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.

10 responses

  1. Great article! I’m not sure that profitting is a social responsibility of a company but higher profits definitely help CSR. Companies that are making money tend to hire employees, engage their customers and shareholders, and treat their employees well. Clearly, profits and social responsibility are connected.

  2. While one can make the argument that it is the responsibility of managers in businesses to maximize profit, there is nothing socially responsible about doing so, as there is not a benefit that affects society at large. The only benefit is to the “owners,” 98% of whom bought the stock a week ago and will sell after the end of the quarter because the money manager needed to dress up his quarterly numbers.

    My issue with these kind of articles is they seem to deliberately confuse the goal of profit and maximizing profit. It has been a very long time since I have heard sustainability advocates argue that businesses should not turn a profit.

    Maximizing profit is a different thing altogether. The article talks about “providing value.” However the goal with businesses who are truly focused on maximizing value is to convince you to spend as much as possible on something that costs as little as possible to make. The bulk of our society is awash in goods whose actual value is very little in comparison to what consumers are willing to pay, typically based on lots of false value created by psychologically sophisticated ads. Think of Nike’s Air Jordan hightops which were so valued teenagers would kill for a shoe that cost about $8 to manufacture. The other side of the coin is that employees need to be paid as little as possible for their labor. This is so entrenched in our psyche that when Google paid bonuses to its employees, the hardworking shareholders went into a tizzy.

    So what though, it’s a free country right? True. But consider these profit maximizing cases:

    – Cleveland industries dumped so many chemicals into the Cayahoga river it caught on fire. Milton Friedman ought to be proud of this. In his weltschund it was the proper course to follow.

    – Ford knowingly released autos with gas tanks defects it knew were dangerous. However, the profits from sales outweighed the calculated PR expenses associated with deaths. So according to capitalistic principles, once again, managers made the right decisions.

    – Big Tobacco quite famously lobbied, and obfuscated, and intimidated in order to keep consumers thinking that smoking was healthy. Was this right? Of course it was. It maximized profits.

    These are just off the top of my head. There are thousands of known cases of businesses poisoning, maiming, and killing employees and consumers with knowledge that their actions might be dangerous. And if a company can create externalities (defined as expenses that society will “pay”) according to Uncle Milton the businesses not only should, the MUST to ensure profit maximization. Not doing so might anger the gods of capitalism and cause recession to rain down upon us.

    Don’t kid yourself, maximizing profits may be the way business is done, but it is fiscally responsible not socially responsible.

    1. “There are thousands of known cases of businesses poisoning, maiming, and killing employees and consumers with knowledge that their actions might be dangerous.”

      Yes, there may be many of these cases, but that still does not counter the premise of my article: “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 initiation of force includes poisoning, malming, and killing. These actions goes against the non-aggression principle.

  3. I get your point about the use of force as a criteria in determining whether or not a company is behaving responsibly. But I don’t agree that it’s the only criteria (unless of course you define force as behaving irresponsibly). Not sure you’ve made the case here linking profits to social responsibility either. You say that the existence of profit shows that a company is meeting a societal need. But that’s not necessarily true. Profit is about the relationship between income and cost. Period. A company could be selling very few products, but has managed to keep costs very low and thereby registers a profit. Is that company more responsible than one that pays his employees more and just breaks even? What about the impact of the product on society? Is selling junk food responsible as long as it is profitable? I think one way that profit is tied to responsibility is the ability to hire and retain employees. What about how much of a company’s revenue remains in the community, or at least in the country? Is that an aspect of responsibility too? Is the company producing goods in a sustainable manner? Is it generating waste? What if you drove all the small businesses that used to buy local and hire local into bankruptcy, while you sell cheap imported goods with imported labor? Is there a social responsibility aspect to that? Where is the line of demarcation between using force and simply being competitive? I think there’s a lot more to this issue than what you’ve touched on here. We need to be careful about how we define these things.People’s livelihoods and communities’ quality of life could be at stake.

      1. Those were rhetorical questions. Food for thought. Perhaps material for a future piece that goes a little deeper into the subject. There is a big gap here between your assertion that profitability might be sufficient as a determinant of responsibility and others (including an earlier commenter) who have suggested that it might not even be necessary. In other words does a company have to be profitable to be responsible? Is a company that breaks even while providing a service and employing members of the community not responsible?

  4. Profit is a force, as the accumulation and concentration of wealth is surely the problem we see in governance and politics. It is the seat of all that is problematic, and is at the heart of the dehumanization process, as one can then confabulate what old Milton said without seeing the results of this mantra. It is laughable how all of the “initiation of force” is directed at the government, and how pollution is only a private transgression. When is pollution too articulated that is only impacts private property? I’m glad you disclose your libertarian leanings, as it is quite clear what is behind this article.

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