A Critique of Milton Friedmans Essay The Social Responsibility of Business is to Increase its Profits

Abhinav Prakash Reg: 0006/49 CSR: Perspectives & Practices (Sec B)

This critique is founded on assumptions and inferences, which are the basis of essay by Milton Friedman. I will proceed by evoking various assumptions used and debunk the same, followed up by altered inferences which can be derived from the same assumptions used by Mr. Friedman. Opposition of the idea of businesses having social conscience is unwarranted given the fact that corporations and businesses (whether SMEs, small businesses or large conglomerates) are formed by group of people having moral responsibilities, which as an obvious observation, results in their having a moral and hence derived social conscience. Going ahead in exploring the idea of business executives responsibilities towards owners based on Principal-Agent relationship, it is noteworthy in present society to observe transience of ownership due to the concept of limited liability and Joint Stock Company. Even if we assume stagnancy of ownership for a limited time period, the liability of businesses is not only for owners but also is increasingly for customers, suppliers and other stakeholders. Mr. Friedman goes against the current norm of stakeholder vs. shareholders primacy. It is now a common notion that free enterprises do not exist. Prerequisites associated with free enterprise demand the existence of free market along with buyers and sellers, having limited capacity for alternation in market forces and determination of the same. However in current context, both are unavailable. Markets are consistently intervened by regulators, governments and monopolistic/oligopolistic corporations. On the basis of these observations, the core assumption of the essay stays invalid. Moreover, the stakeholders perspective demands, not only the motive of profits for businesses but also social obligations and ultimately shareholders value, which assuredly includes much more than mere profits. Adding to the complexity in this deterministic output, tax is also a form of social obligation channeled from governmental obligation, which is mainly used in public service, i.e., social good. The examples which Mr. Friedman has included in the essay are narrow in the sense that they do not include new corporations which are founded on a trustworthy relationship with the society. However, Mr. Friedman goes on to declare business executives inept to handle public service decisions which according to him should be overseen by governmental functionaries. According to what I believe, the public service and administration is a skill learned by functionaries and are not inherent from birth. Hence, as far as inefficiencies in governance in most of the countries across the globe are concerned, I will give the benefit of doubt to the altered view that theres an obvious need of business executives to take up the cudgels and govern paying social obligations, if we have to achieve the goal of distributional equity any time soon. At the end of my critique, I would also like to point out the inherent differentiation between eleemosynary institutions and corporation whereas this distinction is most certainly ambiguous. Due to the scope constraints, I have not included other areas of conflict within Mr. Friedman s essay, but this critique will serve the purpose of a brief digression.