Friedman and Corporate Social Responsibility

All in all, I enjoyed Friedman's writing, his arguments made sense from one logical step to another, very dynamic, and he provided lots of historical examples to support his case. Many other blog posts cover various chapters and arguments in the reading, but one I am curious to explore is the "subversive social responsibility" that corporations and businesses should not focus on. While many of his arguments are timeless, this one is not.

Chapter 8 talks largely about the different types of monopolies that can exist in society (public monopoly, private monopoly, or public regulation). Friedman argues that none of these are desirable, and monopolies should be prevented from forming wherever possible because it counteracts the free market forces of Adam Smith's invisible hand. However, he spends some time also arguing against the doctrine of social responsibility, that a business should "discharge his power not solely to further his own interests but to further socially desirable ends. Yet the widespread application of such a doctrine would destroy a free society." In his point of view, governments need to act like self-interested individuals, maximizing corporate profits to return to its shareholders. Since a business' core mission is that, then "giving by corporations is an inappropriate use of corporate funds in a free-enterprise society...it prevents the individual stockholder from himself deciding how he should dispose of his funds."

Back when Friedman was writing this, perhaps this was the case. Corporations were matching contributions made by individuals, getting some tax breaks, etc. However, with the advent of technology, innovation, and a socially conscious generation, corporate social responsibility is being DEMANDED by the consumers today. We demand the free-trade coffee (although this model is debatable), nonprofit contests sponsored by large financial institutions, and clothes sold at a mark-up because we boycott child labor. Many can argue that CSR is more of a marketing tool than anything else - in many ways, I agree. Companies try to be environmentally friendly and ethical where they can, but only if it aligns with their financial interests. According to these studies, it does help. CITE DATA HERE.

At the end of the day, though, companies are making margin differences. The oil companies try to drill less into the ocean, but the bottom line is that the business model is still based on polluting the water. Instead, they are easing their conscience by donating to some nonprofit organizations that try to save marine wildlife. In that case, Friedman's argument that trying to do the socially responsible thing is merely taking away from what businesses do and should do best: make returns for the shareholders. According to this study by the Haas School of Business, CSR has an ambiguous relationship with a company's financial performance in the short run, but enormous financial advantages in the long-run.

This brings me to a third dimension of social responsibility, the kind that actually establishes a social mission as the core of its business model. Social entrepreneurship is still a new intersection of CSR and for-profit businesses, and not fully understood yet. However, businesses like TerraCycle make money out of something that ends up helping the environment. It is a complete alignment of social responsibility and for-profit business. It's a pretty neat idea, and something that Friedman could not have anticipated.