Rethinking the Social Responsibility of Business

A Reason debate featuring Milton Friedman, Whole Foods' John Mackey, and Cypress Semiconductor's T.J. Rodgers.

From the October 2005 issue

(Page 3 of 5)

Here is how Mackey himself describes his firm's activities:

1) "The most successful businesses put the customer first, instead of the investors" (which clearly means that this is the way to put the investors first).

2) "There can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors."

Compare this to what I wrote in 1970:

"Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.

"To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government....

"In each of these...cases, there is a strong temptation to rationalize these actions as an exercise of 'social responsibility.' In the present climate of opinion, with its widespread aversion to 'capitalism,' 'profits,' the 'soulless corporation' and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.

"It would be inconsistent of me to call on corporate executives to refrain from this hypocritical window-dressing because it harms the foundations of a free society. That would be to call on them to exercise a 'social responsibility'! If our institutions and the attitudes of the public make it in their self-interest to cloak their actions in this way, I cannot summon much indignation to denounce them."

I believe Mackey's flat statement that "corporate philanthropy is a good thing" is flatly wrong. Consider the decision by the founders of Whole Foods to donate 5 percent of net profits to philanthropy. They were clearly within their rights in doing so. They were spending their own money, using 5 percent of one part of their wealth to establish, thanks to corporate tax provisions, the equivalent of a 501c(3) charitable foundation, though with no mission statement, no separate by-laws, and no provision for deciding on the beneficiaries. But what reason is there to suppose that the stream of profit distributed in this way would do more good for society than investing that stream of profit in the enterprise itself or paying it out as dividends and letting the stockholders dispose of it? The practice makes sense only because of our obscene tax laws, whereby a stockholder can make a larger gift for a given after-tax cost if the corporation makes the gift on his behalf than if he makes the gift directly. That is a good reason for eliminating the corporate tax or for eliminating the deductibility of corporate charity, but it is not a justification for corporate charity.

Whole Foods Market's contribution to society--and as a customer I can testify that it is an important one--is to enhance the pleasure of shopping for food. Whole Foods has no special competence in deciding how charity should be distributed. Any funds devoted to the latter would surely have contributed more to society if they had been devoted to improving still further the former.

Finally, I shall try to explain why my statement that "the social responsibility of business [is] to increase its profits" and Mackey's statement that "the enlightened corporation should try to create value for all of its constituencies" are equivalent.

Note first that I refer to social responsibility, not financial, or accounting, or legal. It is social precisely to allow for the constituencies to which Mackey refers. Maximizing profits is an end from the private point of view; it is a means from the social point of view. A system based on private property and free markets is a sophisticated means of enabling people to cooperate in their economic activities without compulsion; it enables separated knowledge to assure that each resource is used for its most valued use, and is combined with other resources in the most efficient way.

Of course, this is abstract and idealized. The world is not ideal. There are all sorts of deviations from the perfect market--many, if not most, I suspect, due to government interventions. But with all its defects, the current largely free-market, private-property world seems to me vastly preferable to a world in which a large fraction of resources is used and distributed by 501c(3)s and their corporate counterparts.

Put Profits First

T.J. Rodgers

Comments

Pingback| 10.15.09 @ 10:30PM

Elinor Ostrom, John Mackey and Milton Friedman « Scarcity and Inequality links to this page. Here’s an excerpt:

…do I post about John Mackey, than this appears: John Mackey is an entrepreneur, and an intelligent, thoughtful man concerned with the welfare of his employees.  This debate between Mackey, Milton Friedman and T.J. Rodgers is well worth a read.  Milton counters Mackey’s claim that corporate social responsibility is an end in itself by quoting himself circa 1970: “Of course, in practice the…

Pingback| 10.16.09 @ 4:10PM

John Mackey’s Conscious Capitalism: Abridged Version @ MyAware links to this page. Here’s an excerpt:

…and free individuals. In late September, Mackey sat down with Reason's Matt Welch and Nick Gillespie to talk about health care reform, corporate social responsibility (on which Mackey has written for Reason), why government interventions rarely achieve their goals, and how Mackey came to his unstinting belief in free markets. Approximately five minutes. Shot by Dan Hayes and Meredith Bragg. Edited…

Pingback| 10.16.09 @ 4:10PM

John Mackey’s Conscious Capitalism: Full Interview Version @ MyAware links to this page. Here’s an excerpt:

…and free individuals. In late September, Mackey sat down with Reason's Matt Welch and Nick Gillespie to talk about health care reform, corporate social responsibility (on which Mackey has written for Reason), why government interventions rarely achieve their goals, and how Mackey came to his unstinting belief in free markets. Approximately five minutes. Shot by Dan Hayes and Meredith Bragg. Edited…

Pingback| 10.20.09 @ 2:23PM

John Mackey’s Conscious Capitalism: Abridged Version @ MyAware links to this page. Here’s an excerpt:

…and free individuals. In late September, Mackey sat down with Reason's Matt Welch and Nick Gillespie to talk about health care reform, corporate social responsibility (on which Mackey has written for Reason), why government interventions rarely achieve their goals, and how Mackey came to his unstinting belief in free markets. Approximately five minutes. Shot by Dan Hayes and Meredith Bragg. Edited…

Pingback| 10.20.09 @ 2:23PM

John Mackey’s Conscious Capitalism: Full Interview Version @ MyAware links to this page. Here’s an excerpt:

…and free individuals. In late September, Mackey sat down with Reason's Matt Welch and Nick Gillespie to talk about health care reform, corporate social responsibility (on which Mackey has written for Reason), why government interventions rarely achieve their goals, and how Mackey came to his unstinting belief in free markets. Approximately five minutes. Shot by Dan Hayes and Meredith Bragg. Edited…

Pingback| 10.27.09 @ 1:06PM

class cancelled today « Honors 180 links to this page. Here’s an excerpt:

…as we will discuss the Friedman and the Winkler, take a look at this interview with Friedman on these subjects. You do not have to comment on this interview, but feel free. http://reason.com/archives/2005/10/01/rethinking-the-social-responsi from → Uncategorized No comments yet Click here to cancel reply. Leave a Reply Name (required): Email (required): Website: Comment: Note: You can use basic XHTML in…

Pingback| 11.3.09 @ 5:21PM

Re-read the interview for next time. And read about philosophy papers. « Honors 180 links to this page. Here’s an excerpt:

…2009 November 3 by utilitynussbaumrand I like this guide to writing philosophy papers. Let me know what you think. Link. Here is the interview with Friedman, Mackey and Rodgers again. RE-READ IT. Link. from → Uncategorized No comments yet Click here to cancel reply. Leave a Reply Name (required): Email (required): Website: Comment: Note: You can use basic XHTML in your comments. Your email address…