Milton Friedman has been called the most influential economist from the second half of the 20th century. With his passing this month a great deal has been written regarding what he did and did not achieve. While Dr. Friedman helped transform the economic world, he also believed that economic freedom was key to creating long-term economic growth, eradicating poverty, and preserving our broader freedoms. This struggle to transform greater society still has a long way to go. The slippery slope toward socialism continues to threaten our freedom, but it does so in a less obvious manner. The vibrancy of the modern Corporate Social Responsibility (CSR) movement stands as a testament to this continued threat.
In response to the rise of CSR principles more than 30 years ago, Milton Friedman wrote that in a free society, “there is one and only one social responsibility of a business – to use its resources and engage in activities designed to increase its profits, as long as it stays with the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
The modern CSR movement is the next wave of political correctness that ignores the basic free market principles articulated by Friedman. So-called “corporate social responsibility” is the notion is that businesses have much broader responsibilities than simply selling products that people want to buy and generating profits for its investors. According to the CSR view, businesses are as, if not more, responsible to “stakeholders” – that is, virtually anyone affected by a company’s products or means of production.
It is also quickly becoming accepted dogma. According to a recent Forbes article (11-28-06), “’In order to make a profit in this day and age, companies are not going to exist if they don't have corporate responsibility," says Alan Hassenfeld, the chairman of Hasbro. ‘You have to do the right thing," he says, claiming it helps to recruit and retain employees as well as keep customers.’”
CSR’s proponents paint themselves as the “moral entrepreneurs” who are “doing good” while doing well. The reality is different. When carefully examined, it becomes clear that CSR is immoral, and the firms that engage in CSR will ultimately cause more harm than good.
First, CSR is not consistent with the principles of capitalism. CSR activists take private property – individuals’ ownership rights in a corporation – and hijack it to advance their own personal agendas and priorities. Regardless of the motives, taking private property is stealing and violates one of the key economic freedoms necessary for a market economy to thrive. By weakening the foundations of the market economy, CSR leads us down a path that will ultimately reduce our economic growth, increase overall poverty, and suppress the general welfare.
CSR undermines our political process. Resolution of challenging social problems such as global warming is complex and affects all of us. It is a public problem that should be addressed in the public realm where all positions and perspectives can be heard, debated, given its proper consideration, and ultimately resolved by elected officials. Granting de-facto regulatory authority to CEOs based on businesses’ effectiveness, speed, or efficiency at addressing problems does not justify disenfranchising citizens. Delegating government’s regulatory authority to private boardrooms weakens our political institutions and diminishes our democracy.
CSR also limits the markets ability to solve the problem. The CSR activists frequently force companies to implement their social agenda. Nike, Citigroup, and JP Morgan Chase to name a few – all adopted various CSR programs because of threats posed by activist stakeholders. The actions of CSR advocates is consistent with the belief that they have superior knowledge regarding what are society’s most pressing social ills; how these social ills should be addressed; as well as what are consumers needs and values.
Experience has shown that actions based on one group’s belief that they have superior knowledge neither creates economic growth nor solves social ills – the economic and environmental devastation of the former Soviet Union being an extreme example of what can happen when one group’s superior knowledge is dictated upon all of society.
Just as importantly, if implementing a CSR program increases profits then in a competitive marketplace companies would voluntarily adopt CSR-type policies without coercion. When free to follow the incentives provided by the market, individuals and companies can leverage their unique knowledge and abilities. Ultimately, thousands of market-experiments develop that ultimately create products and solutions that reflect both the needs and values of consumers.
The programs CSR proponents advocate weakens the fundamentals of our economy, political institutions, and reduces our ability to effectively address social problems. Because CSR does not solve problems, but it does reduce our strength and vitality, Milton Friedman’s quote is as relevant today as it was in the 1970’s. Social welfare is enhanced the most when everyone plays their proper roles in society and no one is so arrogant as to believe they can solve all of society’s ills. To do otherwise is, immoral.