Friedman: social responsibility of business is to increase its profits (1970)

In a June 27, 2017 article entitled “Is the Problem With Tech Companies That They’re Companies?: A Stanford professor argues that a profit imperative is in tension with the needs of a democratic society” published in The Atlantic , Rebecca J. Rosen reported on the Aspen Ideas Festival co-hosted by the Aspen Institute and The Atlantic. One of the speakers, Stanford professor Rob Reich, argued that “a profit imperative is in tension with the needs of a democratic society”. Reich Reich referred to the economist Milton Friedman’s 1970 article in The New York Times Magazine called “The Social Responsibility of Business Is to Increase Its Profits.” These “ideas have contributed to a libertarian ‘background ethos’ in Silicon Valley, where people believe that ‘you can have your social responsibility as a philanthropist, and in the meantime make sure you are responding to your shareholders by maximizing profit.'”

Economist Milton Friedman, propagated 18th century values in the Post-WWII global economy. Like Adam Smith he preached the gospel of minimal government, laissez-faire. The triad, Hayek’s The Road to Serfdom (1944), Ayn Rand’s Atlas Shrugged (1957), and Milton Friedman’s Capitalism and Freedom (1962) pit economic efficiency against social justice.

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Footnotes

I compiled this digitized collage, inspired by Deborah Barndt’s Tangled Routes: Women, Work and Globalization on the Tomato Trail on November 16, 2006. I used a Google earth generated globe to situate as a kind of circumtomato globe. I developed the concept of John Elkington’s Cannibals with Forks for the image of a world being devoured by those who choose to make decisions based on only one bottom line.

See also speechless.wordpress.com

Barndt, Deborah (2001) Tangled Routes: Women, Work and Globalization on the Tomato Trail, Aurora, ON, Garamond Press.

Davis, Ian. 2005. “The biggest contract: By building social issues into strategy, big business can recast the debate about its role, argues Ian Davis.” The Economist. May 28.

“The great, long-running debate about business’s role in society is currently caught between two contrasting, and tired, ideological positions. On one side of the current debate are those who argue that (to borrow Milton Friedman’s phrase) the “business of business is business”. This belief is most established in Anglo-Saxon economies. On this view, social issues are peripheral to the challenges of corporate management. The sole legitimate purpose of business is to create shareholder value. On the other side are the proponents of “Corporate Social Responsibility” (CSR), a rapidly growing, rather fuzzy movement encompassing both companies which claim already to practise CSR and sceptical campaign groups arguing they need to go further in mitigating their social impacts. As other regions f the world—parts of continental and central Europe, for example— move towards the Anglo-Saxon shareholder-value model, debate between these sides has increasingly taken on global significance. That is a pity. Both perspectives obscure in different ways the significance of social issues to business success. They also caricature unhelpfully the contribution of business to social welfare. It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics. Large companies need to build social issues into strategy in a way which reflects their actual business importance. They need to articulate business’s social contribution and define its ultimate purpose in a way that has more subtlety than “the business of business is business” worldview and is less defensive than most current CSR approaches. It can help to view the relationship between big business and society in this respect as an implicit “social contract”: Rousseau adapted for the corporate world, you might say. This contract has obligations, opportunities and mutual advantage for both sides.” See The Economist premium content.

Elkington, John (1997) Cannibals with Forks: The Triple Bottom Line of 21st Century Business, New Society Publishers, Limited.

Elkington, John (2003) Chrysalis Economy: How Citizen CEOs and Corporations Can Fuse Values and Value Creation, Wiley, John and Sons, Incorporated.

CBC, 2006. “In Depth: Wealth Canada’s super-rich,” CBC News, Last Updated December 4, 2006, accessed December 12, 2006.

Canadian Business magazine lists 1. the Ken Thomson family (media) $24.4 Billion Cdn or 19.6 Billion US); 2. Galen Weston (groceries) $7.1 $24.4 Billion Cdn; 3. The Irving family (oil) $5.45 Billion Cdn; 4. Ted Rogers Jr. (media) $4.54 Billion Cdn; 5. Paul Desmarais Sr. (Power Corp.) $4.41 Billion Cdn; 6. Jimmy Pattison (entrepreneur) $4.35 Billion Cdn; 7. Jeff Skoll (eBay) $3.93 $4.41 Billion Cdn; 8. Barry Sherman (Apotex drugs) $3.23 Billion Cdn; 9. David Azrieli (real estate) $2.44 Billion Cdn; Fred and Ron Mannix (mining) $2.38 Billion Cdn as ten of the 22 Canadian families who are part of the uber wealthy group of 793 billionaires who control $2.6 trillion US of the world’s wealth. Others include Alexander Schnaider (steel) baron, Calvin Ayre (online gambling), John MacBain (classified ads), Guy Laliberté (Cirque du Soleil) 1 Billion Cdn. of this group of 22 billionaires their money came from pharmaceuticals, media, oil and gas, food retailing, printing, money management, construction and the BlackBerry. Five of the 22 are in their forties.

