Dr. Clowney's Comments


The Title

Your goal is to find Friedman's main point, the arguments he gives for believing it, any objections to the point, and any answers he gives to the objections. To understand the article, determine how each part of it relates to the main point.  

The main point, the thesis, of this article is obvious from the title.  "The Social Responsibility of Business is to Increase its Profits."  Scan the article now to find out where else Friedman states his main point; perhaps he will say it in another way that will help you understand more about it.  And start thinking now about why Friedman would think this point was correct.




8.1.1 The numbers at the beginning of each paragraph identify the location of the paragraph in McCall and DesJardins, by page, column number, paragraph number, and sometimes sentence number. Thus, "" stands for page 10, column 1, paragraph 2, sentence 2 in the article as it appears in McCall and DesJardins. The numbers also provide a useful way of naming each paragraph.  So "See 10.1.2" means that you should refer to the paragraph with that number.  


  At the end of this sentence are three examples of the kinds of "socially responsible" activities Friedman thinks business executives should not be engaging in on the job.  One way to test his view is to see whether you could accept the things he says, and still argue that executives could legitimately act to reduce unemployment, discrimination and pollution.  Keep this in mind as you read.




                               ,4 Stop and think:

This is a big claim.  If he can prove it, Friedman will be able to use it to make an argument for his thesis.  It will only work, of course, if you think that "socialism" and "undermining the foundations of a free society" are bad things.  But most people will agree that it's bad to undermine the foundations of a free society, even if they are sympathetic to socialism; and socialism itself is not very popular these days.  So if he can prove this claim about the foundations of a free society, Friedman will have a very strong case.  

But of course he will have to prove it.  And that might not be so easy to do.  Why would anyone think that a business person who tried to eliminate discrimination or avoid pollution was undermining the foundations of a free society?

Scan the text now for references to "free society", "foundations of a free society", and "socialism".  Mark them; they are probably places where Friedman will be stating or arguing for his main thesis.  

(8.2.2; 10.1.1; 11.1.5; 11.2.2-12.1.1)

P.S.  Friedman obviously thinks that a socialist society cannot be a free society.  Do you think he is right about this? Why, or why not?





8.1.2 - 9.1.2   

Defining Terms

In the first seven paragraphs, Friedman defines the term "social responsibility of business" as meaning the social responsibilities of individual business executives, when they are on the job and not in private life. Only individuals, he says, can have responsibilities.  So it wouldn't make any sense to talk about the responsibilities of business in general.  And while he admits that corporations are treated by the law, for certain purposes, as artificial persons with artificial responsibilities, he does not explore the possibility that corporations might have "artificial" social responsibilities in this same way.  

There's nothing wrong with defining terms; it's hard to have an intelligent discussion if you don't know what you are talking about! But every definition is a limit, which means it leaves something out. When someone like Friedman defines his terms, you should always ask yourself whether he's defined anything out of the discussion that should have been left in.  For example, did he skip something crucial by not talking about the social responsibilities of particular corporations?  You may want to come back to this question later, when you have finished reading the article the first time.





The Agency Argument

8.2.2 - 9.1.2

In this essay, Friedman gives three arguments for his view that the only social responsibility of business executives, as executives, is to pursue profit without breaking the law.  Call them the Agency Argument, the Tax Argument, and the Foundations of a Free Society Argument.


The Agency Argument goes like this:

1) Corporate executives are agents of the owners of the corporations (for publicly held corporations, the owners are the stockholders).  

2) An agent is responsible to act on behalf of his or her principal (i.e., the owners of the corporation), in accordance with the principal's desires.  To spend the principal's money in some other way than the principal desires is a form of stealing.

3) Corporate stockholders desire the maximum legal return on their investments, i.e., profits, and do not want profits sacrificed for other "socially responsible" causes.

Therefore, 4) Corporate executives who sacrifice profits in order to make "socially responsible" decisions not required by the law, are stealing from the stockholders.  

5) Since stealing is wrong, corporate executives should limit their decisions to those that legally maximize profits for shareholders.

As an exercise, see if you can find these premises and this conclusion, or the sentences from which I have gotten them, in the text.  Then Look at each of the premises to see if you think it is true.






The Tax Argument

Friedman slides from the Agency argument to the Tax Argument as if they were the same argument.  As we will see, they are not the same.  Here is the Tax Argument:

1) An executive who sacrifices profits in the name of social responsibility is imposing costs on others, including owners, employees, and customers, without their consent.

