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Mulligan(1986)

Mulligan(1986)

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A
Critique of Milton Friedman's Essay 'The Social Responsibility of Business
...
Thomas Mulligan
 Journal 
o
Business
Ethics
(1986 
1998); 
Aug 1986; 5,
4;
ABUINFORM Globalpg. 265
A
Critique of Milton
Friedman's
Essay 'The Social Responsibilityof Business Is to Increase Its Profits'
ABSTRACT. The main arguments of Milton
Friedmm's
famous and influential essay are unsuccessful: He failsto prove that the exercise of social responsibiity
in
business
is
by nature
on
unfair and socialist practice.Much of Friedman's case
is
based on a questionableparadigm; a key premise is false; and logical cogency
is
sometimes missing.The author proposes a different paradigm for social
-
ly responsible action
in
business and argues that a com
-
mitment to social responsibility can be an
integral
element in strategic and operational business manage
-
inent dthout pro'duting
any of the objectionable resultsclaimed by Friedman.
In
his
famous essay, Milton
Friedman
arguesthat people responsible for decisions and action
in
business should not exercise social responsi
-
bility
in
their capacity as company executives.Instead, they should concentrate on increasingthe profits of their companies.'In the course of the essay, he also argues thatthe doctrine of social responsibility is a
socialistdoctrine.
The purpose of this paper
is
to assess themerit of 
h.iedmanYs
arguments. I shall
sumrna-
rize
his
main arguments, examine some of hispremises and lines of inference, and propose a
counterargument.
Thomas
Mulligan
is
an
Assktmt Profwor
 at
The puqw
School of 
Business, &he Uniuenity,
in the areas of  Manufacturing Management Systems and 
Business
 Ethics. He
has
 a
Ph9.
fim
 Northwestern
Uniwrsity
in the
field
 of Philosophy
and
has
worked 
as
 a
educator, manager,
an
conncltant
in
 the
manufa-tudng
 and 
sofiwam
industries. Journal o
Business Ethics
 5
(1986) 265
-
269.
O
1986
by
D.
eidel hblishing
Company.
Thomas Mulligan
Friedman's
argument: Corporate executivesshould not exercise social responsibility
Friedman
argues that the exercise of socialresponsibility by a corporate executive
is:
unfair, because it constitutes taxation withoutrepresentation;undemocratic, because it invests
government?l
power
in
a
person
who has no mandateto govern;unwise, because there
are
no checks and balancesin the broad range of governmental power there
-
by turned over to his discretion;a violation of 
must,
because the execuzive
is
employed by the owners
"
as an
qent
servingthe interests of his
prin~ipal";
futile, both because the executive is unlikelyto be able to anticipate the social consequencesof his
actions
and
because, as he imposes costson
his
stockholders, customers, or employees,he
is
likely to lose
thet
support and therebylose
his
power.
These conclusions are related.Points (b) and (c) depend on (a), on theground that
"
the imposition of taxes and theexpenditure of tax proceeds are governmentalfunctions
"
. Point (d) also depends on (a), be
-
cause it is precisely in imposing a tax on his
principal
that this executive fails to serve theinterests of that principal. Point (e) depends,
in
part, on (d), since
it
is
the executive's failureto serve the interests of 
his
principal whichresults
in
the withdrawal of that
principa's
support.Point (a)
is
thus
at
the foundation of theargument. If (a)
is
false, then Friedman's dem-onstration of the subsequent conclusions
almost
completely collapses.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
 
IS
it true, then, that the executive who per-
forms
socially responsible action
"
is in effectimposing taxes
..
.
and deciding how the tax
proceeds
shall
be spent
"
?
TO
make this case,
Friedman
argues
by
depict-
ing 
how a company executive would performsuch action.He fust introduces
examples
to
Uustrate
thatexercising social responsibility in business t
yp
ical-ly costs money. He mentions refraining from aprice increase to help prevent inflation, reducingpollution
"
beyond the amount that is in the bestinterests of the corporation
"
to help improvethe environment, and
"
at the expense of cor-porate profits
"
hiring 'hardcore' unemployed.
To
establish that such costs are in effect taxes,he argues:
1.
In taking such action, the executive expends
"
someone else's money
"
-
the
stockholders',
thecustomers', or the employees'.
2.
The
-
money
is
spent
"
for a general social interest
"
.
3.
"
Rather than serving
as
an
agent of the stock
-
holden
or the customers or the employees
...
hespends the money
in
a diiferent way than theywould have spent it
"
.
The
fist
two premises suggest a similarity be-tween this money and tax revenues, with respectto their sources and to the purposes for whichthey are used. However, an expense
is
not yeta tax unless it is
imposed 
on the contributor,irrespective of his desire
to
pay. Only
Friedman's
third premise includes this
crucial
element of imposition.This third premise reveals the essential charac
-
ter of the paradigm on which
Friedman
baseshis whole case.
Friedman's
paradigmIn the above examples of socially responsibleaction and throughout his essay,
Friedman
depicts the corporate executive who performssuch action as a sort of Lone Ranger, decidingentirely
by
himself what good deeds
to
do, when
to
act, how much
to
spend:
Here,
the
 businessman
-
elf*elected
or appointeddirectly or indirectly by the stockholders
-Is
tobe simultaneously legislator, executive and
jurist.
He
is
to decide whom to tax by how much and forwhat purpose.
On
this paradigm, the corporate executive doesnot act with the counsel and participation of the other stakeholders in the business. This isthe basis of 
Friedman's
claim that the executiveis
imposing
something on those other stake-holders
-
unfairly,
undemocratically,
unwisely,and in violation of a trust.But does Friedman's paradigm accuratelydepict the socially responsible executive? Does itcapture the
essential
nature of socially respon
-
sible action in business? Or has he drawn a cari-cature, wrongly construed it as accurate, andused it
to
discredit the doctrine it purportedly
illustrates?
A
counter-paradigm
Friedman's
paradigm is valid in the sense that itis
certainly
possible for a corporate executive totry to exercise social responsibility without thecounsel or participation of the other stakeholdersin the business.
Priedman
is also correct in characterizingsuch conduct
as
unfair and
as
likely
to
result inthe withdrawal of the support of those otherstakeholders.Yet
Friedman
insists, at least with respect
to
the executive's employers, that the sociallyresponsible executive
"
must
"
do
it
alone, mustact in opposition to the interests of the otherstakeholders:
What does it mean to say that the corporate executive
has
a
"
social responsibility
"
in his capacity
as
a busi-nessman? If 
thia
statement is not pure rhetoric, it
must
mean that he
is
to
act
in
some way that is notin the interest of his emplo
y
ers.
There is no good reason why this remarkable
claim
must be true. The exercise of socialresponsibility in business suffers no diminish-ment in meaning or merit
if 
the executive and
his
employers both understand their mutualinterest
to
include a proactive social role
and
cooperate
in
undertaking
that role.
1
propose
a
didferent
paradigm
for the
exer-
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission,
 