Danko, William D. The Millionaire Next Door

Danko, William D. Richer Than A Millionaire

Drummond, Don, Tulk, David. 2006. “Lifestyles of the Rich and Unequal: an Investigation into Wealth Inequality in Canada.” Special Report. TD Bank Financial Group. December 13, 2006. Accessed December 14, 2006.

Drummond explains how the wealthier quintile of the Canadian population will continue to become wealthier while the middle quintiles will suffer with lower wage gains intensifying wealth disparities. The assets of of the lowest quintile fell by 9. 1% since 1999. This is the group which includes single women, Canada’s children who live in poverty and seniors.

What is also interesting is that there is a significant amount of inequality within the highest wealth quintile of Canadians. One can get an appreciation of this fact by noting the pronounced difference between the mean and median asset holdings. While median net worth for the top 20% is $862,900, the average stands at $1,264,200 suggesting a significant skew towards the extremely wealthy. This difference is even more pronounced when holdings of individual assets are compared for those who hold them within the highest quintile. The largest source of the skew towards the wealthy comes from the holdings of bonds which has a mean-median ratio of 7.9 (the larger the ratio, the greater the share of the asset is held by the top segment of the wealthy). The nebulous category of “other non-financial assets” also has a significant concentration in the super-wealthy. Included within this category are such items as the contents of the residence, valuables, collectables, as well as such high value and sparsely-held items as copyrights and patents. […] Within this category, the share of employer-sponsored pension plans (18.5%) is twice as large as individual pension assets (10.5%) such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Locked-in Retirement Accounts (LIRAs). Holdings of non-pension financial assets (10.4%) and equity in business (10.5%) each represent a comparatively smaller portion of total asset holdings.

Morissette, René, Zhang, Xuelin. 2006. “Revisiting wealth inequality: Perspectives on Wealth and Income,” Statistics Canada. http://www.statcan.ca/english/freepub/75-001-XIE/11206/high-1.htm
Vol. 7, no. 12. December 13, 2006. Accessed December 14, 2006.

“When all families are considered, real average wealth rose 70% from [1999 to 2005] however wealth inequity increased as well. Real average wealth increased between 51% to 70% reflecting large increases for the wealthiest 10% of Canadians who held 58% of the wealth, a percentage that continues to rise as it has since 1984. For fifteen years prior to the deep cuts made in the post-1984 period of deficit panic wealth inequity fell then plateaued. Canadian families will continue to become more at-risk to social exclusion as their debts increase, equities are reduced and they face little or no wage increase.Morissette and Zhang (2006) reveal how challenging it is to estimate the share of total wealth controlled by the upper quintile, particularly the UHNW. See also Davies (1993). While 10% may control 58% of Canadian wealth less than 1% of Canadian families may in effect hold up to 46% of the wealth.While Morissette and Zhang (2006) claim that elderly unattached individuals saw their median wealth double, from roughly $48,000 in 1984 to $100,000 in 2005, they did not qualify that the extremes of wealth and poverty skew the statistics. See the article on the large number of senior Canadians who live below the poverty line.While the wealthiest quintile, particularly the top 1% benefited since 1984, the lowest quintile, mainly female lone-parent families remain as by far the most financially vulnerable. “In all years, more than 40% of persons in these families were in low income and would have stayed in that state even after liquidating their financial assets.” This is where Canada’s children who live in poverty in a rich country live. Lower quintile included those with median wealth no higher than $7,000, families with no assets at their disposal to lessen the impact of unexpected expenses or earnings disruptions. The average wealth of the most vulnerable families fell to -$1000 between 1999 and 2005 from zero assets/debt ratio through the 1980s to negative (about -$1,000) in both 1999 and 2005. The value of their real estate, for those who did have a modest home, did not rise. “it fell substantially among those in which the major income recipient was aged 25 to 34. In 2005, these families had median wealth of $13,400 (in 2005 dollars), much lower than the $27,000 and $17,400 registered in 1984 and 1999 respectively.” While in the middle quintile there was a modest rise of average wealth rose of about $19,000, families in the most wealthy quintile experienced a substantial increase in the value of their real estate. They allocated more of their financial assets to RRSPs and LIRA holdings. They sharply increased their investments in RRSPs between 1986 and 2003. “Median wealth more than doubled between 1970 and 2005, having grown by c.20-25% since 1984. While the median wealth of young families fell by half between 1984 and 2005, it rose by almost 40% for those in which the major income recipient was a university graduate aged 35 to 54.”

Stenner, Thane, Bower, Rod, Currie, John, O.Connor, Rory. 2006. “True Wealth Report: Values and Views of Ultra-Affluent Individuals,” http://www.truewealthreport.com/downloads/2006_TWR_low.pdf.

Researchers for the True Wealth report surveyed 165 Ultra High Net Worth (UHNW) individuals, those whose assets are over $10.