Understanding Friedman’s thesis

So, Milton Friedman gives us (what has become) the dominant view of business' social responsibility. Here is the thesis of his argument:

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. [1]

This has been the rallying cry of business people for a long while now. It is the defense that they use when they make some decision that seems to cause harm to some people while making the business more profitable. It's often used as a sort of excuse for bad behavior on the part of businesses and business people. There are a couple of things that we ought to notice about this short quote, though. It doesn't allow nearly the breadth of behaviors that some think it does.

The first half of the statement seems pretty simple: 

"There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…"

Many people stop there. If we replaced the ellipsis with a period, then this is a statement which allows businesses to do anything at all that might increase its profits. It would allow fraud (that is, causing people to believe untrue things for personal gain), stealing your competitor's products, burning down your competitor's stores, or really any other thing which would allow you to increase your profits. 

This is because the above fragment only gives one social responsibility to business: "increase profits." Contrast this with the social responsibilities that you have. A social responsibility is an obligation that you have to act in ways that benefit the society you live in. That might mean that you push for social change when it is needed. It might mean that you have an obligation to help out the poor, or to help clean up an oil spill. It might also mean that you simply shouldn't do things which will cause harm to the people around you. This fragment reduces all of the social responsibilities that we have down to the responsibility to increase profits. Fortunately, this interpretation of Friedman is missing a very important part. 

 "…so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

These rules of the game are important. They create the side-constraints that businesses must act within. In effect, these side constraints are the rules that business must follow when they act in society. They must act in ways which allow the free market to function, and they may not commit fraud. These two rules may not seem very restrictive, but they add quite a lot to the thesis and they can't be ignored. They prohibit business from acting in ways that would harm the functioning of the society that they "live" in: the market. 

Saying that they "live in the market" might seem a little misleading to many of us. After all, no businesses can live outside of a society of people. If a business, say Wal-Mart, operates in the USA then they are "living in the USA" as well as "living in the market." We'll return to this idea later in the course.


1. Milton Friedman, "The Social Responsibility of Business is to Increase Its Profits." In Ethical Theory and Business 8th Edition, ed. by Tom L. Beauchamp, Norman E. Bowie, and Denis G. Arnold (New Jersey: Pearson, 2009.), 55.