cise of 
socia responsibity
in business
-
onevery much
in
keeping with sound managementpractice.A business normally defines its course andcommits itself to
action
by conceiving a mis
-
sion, then proceeding to a set of objectives, thendetermining quantified and time
-
bound
goals,
and then developing a full strategic plan which isimplemented by appropriate top
-
level staffing,operating procedures, budgeted expenditures,and daily management control.Many stakeholders in the business participatein this far
-
reaching process.Founders, board members, major stock 
-
holders, and senior executives may
all
participate
in
defining
a mission and
in
setting objectivesbased on that mission. In so doing, these peopleserve as
"
legislators
"
for the company.Top
mar&zrnentss
translation
-
of these broaddirections
into goals,
strategic plans, operating
procedyes, budgp,
and
daily
work direction
brings'
middle
'hanagement,
first
-
line manage
-
ment and, in some
cdmpanies,
employee
rip-
resentatives into the process. This is the
"
execu
-
tive branch
"
of the business.When the time comes to judge progress andsuccess, the board members and stockholdersserve
as
"
 jurists
"
at the
highest
level,
and
whennecessary can take decisive, sometimes dramatic,corrective measures. However, the grass
-
roots judgment of the court of emplo
y
ee opinion
can
also be a
powerful
force. More than one com
-
pany has failed or faltered because
it
did notkeep a course which inspired and held its talentedIn sum, a business
is
a collaborative enterpriseamong the stakeholders, with some checks andbalances. In
general,
this system allows to anystakeholder a degree of participation
com-
surate with the
size
of his or her stake.
ess
to
define
a socially responsiblecourse and commit to socially responsible ac
-
tion, it needs to follow no other process thanthe
familiar
one described
in
the precedingOn this
paradigm,
i
socially responsibleaction
is
on the corporate executive's agenda,
1
then
it
is there because the
companyss
mission,objectives, and
goals
-
developed
collaboratively
by the major stakeholders
-
gave him license
Reproduced with permission
of
the copyright owner.
FUI
to
put it there and provided parameters for
his
r
program. Lone Ranger executives are no more
1
necessary and no more welcome
in
a socially
\
responsible business than
in
one devoted ex
-
clusively to the maximization of profit.
I
This paradigm conforms more accuratelythan
Friedman's
to the
reality
of how actionprograms
-
odally
responsible ones or other
-
.
wise
-
are conceived and enacted
in
a
strategicd-
ly
managed
business. The corporate executivein this process, in contradistinction to
Friedman's
corporate executive, does not impose
umuthor-ized
costs, or
"
taxes
"
, on anyone. On this ac
-
count, he usurps no governmental function,violates no trust, and runs
n?
special
risk 
of 
bsing
the support of the other stakeholders.The problem of knowing future consequencesThe precedii argument addresses most of 
Friedman's
objections to a corporate executive'sattempts to exercise
socia responsibility.
Friedman, however, provides one objectionwhich does not rest on his paradigm of theLone Ranger executive. This is the objectionthat it
is
futile to attempt socially responsibleaction because the future
socia
consequencesof today's actions are very difficult to know.Suppose, he writes, that the executive decidesto
f%ht
inflation:
How is he to know what action of his
will
contributeto that end? He
is
presumably an expert
in
running
his
company
-
in
producing's
product or
selling
it orfinancing it. But nothing about
hi
selection makeshim
an
expert on inflation.
Wi
holding down theprice of his product reduce inflationary pressure?
01,
by leaving 'more spending power
in
the hands of his customers, simply divert it
elsewhere?
Or
by
forcing
him to
produce
less because of the lowerprice,
will'it
simply contribute to shortages?
The
difIkdty
of determining the future con
-
sequences of one's intended good acts has re
-
ceived attention in th'e literature of 
philosophical
ethics.
G.
E.
Moore,
in
his
early
twentieth centuryclassic
Principia Ethica,
writes of 
"
the hopelesstask of finding
dutiess'*
since, to act
with
per
-
 \ 
feet
certainty, we would need to know
"all
theevents which
will
be in
anf
way affected by our
?her
reproduction prohibited without permission.

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