This is the first of a six-blog series that simply and in plain language explains the dangerous fallacy of Milton Friedman’s “maximize profit” business ethic.
Milton Friedman’s “The Social Responsibility of Business Is to Increase Its Profits” ran in The New York Times Magazine on September 13, 1970 (“Friedman’s article”). It’s not hyperbole for us to assert this article is among the most influential business articles since 1970.
Photo Credit The New York Times | innowiki.org
Even if you’re not familiar with the article itself, you’ve likely heard and lived its title. Like a Molotov cocktail flung into a dry California valley, the influence of Friedman’s article exploded to scorch every crevice of America’s economic and cultural landscape. But upon close inspection it doesn’t carry enough factual support or logic to account for its influence. Rather, it relies on bald statements buttressed by fear-mongering. In this series we turn to discuss just the last paragraph of Friedman’s article:
I have called [“social responsibility”] 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.” (Emphasis ours.)
If you’re a businessperson or investor, isn’t Friedman’s ethic of simply counting profits a clearly defined and measurable goal? Doesn’t that clarity make it attractive? Doesn’t that clarity make it easy to get behind and support? Yep, that was the trap, and we completely fell for it.
And what do we make of that caveat, “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”? That is a curious, if not laughable, disclaimer. Let’s take a breath and think about this for just a moment: If increasing profit is the exclusive responsibility of business, and social responsibility is a fundamentally subversive doctrine, doesn’t that leave “the rules of the game” sucking wind in a distant third place?
When profit is viewed as a singular pursuit, the obviously foreseeable motivations are to change the rules of the game, limit competition, and even engage in deception or fraud. Not unlike regular events over the past fifty years in corporate America. Is it any wonder so much of the population equates capitalism with cannibalism and we’ve passed down legions of business euphemisms like “it’s a dog-eat-dog world”?
Hypothetically speaking, even if we all accept and agree with Friedman’s business ethic of profits above all else, still that cannot be deemed the one and only social responsibility. Rather, that ethic is inherently paired with the acknowledgment that honoring the rules of the game (society’s laws) is also a social responsibility. How do businesses pursuing the “one and only” responsibility of increasing profit support laws that enable Friedman’s stated standard of “open and free competition”? They don’t. In reality the playbook is to shape rules and laws to the business’s own advantage through financing relentless lobbying and political campaign contributions. Making self-serving rules is not the same as staying within the rules intended to benefit society as a whole!
In the next Part 2 we illustrate a common example of self-serving rules with the economists’ construct and examples of “externalities.”
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