An Essay on “The Social Responsibility of Business Firm Is To Make Profit: Critical Analysis”
Most individuals view the ultimate purpose of a business organization as increasing profits. Milton Friedman explained this in his influential article “The social responsibility of business is to increase profit.”
Friedman’s key ideas and arguments are considered unsuccessful after a thorough analysis of each aspect of the statement. He failed to prove that social responsibility within business is an unfair and socialist practice by nature.
He argued that a business organization’s social responsibility is to make profit. However, in the current environment, this statement is of little importance.
Apart from making profits, a business firm has several other responsibilities in societal settings that have greater impacts upon business outcomes. The statement cannot be complied with since it lacks the most essential cause of society.
It is crucially important for any business firm to give society the maximum priority and to deliver on its responsibilities towards society.
Friedman based his opinions on the capitalist economy. According to him, every business firm has only one single responsibility, and that is to utilize natural resources and engage in various activities to enhance profits while remaining within the limits of the game, which means to engage in open, free competition without fraud or deception.
While focusing on the responsibilities of the organization or individual, it is important for an individual to focus upon one’s own (Cellich, 2004).
The organizational managers are nothing but the agents of their shareholders and so possess moral obligations to manage the organization in the interest of the shareholders, which is solely revenue and increased profits, so as to keep the shareholders satisfied.
Since shareholders are the real owners of a business, the profits actually belong to them. Friedman was of the belief that organizations belong to private property, and hence they have similar social responsibility as that of other business firms within the capitalist economy.
To the very basic formulation, Friedman emphasized that a business firm has single motive to make profits by obeying laws (Lange & Fenwick, 2008).
Some of the imminent theorists studied Friedman’s theory. They found that Friedman’s entire thesis rested upon a paradigm whereby a manager acts as a Lone Ranger, making all important decisions by himself without encouraging employees to participate in the decision-making process.
As per Friedman, a corporate manager possesses direct responsibility to the employees which is conducting business in compliance with their interests.
This interest is to make increased money. In context to capitalist society, rarely it is heard that an individual has taken up business or reasons other than gaining or making profit. The manager is an agent of the shareholders and all those who own the business. They are in fact liable to the shareholders only.
Friedman believed that organizations belong to private property and, hence, have similar social responsibility as other business firms within the capitalist economy. This involves increasing revenue and profit by engaging in open, free competition.
He had a classical perspective on business. To the very basic formulation, Friedman emphasized that a business firm has single motive to make profits by obeying laws. This approach is believed to cause the greatest benefit to the greatest number of individuals (Mason & Simmons, 2011).
Hence, the government need not intervene in this matter. Friedman claims that activities related to social responsibility within the free enterprise system show ‘unadulterated socialism’ by imposing taxes to foster social objectives. The principle related to politics that underlies the market mechanism is unanimity.
Friedman’s position has partial validity, specifically regarding the fiduciary duty of organizational managers to their shareholders. Philanthropy must not be considered an organizational obligation (‘Unilever washes its hands of “philanthropy” motive while General Electric profits by saving the world’s resources’, 2007).
In the current business environment, companies are becoming aware that understanding corporate social responsibility while conducting business is best when it is combined with organizational objectives.
Some of the imminent theorists studied Friedman’s theory. They found that Friedman’s entire thesis rested upon a paradigm whereby a manager acts as a Lone Ranger, making all important decisions by himself without encouraging employees to participate in the decision-making process.
This often results to unfair taxing of the shareholders. Friedman claims that activities related to social responsibility within the free enterprise system show ‘unadulterated socialism’ by imposing taxes to foster social objectives (Lange & Fenwick, 2008).
The principle related to politics that underlies the market mechanism is unanimity. Within an ideal and free market that rests upon private property, no one can coerce any other, and all parties are required to act freely with one thing in common, and that is social aspects. Society must remain priority for every individual and even the business firms.
According to modern concepts and theories, it has become inevitable that all organizations that operate in the present business are well aware that whatever an organization’s real motive is, it first and foremost has to be a social cause.
The statement that Friedman has made is therefore cannot be accepted in the current business environment or the society at large (Schrempf-Stirling & Palazzo, 2013). The statement cannot be complied with since it lacks the most essential cause of the society.
It is crucially important for any business firm to give society the maximum priority and to deliver on its responsibilities towards society.
All firms must be aware that by any means of their production or service, there is no harm caused to the societal environment.
These firms must be careful that it is their duty to consider societal aspects and ensure that social welfare is not harmed (Spence, 2014). The activities and business conduct of every business organization must contribute to social and environmental welfare.
Thus, it is now concluded that Friedman’s statement cannot be complied with and that although every business firm aims to make profits for its shareholders and attain sustainability, abiding by social norms by adopting corporate social responsibilities is essentially important.
When any business firm operates in consideration of society and its welfare, the chances of success increase for that particular business firm (Mason & Simmons, 2011). Business organizations are essentially required to have responsibilities beyond just making profit for shareholders.
Corporate social responsibility plays a key role in this aspect and involves consideration of the surrounding business environment and that of the entire community at large. This demands us to move away from the capitalist liberal society where we live.
Business firms need to consider more than just stakeholders within the decision-making process. The stakeholder theory can be a step forward towards the right path, but communitarians may argue that it is just reform liberalism. It is concluded that Friedman’s theories are, in fact, instrumental systems that narrow down our thought process.
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References
Cellich, C. (2004). Negotiating Partnerships: Increase profits and reduce risks. International Business Review, 13(4), 533-536. doi:10.1016/j.ibusrev.2004.03.003
Desrochers, P. (2010). The environmental responsibility of business is to increase its profits (by creating value within the bounds of private property rights). Industrial And Corporate Change,19(1), 161-204. doi:10.1093/icc/dtp046
Lange, E., & Fenwick, T. (2008). Moral commitments to community: mapping social responsibility and its ambiguities among small business owners. Social Responsibility Journal, 4(1/2), 41-55. doi:10.1108/17471110810856820
Mason, C., & Simmons, J. (2011). Forward looking or looking unaffordable? Utilising academic perspectives on corporate social responsibility to assess the factors influencing its adoption by business. Business Ethics: A European Review, 20(2), 159-176. doi:10.1111/j.1467-8608.2011.01614.x
Schrempf-Stirling, J., & Palazzo, G. (2013). Upstream Corporate Social Responsibility: The Evolution From Contract Responsibility to Full Producer Responsibility. Business & Society. doi:10.1177/0007650313500233
Spence, L. (2014). Small Business Social Responsibility: Expanding Core CSR Theory. Business & Society. doi:10.1177/0007650314523256
Unilever washes its hands of “philanthropy” motive while General Electric profits by saving the world’s resources. (2007). Strategic Direction, 23(9), 21-24. doi:10.1108/02580540710779735