Corporate Social Responsibility Theory of Milton Friedman

In his 1970 article that appeared on the New York Times, American economist Milton Friedman discussed the social responsibility of business organizations. His argument was straightforward: the social responsibility of business is to increase its profits. Note that he first presented this argument in hi book “Capitalism and Freedom” published in 1962.

The Stakeholder Theory: The Social Responsibility of Business According to Milton Friedman

Friedman specifically argued that business organizations should not concern themselves with the promotion of desirable social ends. He described business owners who talked about “social conscience” as “unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Under a free market capitalistic economic system, the celebrated economist argued further that business owners have the sole responsibility toward their shareholders or investors, particularly by ensuring that their businesses remain profitable.

The profitability of a business promotes an environment conducive for investment that, in turn, fosters capitalism and the creation of free market enterprises. In addition, a thriving business would result in the introduction of competitive products and the creation of jobs, as well as in the payment of taxes to the government. Hence, Friedman explained that the profitability and success of a business would eventually benefit the society.

When it comes to addressing social issues, he argued that this is the responsibility of governments and other nonprofit organizations and not of business organizations. However, although businesses have a sole responsibility toward their shareholders, they must remind compliant to legal standards.

Take note that the argument of Friedman later became the shareholder theory of corporate social responsibility, the economic model of social responsibility, and the Friedman business doctrine. Hence, the corporate social responsibility theory of Milton Friedman is a counterargument to the stakeholder theory or socioeconomic model. It also forms one of the major criticisms against modern corporate social responsibility.

FURTHER READINGS AND REFERENCES

  • Friedman, M. 1962. Capitalism and Freedom. Chicago: University of Chicago Press
  • Friedman, M. 1970, September 13. “The Social Responsibility of Business is to Increase Its Profits.” The New York Times. Available online
Posted in Articles, Business and Economics and tagged , , .