
He warns that when corporate executives use company funds for social causes, they're effectively imposing taxes without consent, shifting responsibility from individuals to centralized control. This undermines personal accountability and distorts the role of businesses in a free-market economy.
This idea echoes Milton Friedman’s argument: if you want to get results, you should let individuals bear the cost and responsibility of delivering services, rather than spreading those costs broadly without clear accountability - private competition forces people to be responsible for their own actions.
Friedman's provocative insights remain a must-read, challenging us to rethink whether businesses should act as profit engines or social welfare providers.
Shareholders choose a corporate executive to run the company so that he acts solely in their financial interest - his job is to make money for them.
If the executive starts using company funds to pay for social causes then he's no longer just working for the shareholders but instead he's acting like a government official.
The executive steps outside the role he was hired for, because his actions now resemble those of a public servant who imposes taxes and decides how they should be spent.
Business leaders are excellent at managing the internal workings of their own companies. But when they try to impose rules on the broader economy (like setting wage or price controls), they step outside their area of expertise.
Advocating for such controls undermines the free market because it replaces individual decision-making with government intervention. This can lead to a system where prices and wages are fixed by the state rather than determined by supply and demand.
By using the idea of “social responsibility” as a cover, these businessmen risk harming the very foundation of a free society - the free market.