Knowledge Base
Isn’t everyone better off when companies are socially responsible?
No. The little benefit we might see come from socially responsible policies is far outweighed by the considerable harm they inflict. Companies that do not prioritize profits are simply not as profitable. Though this may seem like a nonissue, lower profits discourage individuals from investing in businesses. The price of decreased investment is paid by shareholders, employees, and ultimately consumers. Imagine the toll on society if every corporation acted this way. Economic growth would slow and living standards would stagnate.
Why is this relevant now?
Fifty years ago, Milton Friedman published an article in the New York Times titled “Social Responsibility of Capitalism.” Friedman asserted that business executives work for shareholders, meaning that “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.” The article changed national conversations about the social responsibility of corporations.
In 2019, nearly fifty years after Friedman’s article, Business Roundtable published a new Statement on the Purpose of a Corporation. The new purpose pushed back against Friedman’s assertion, declaring that corporate responsibility should be not only toward shareholders but also toward the communities in which they operate. In response, George Shultz, Michael Boskin, John Cogan, and John Taylor wrote a statement defending Friedman’s original stance, and pointing out the inevitable pitfalls of corporations shifting their focus to social responsibility. Business Roundtable and Hoover fellow discussions on the topic have thrust corporate social responsibility back into the spotlight.