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Rethinking the Social Responsibility of Business

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

(Page 3 of 5)

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

John Mackey's article attacking corporate profit maximization could not have been written by "a free market libertarian," as claimed. Indeed, if the examples he cites had not identified him as the author, one could easily assume the piece was written by Ralph Nader. A more accurate title for his article is "How Business and Profit Making Fit Into My Overarching Philosophy of Altruism."

Mackey spouts nonsense about how his company hired his original investors, not vice versa. If Whole Foods ever falls on persistent hard times--perhaps when the Luddites are no longer able to hold back the genetic food revolution using junk science and fear--he will quickly find out who has hired whom, as his investors fire him.

Mackey does make one point that is consistent with, but not supportive of, free market capitalism. He knows that shareholders own his stock voluntarily. If they don't like the policies of his company, they can always vote to change those policies with a shareholder resolution or simply sell the stock and buy that of another company more aligned with their objectives. Thus, he informs his shareholders of his objectives and lets them make a choice on which stock to buy. So far, so good.

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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…

Pingback| 12.2.09 @ 9:02AM

ActivePro » Blog Archive » Addressing Brand Value And Authenticity With Your CSR Prog links to this page. Here’s an excerpt:

…been easy to miss if you don’t work in the world of corporate led cause related marketing, but Corporate Social Responsibility (or CSR) programs are in the midst of a crisis. The subject of the debate mainly centers around two big issues: brand value and authenticity. On the one hand, CSR programs are attacked by shareholder groups and business investors who argue that they are a needless distraction…

Pingback| 12.16.09 @ 12:18PM

John Mackey is naive… « Thoughts and Ruminations links to this page. Here’s an excerpt:

…liberals boycotting Whole Foods and conservatives backslapping and thinking Mackey is one of them) is that Mackey is deeply different than Friedman and the average conservative.  In fact, Mackey believes this, that The most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the…

Pingback| 12.16.09 @ 12:32PM

John Mackey, health care, and wisdom… « Thoughts and Ruminations links to this page. Here’s an excerpt:

…liberals boycotting Whole Foods and conservatives backslapping and thinking Mackey is one of them) is that Mackey is deeply different than Friedman and the average conservative.  In fact, Mackey believes this, that The most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the…

Pingback| 1.25.10 @ 3:15PM

Obama's DONE!!! links to this page. Here’s an excerpt:

…wrote a famous article for The New York Times Magazine whose title aptly summed up its main point: "The Social Responsibility of Business Is to Increase Its Profits." http://reason.com/archives/2005/10/0...ocial-responsi I understand that profits are important but respect for human beings and our planet are important also. So many times people do not include the negative impacts of ignoring…

John Schaffhausen|2.15.10 @ 11:43PM|

Being a former employee of Cypress Semiconductor for five of my 28 years in this industry, I can safely say that T.J Rodgers thinks nothing more than about his own personal gain "Period"! T.J. boasted about the amount of food donated to charity, although what he did not say was that the managers required their employees to contrbute to charities. As my former manager would tell me, "you are paid a lot of money to work here, so you must donate to our selected charities". This was not an option for the employees it was a requirement. The first time I handed my charity card back to my manager with a zero value it was returned to me with a please review this again and re-consider. When I told the manager I did re-consider and the answer was still "NO", the manager than stated that a one time donation of $5.00 is acceptable and than I would not have the monthly deduction. I re-affirmed my "NO" with a "ITS BASED ON A PRINCIPLE". The manager then took the card and handed in a differnet card with my name on it and $5.00 one time donation, so that his department met the 100% quota required by T.J. Rodgers. The first paystub that was given to me that should have not reflected any donations showed $5.00 donated to a charity. I spoke to HR about this situation and the $5.00 was returned to me on the next check.
Now I ask you Mr. Rodgers, where are your morals, ethics and legal standards if this is the type of strong arming you require from your managers?

iriezorro|10.14.11 @ 9:43AM|

Thank you for this potent personal example. Hopefully the 'fans' of TJ below see that he is a hypocrite and in no subtle way in direct opposition to Friedmans' 1970 essay.

