Friedman:social responsibility of business is to increase its profits (1970)
November 17, 2006
Economist Milton Friedman, propagated 18th century values in the Post-WWII global economy. Like Adam Smith he preached the gospel of minimal government, laissez-faire. The triad, Hayek’s The Road to Serfdom (1944), Ayn Rand’s Atlas Shrugged (1957), and Milton Friedman’s Capitalism and Freedom (1962) pit economic efficiency against social justice.
“It is standard doctrine, at least among American economists and in much of the business community, that firms should maximize the stock market value (Joseph E. Stiglitz, 2007. “What is the Role of the State?” in Escaping the Resource Curse. supra note 154, at 3, 28-29).” Under U.S. corporate law, for example, a corporation’s board of directors must make decisions that reflect the profit motivations of shareholders or risk liability for a breach of fiduciary duty.” (The Yale Journal of International Law. Vol.36:167:184).
A Circumtomato Globe: Devouring the Earth, Extremes of Wealth and Poverty
I compiled this digitized collage, inspired by Deborah Barndt’s Tangled Routes: Women, Work and Globalization on the Tomato Trail on November 16, 2006. I used a Google earth generated globe to situate as a kind of circumtomato globe. I developed the concept of John Elkington’s Cannibals with Forks for the image of a world being devoured by those who choose to make decisions based on only one bottom line.
In its Oxford style debate 2.0 on sustainability and corporate responsibility, The Economist set forth the proposition for debate, “Without outside pressure, corporations will not take meaningful action on sustainability.” The final vote count was: Pro 73% / Con 27%.
Henry C K Liu, chairman of the New York-based Liu Investment Group wrote this in his article (2003) about Hong Kong’s benign colonialism that seduced Milton Friedman.
Love is blind and infatuation disguises faults as virtues. As Rudyard Kipling fell in love with the pageantry of colonialism and saw racial exploitation as the “White Man’s Burden”, Milton Friedman, Nobel economist, fell in love with colonial Hong Kong, seduced by the wine-and-dine hospitality of its colonial masters and elite compradores. Friedman mistook Hong Kong’s colonial economic system as a free market, despite Hong Kong’s highly orchestrated colonial command economy.
The violence of extremes of wealth and poverty is the moral dilemma of the 21st century, not the acquisition of wealth by individuals, corporations and nation-states. The use of that wealth to convince civil society through mass media of a fair redistribution of wealth is unconscionable. In his book entitled The End of Poverty: Economic Possibilities for Our Times, Harvard Economist, Jeffrey D. Sachs (2005) reveals the gaping chasm between the real and the perceptions of the real in terms of the ways in which the world’s wealthiest share their wealth with the world’s most vulnerable, at-risk populations. Based on OECD statistics and his own research Sachs claims that the extremes of poverty could be overcome in 25 years if wealthy nations devoted just 0.7% of their GNP (instead of the 0.33% currently provided) official development assistance (ODA) in developing countries. The Organization for Economic Cooperation and Development (OECD) reported that Canada’s official development assistance (ODA) was 0.28% of gross national income (GNI) up from an all time low of 0.22% in 2001. In 2005 the world’s most powerful, wealth nation, the United States devoted just 0.22% of its GNP to foreign aid.
Public perceptions reflect support for higher levels of aid. When asked what percentage of the federal budget they think goes to foreign aid, Americans’ median estimate is 25% of the budget, more than 25 times the actual level. Only 2% of Americans give a correct estimate of 1% of the budget or less. When asked how much of the budget should go to foreign aid, the median response is 10%. Only 13% of Americans believe that the percentage should be 1% or less. Over 60% of Americans believe that contributing 0.7% of national income to meet the Millennium Development Goals is the right thing to do (Sachs 2005).
In an article published in The Economist in 2005 entitled “The Biggest Contract” (in reference to Jean-Jacques Rousseau’s concept of social contract), Ian Davis challenged Anglo-Saxon corporate management to revisit, redefine, re-articulate and reinforce with greater subtlety their relationship with society as an implicit social contract that acknowledges obligations, opportunities and mutual advantage for both sides.” Corporate management needs to recast this debate and recapture the intellectual and moral high ground from their critics.” Davis argued that like the political leaders in Rousseau’s 18th century, corporate management in the 21st century will lose legitimacy if they refuse to serve the public good. Davis rejects the nonproductive binary oppositional environment of public debate on economic efficiency vs social justice. The strongly held belief in Anglo-Saxon economies  that the “business of business is business” (to create shareholder value) is as outworn, ideology-based and caricature-driven as is the extreme version of Corporate Social Responsibility” (CSR).
Davis argued that an informed, educated and engaged  CEOs and upper-level management should map-out long term options and responses to relevant, evolving, overarching, broad, carefully researched social pressures and issues as an implicit and integral (not merely peripheral) part of corporate strategy rather than depending exclusively on lower-level public-relations tacticians operating with a knee-jerk, defensive, narrow, reactionary, rebuttal stance to individual, local and immediate (at times, ill-defined) laws, (political, ideological, etc) tensions and (environmental, sustainability, NGO) concerns. “Large companies need to build social issues into strategy in a way which reflects their actual business importance.” The CEOs should blend and harmonize their supporting efforts, such as trade regimes, with sophisticated, sensitive and successful approaches to risk management, social and economic development issues, access to social services particularly for the most vulnerable populations and resolutions of regional geopolitical conflicts. See The Economist premium content.
“Since 2006 investors have flocked to sign the United Nations Principles for Responsible Investment (UNPRI) but now find themselves in the firing line for ‘greenwashing’, as many fail to fulfill their promise to fully integrate and report progress on environmental, social and governance factors. Most Australia-based UNPRI signatory super funds contacted by Ethical Investor admit there is still much work to be done to fully integrate Environmental, Social Governance (ESG) into its investment analysis and decision-making (Wagg and Taylor 2009-05-31).”
1. The Anglo-Saxon shareholder-value model has increasingly taken on global significance.
2. Davis argued that executive managers must introduce explicit processes which include the development of resources such as broad metrics, summaries and analysis of relevant social issues in order to systematically “educate and engage their boards of directors.
For more on this topic see also papergirls.wordpress.com
Barndt, Deborah (2001) Tangled Routes: Women, Work and Globalization on the Tomato Trail, Aurora, ON, Garamond Press.
Davis, Ian. 2005. “The biggest contract: By building social issues into strategy, big business can recast the debate about its role, argues Ian Davis.” The Economist. May 28.
Elkington, John (1997) Cannibals with Forks: The Triple Bottom Line of 21st Century Business, New Society Publishers, Limited.
Elkington, John (2003) Chrysalis Economy: How Citizen CEOs and Corporations Can Fuse Values and Value Creation, Wiley, John and Sons, Incorporated.
Friedman, Milton. 1970. “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.
Liu, Henry C. K., 2003, “China: a Case of Self-Delusion, from colonialism to confusion,” Asia Times, May 14, 2003.
Sachs, Jeffrey D. 2005. “Facts on International Aid.” The End of Poverty: Economic Possibilities for Our Times.
Sachs, Jeffrey D. “The Strategic Significance of Global Inequality.”
Filed in economic efficiency, Economy & Finance, Social Justice, Tag Clouds
Tags: Anglo-Saxon economies, benign colonialism, Cannibals with Forks, CEO, circumtomato, CSR, economic efficiency, executive management, Hayek-Rand-Friedman, Ian Davis, MDG, Milton Friedman, OECD, risk management, Rousseau, shareholder-value, social contract, social issues, Social Justice, social pressures, Tag Clouds, The Economist