In Defense of Increasing Profits as the Social Responsibility of Business

Over the next couple of weeks, we’ve asked our writers (and guests) to respond to the question “What is the Social Responsibility of Business?” Please comment away or contact us if you’d like to offer an opinion.

You might think I am crazy for even suggesting that increasing profits is the social responsibility of business.  After all, this article is published on TriplePundit, where we usually focus on the triple bottom line of integrating people, planet, and profits into business, instead of just profits, profits, and more profits.

The famous phrase, “The Social Responsibility of Business is to Increase its Profits” comes from the title of Milton Friedman’s 1970 article in The New York Times Magazine.  It has been echoed countless times from folks in business, free market, libertarian, conservative, and/or republican circles.  It has been ridiculed numerous times from folks in progressive, statist, socialist, liberal, and/or democratic circles.  However, the phrase is accompanied by an all too often neglected (by supporters and detractors) caveat, that increasing profit must be sought without the initiation of force.

The role of profit and loss
All things being equal, the profit and loss of a business tells an owner how well (profit) or how poorly (loss) a business is meeting the wants and needs of individuals in society.  This is true for a small mom-and-pop shop, or the largest of corporations.  It doesn’t matter whether a business services a few folks locally, or a mass of population internationally, the role of profit and loss is still the same in any business situation.

The only way a business can increase profit is if a business, small, medium, or large is providing something of value to other individuals.  The kid seeking profit with a lemonade stand provides a drink to passing by motorists in their neighborhood.  Your local coffee shop seeks profit by providing you a cup of coffee.  Starbucks, an international coffee conglomerate, seeks profit by providing millions of people a cup of coffee.

These are just simple examples, but the logic can extend to any business.  Each of these businesses is benefiting someone in society, and the business knows this because of such profit.  Hence, the social responsibility of business is to increase its profits.

The caveat: the initiation of force
The major caveat comes with how that profit is obtained, not the profit itself.  Profit must be obtained without the initiation of force.  To quote Friedman’s 1970 essay at length, “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.” (Emphasis is mine.)

This caveat, without the initiation of force, also known as the nonaggression principle, is implicit to many, if not most free market libertarians, and this particular free market libertarian environmentalist. In fact, this is the very heart of what “open and free competition”, “without deception of fraud”, “rules of the game” mean.  It is what a free market is built on.

Where the initiation force gives the illusion of profit
If there was no initiation of force, there is nothing wrong with profit.  However, at the same time, there are many instances of initiation of force that give businesses, and the market, the illusion of profit.  This is not to say that profit is the culprit.  This is not to say that profit is evil.  This is not to say that profit isn’t the social responsibility of business.

Unfortunately, profit seeking is often demonized as the scapegoat for the fault and falters of business. But we need to look at how the business has used the initiation of force, rather than chastise profit.  Most of the time, these initiations of force come in the form of either a protectionist regulation (which creates regulation benefiting one company at the detriment of free competition), or some sort of subsidy (which takes money from taxpayers, and essentially gives companies the illusion of profit.)

Some examples of the initiation of force include:

  • Keystone XL Pipeline: Government is using eminent domain regulation to take over farm land to build the pipeline.
  • Solyndra: Government backed a loan to Solyndra, thus subsidizing the company and giving the illusion of solvency.
  • Fossil Fuel Subsidies: Taking money from the taxpayer (the initiation of force) to give to these companies gives the illusion that fossil fuel energy is profitable.
  • Clean Energy Subsidies: Taking money from the taxpayer (the initiation of force) to give to these companies gives the illusion that clean energy is profitable.

The initiation of force also extends to pollution.  Say a company is dumping harsh chemicals onto your private property – that is considered an initiation of force and needs to be dealt with accordingly.  A company using your backyard as a dumping zone without your permission is essentially increasing its profits through the use of force.

Social responsibility
To say it fully and simply, the social responsibility of business is to increase profits by meeting the wants and needs of individuals in society, without the initiation of force.  The latter part, “without the initiation of force” is often missed.  And although implicitly understood, it needs to be made explicit to avoid confusion of profit at any and all costs.  Only moving towards and open and free market, will we be able to better achieve profit without the initiation of force.

Image Credit: InspirationDC via Flickr

Jonathan Mariano is an MBA candidate with the Presidio Graduate School in San Francisco, CA. His interests include the convergence between lean & green and pursuing free-market based sustainable solutions.