Pingback| 2.24.10 @ 12:04AM

WEEK 9 READINGS « Social Problems links to this page. Here’s an excerpt:

…“Capitalism, Profits, and Entrepreneurs.” Pp. 1-7 in The Politically Incorrect Guide to Capitalism.  Washington, DC: Regnery. Friedman, Milton, John Mackey and T. J. Rodgers. 2005. “Rethinking the Social Responsibility of Business.” Reason 37(5):28(10). Moseley, F. (2009). “Time for Permanent Nationalization!: If the Banks are ‘Too Big to Fail’, They Should Be Public.” Dollars & Sense, (281), 19-22. Riedl,…

Pingback| 2.24.10 @ 1:25AM

TEAM DEBATE III: Economic Greed « Social Problems links to this page. Here’s an excerpt:

…Engels.  (Excerpts from) The Communist Manifesto. Frank, Robert. 2009. The Invisible Hand: Trumped By Darwin? New York Times. Friedman, Milton, John Mackey and T. J. Rodgers. 2005. “Rethinking the Social Responsibility of Business.” Reason 37(5):28(10). Moseley, F. (2009). “Time for Permanent Nationalization!: If the Banks are ‘Too Big to Fail’, They Should Be Public.” Dollars & Sense, (281), 19-22.…

Pingback| 2.25.10 @ 11:51AM

Quantifying Progress: Whole Foods vs. Milton Friedman |Triple Pundit links to this page. Here’s an excerpt:

Quantifying Progress: Whole Foods vs. Milton Friedman |Triple Pundit $(function() {$('#comments').tabs(1);}); .wp-polls .pollbar { margin: 1px; font-size: 8px; line-height: 10px; height: 10px; background-image: url('http://www.triplepundit.com/wordpress/wp…

Pingback| 3.2.10 @ 3:19PM

The Goodwill Hunters « ALL THAT IS GOOD links to this page. Here’s an excerpt:

…#likeminds summit I was lucky enough to attend last week, and he mentioned Milton Friedman’s point that businesses primarily exist to return value to shareholders. Although people are free to question this, it reminded me that a company’s valuation is not merely about this quarter’s profits, but is instead dependent on its ability to generate future profits. Today’s sales keep a…

Pingback| 3.26.10 @ 3:38AM

Virtuous Capitalism links to this page. Here’s an excerpt:

…ask: what made you want to lead this kind of life? – Cage the Elephant, “No Rest for the Wicked” Back in 2005, Whole Foods’ CEO John Mackey wrote on “ Rethinking the Social Responsibility of Business,” somewhat countered by Milton Friedman. The fermenting issue — which has become more prevalent since 2005 — is whether or not Friedman is accurate in his claim…

Haimerej|4.21.10 @ 9:43PM|

It seems to me that Friedman was correct in his assertion that the differences are rhetorical. I would say semantic. I believe that Friedman's philosophy has been perverted by his detractors because it relies upon individual choice and freedom. It opened the door to cynics to focus on the extreme negative aspects (inherent in ALL systems), which, IMO, ignores the fact that he constantly referred to the benefits of the system to the people that the detractors think it oppresses.

It is in the "self interest" of Mackey to run a successful, profitable company. How else could he serve his desires of charity and "improv[ing] the health and well-being of everyone on the planet"? His "self interest" is helping others. People generally don't give to others if they don't want to, which serves a selfish desire to feel "good." Part of the reason his company is so successful is due to the public opinion of it. The company donating to charity is a self-interested venture, in that it influences public opinion by giving consumers the "selfish" feeling of satisfaction that their shopping contributes to charitable causes. This reputation Whole Foods has built increases their consumer base, which increases their profits, which increases the ability of Mackey to serve his self interest of philanthropy.

The argument that it's not "driven" by a profit motive is fallacious. Take this statement, "While Friedman believes that taking care of customers, employees, and business philanthropy are means to the end of increasing investor profits, I take the exact opposite view: Making high profits is the means to the end of fulfilling Whole Foods' core business mission." That is semantics at best, fallacious at worst. Can you be profitable without doing what Friedman said? What profitable business doesn't cater to the customer? This argument ignores which came first, the business model or the profits? Obviously, he has a model that has proved extremely profitable.

In closing, I believe Milton Friedman has been turned into a whipping boy of the left due to the manipulation of his philosophy with out-of-context quotation. This is a product of the "soundbite" culture we live in today. When Friedman said what he said, it was provacative. It was meant to be provacative. His mistake was perhaps giving people too much credit. Rather than making people say, "What does he mean by that?" today it makes people say, "What an evil man!"

Ray Ray|4.30.10 @ 3:16PM|

I just LOVE Mackey. Love him. Loved working at WF in high school. He has a point that IS sorta largely ignored by Libertarians, especially Rand fans- freedom means you can choose to build a company with whatever goals you have in mind. If whatever charitable donations he makes are pissed away and misused and never does anyone any good, and he has a warm squishy feeling inside, shareholders can go elsewhere. It's a voluntary arrangement.

RHP|9.1.10 @ 4:53PM|

Shareholders can also fire Mackey. It's a who works for who arrangement.

nunya|9.12.10 @ 6:27PM|

Who wrote this article??

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Milton Friedman is my favorite economic and political speaker. Mackey seems to know the right answer, but when he scorns Friedman's view as narrow and selfish, he really just adds fuel to freedom's detractors. I especially enjoyed TJ Rodgers' critique.

I'm hoping to intern at Cypress.

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