2) Anyone who imposes costs on others is in effect imposing taxes on them.

3) Anyone who imposes taxes on others without their consent is taxing without representation, which is contrary to our democratic form of government.  

4) Imposing taxes without consent is bad in principle; it violates the democratic principle of government by the consent of the governed.  9.2.2-10.1.1

5) Social responsibility activism by executives (a form of taxation without representation) is bad in practice, because executives won't know how to do it, and because stockholders, employees, and customers won't let executives get away with it.  10.2.2 - 10.2.1

6) Since taxation without representation is wrong in principle, and since social responsibility activism by business executives is also bad in practice, business executives should refrain from it.  

Thinking about the Tax Argument

Although Friedman does suggest ( that an executive acts as an agent of the stockholders, the employees, and the customers, this is obviously ridiculous, as these three groups sometimes have conflicting interests.  (To be an agent of all three would be like being a lawyer for the prosecution and for the defense at the same time.)  Nor are executives of publicly held corporations appointed by the employees or the customers, so it's not clear what channels of accountability exist between executives and these groups, other than those provided by the market itself.  

If the executive is responsible to balance the interests of all three of these groups. that is actually a very high level of "social responsibility"!  If not, the tax argument collapses.  In any case, Friedman must choose between the agency argument and the tax argument; if one is accepted, the other fails.  

Someone might respond to this criticism by pointing out that our congressional representatives are the agents of their constituents (us), even though our interests often conflict. Perhaps this is true. If it is, then I'm wrong in saying that no-one can ever simultaneously be the agent of parties with conflicting interests. But this does not help Friedman out. There are two big relevant points of comparison between congresspeople and business executives. Congresspeople are elected; business executives are hired. They are salaried employees, responsible to abide by the terms of their contracts and the ethics of their profession. this is not the same as being an agent. Their contracts stand in between them and stockholders, employees, customers, etc, and limit the responsibilities they have to these parties.

Even more important, and more harmful to Friedman's case, is the similarity between congresspeople and business executives. Congressional representatives are supposed to balance the conflicting interests of their constituencies, and come up with compromises that best suit all of us. That is their job. As McCall and Desjardins rightly point out, when interests conflict, one's person's benefit is another person's cost. So someone who is trying to represent parties whose interests conflict can't help imposing costs on some of them. And notoriously, the interests of stockholders, employees, customers, suppliers, and the community may be in conflict.





10.2.2 - 10.2.3

Answer to an objection

The objection:  Government works too slowly, and the need for socially responsible corporate action is too urgent, to wait for laws to be made.  Executives must take the initiative for social responsibility.

The answer:  The harder it is to get a law passed, the more important it is to wait for its passage.  The reason it takes a long time for laws to be passed is that the legal process represents the interests of all the parties that the law will affect.  When they arrive at a compromise, that means that the members of the society who elected them will all have been represented in the law-making process, and should be able to live with the results.  When "urgent" action is taken by individual executives, this means that one individual's idea of what must be done is imposed on others, who have no choice in the matter.  They may not think agree with the action at all.





11.1.5 - 11.2.1

Brief Insult to Business Executives

Friedman doesn't think much of the abilities of executives as decision makers about big social problems. Do you agree with him?  If you were an executive, what would you think of these remarks?



11.1.5 - 12.1.1

The "Foundations of a Free Society" Argument

This is probably the argument to which Friedman is most committed.  So far as I can tell, it goes like this (it borrows from the Tax argument to an extent).

1. The foundations of a free society require as much use of the principle of unanimity, and as little use of the principle of conformity, as possible.

(Definitions:  Principle of Unanimity: Action requires general consensus by all concerned. Example: our representative form of government, along with protections for minority rights, is supposed to bring us close to unanimous agreement about our laws and policies.   Principle of Conformity: Individuals must serve a more general social interest, which may be imposed on them by others whether they like it or not.  Example: police actions, jails.)

2. The market maximizes unanimity, and minimizes conformity.

3. Social activism by executives on the job imposes controls on others without their consent, and reduces the opportunities for market mechanisms to bring the principle of unanimity to bear.

4.  Anything which unnecessarily restricts the operation of the principle of unanimity, and replaces it with the principle of conformity, undermines the foundations of a free society.

5.  Since (3) is true, social activism by executives on the job undermines the foundations of a free society.

Therefore, 6)  Executives should avoid social activism on the job, and restrict themselves to seeking maximum profits within the law.


david w. clowney*