FEBRUARY 2005

With a clear, shared understanding of how real value

, and

ought to be

, created in the market, we can resolve the olddebate about corporate social responsibility.

Page 1

CSR

’

s Grim Reaper

Daniel J. O'Connor

“Few trends could so thoroughly undermine

the very foundations of our free society asthe acceptance by corporate officials of asocial responsibility other than to make asmuch money for their stockholders aspossible. This is a fundamentally subversive

doctrine.”

With these words, Milton Friedman, future NobelLaureate from the University of Chicago, garneredfor himself the devotion of countless corporatelibertarians around the world, most of whom areamong the more than 100,000 MBAs graduatingeach year. And with these same words, Friedman,perhaps unwittingly, set himself up as an easytarget for corporate egalitarians who haveapparently tired of denouncing a simple metaphoronce uttered by a Scottish philosopher over 200years ago.For some odd reason, many highly vocal critics of libertarian economics and all things negative that ithas allegedly wrought in our world require a villainto help make their case for CSR

—

a personification,perhaps, of the ideological threat they feel descend-ing upon them from the libertarian orthodoxy.Enter Milton Friedman, the Grim Reaper of the CSRMovement.There is hardly a debate on corporate socialresponsibility that does not at some point in the

process work its way around to Friedman’s

notorious position on the subject. The fascinatingthing is that each side in the debate will attempt to

use Friedman’s

position to bolster their ownargument against the other side. While the

corporate

libertarians

use it as a fallacious appeal toauthority, the

corporate

egalitarians

use it as anequally fallacious appeal to popularity.A reasonable person might want to investigate whatFriedman actually said and then come to his or herown conclusions. Toward that, I would highlyrecommend that people with an interest in theseissues read

Capitalism and Freedom

. Until then, orin lieu of that as the case may be, I would like topoint out that Friedman, without necessarilyrealizing it, does place some critically importantconditions on what some regard as his narrow viewof corporate social responsibility.For example, in the paragraph just prior to theabove quote, Friedman says:

“In [a free economy], there is one and only

one social responsibility of business

—

to useits resources and engage in activitiesdesigned to increase its profits so long as itstays within the rules of the game, which isto say, engages in open and free competi-

tion, without deception or fraud.”

I suspect that if we could, with the sweep of ahand, eliminate every sort of business practice thatis not consistent with open, voluntary marketexchange free of any deception or fraud, then wewould go a long way toward satisfying the millionsof CSR advocates around the world.In the first chapter of

Capitalism and Freedom

,Friedman presents the essence of his libertarianeconomic philosophy as follows:

“Fundamentally, there are only two ways of

coordinating the economic activities of millions. One is central direction involvingcoercion

—

the technique of the army andthe modern totalitarian state. The other isvoluntary co-operation of individuals

—

thetechnique of the market place. The possi-bility of co-ordination through voluntary co-operation rests on the elementary

—

yetfrequently denied

—

proposition that bothparties to an economic transaction benefitfrom it,

provided the transaction is bi-laterally voluntary and informed

.”

In the next chapter, he further clarifies that such bi-laterally voluntary and informed exchange:

“presumes that we have provided,

throughgovernment, for the maintenance of lawand order to prevent coercion of oneindividual by another, the enforcement of contracts voluntarily entered into, thedefinition of the meaning of property rights,the interpretation and enforcement of suchrights, and the provision of a monetary

framework.”

By integrating these facets of Friedman's per-spective, we begin to see at least an outline of my

I suspect that if we could, withthe sweep of a hand, eliminateevery sort of business practicethat is not consistent with open,voluntary market exchange freeof any deception or fraud, thenwe would go a long way towardsatisfying the millions of CSR advocates around the world.