2.19.2009

Business and Social Responsibility


George Will today writes, "it is mysterious whose interests, other than those of their shareholders, corporations are supposed to be controlled by." In doing so, he's ripping off Milton Friedman: given the short memory of Americans, few will probably recognize the explicit link.

Mysterious indeed. I can think of three groups that corporations whose interests ought to be watching out for: the employees, the customers, and the community.
What happens when employers aren't acting in the interest of their employees? Unhappy employees, possibly seizing control of the means of production (in an ideal world), more commonly just doing a really lousy job, and ocasionally bringing in firearms and killing their co-workers. [I'm tempted to write more on this from my perspective as an adjunct professor, but others have laid out the issues more eloquently than I can.]

Unhappy customers don't give you repeat business; in extreme cases, they sue, or die and their family sues. Even discounting the Ford Pinto, the tobacco industry stands as testament to this.

Finally, the community has a stake as well. Who wants to live near a high-density feed lot? Other industries have their problems, too: this just happens to be in today's newpaper. If shareholders live elsewhere, can a corporation ignore the interest of the community in which it's located?
Milton Friedman's article was published nearly forty years ago, so I won't be surprised if people don't remember where this argument came from, but it irritates me that people can't see that it's built on faulty logic.

4 comments:

Matthew Hisrich said...

I don't see how any of the issues you raise would not affect the interests of shareholders.

Mr. Miro said...

Granted, but Friedman seems to explicitly rule out the potential benefit of, say, responsible stewardship of resources and public health, and I would be surprised if George Will would give it much credence.
I was wondering when you were going to comment--I know that economic incentives towards public goods is near and dear to your heart. And I'm aware that you probably wouldn't phrase it quite like that!

Matt said...

I think Friedman's concern is twofold: 1) that pursuing shareholder interests will result in the greatest public benefits; and 2) that pursuing goals outside those of the owners is itself a form of irresponsible stewardship of resources and is likely unsustainable as a business model. The fear I have is that in making a straw man out of these concerns those who oppose them fail to fully account for the unintended consequences that may emerge following their dismissal.

Mr. Miro said...

It's been a while since I've read the Friedman article, but I think you're too generous in your interpretation. However, I conceded the possibility of a straw man, and that your position is not incompatible with what Friedman actually says. The problem--and I think we both agree--really is in getting businesses to see that the health of the employees, consumers, and the environment as a whole is in their best interest. I get emails from people who think that windmill farms are going to slow down the rotation of the earth, and I don't think they're on board.