4 do you agree with milton friedmans contention that

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4. Do you agree with Milton Friedman’s contention that the only responsibility of business is “to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”? What are a corporation’s “social responsibilities?” Milton Friedman’s well-known response is: “a corporation’s responsibility is to make as much money for the stockholders as possible.” At first blush this sounds uncivil, severe, potentially even cruel. What about worker safety? Pollution? Child labour in less-developed countries? Are issues like these to be ignored by corporations? This indeed sounds like an uncivil, potentially unpleasant society. But dig a little deeper, think about the issues as an economist would, and we see that there is no contradiction between corporations pursuing profit and a civil and civilized society. An economist would recognize that Friedman’s admonition (that firms should only pursue profits) is a good route to a civil and civilized society. Friedman (I have no doubt) would have argued that it is more likely to produce social good than exhortations or rules that firms should be “socially responsible”. The explanation lies in the second, less-well-known part of Friedman’s famous statement (the italicized phrase, with my emphasis added): “In [a free economy] 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.” Although it is generally the first part of the statement we remember, the second is equally important. Friedman says a few sentences later: “It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, ‘led by an invisible hand to promote an end which was no part of his intention.’”. It is that framework of law― rules around issues such as property rights, liability, and so on―hat push profit-maximizing firms to behave “responsibly” (or irresponsibly). Take as an example pollution externality. If these are important and controlling them is an important social end, then the political process and the legal system are the appropriate forum to “establish a framework of law.” Property rights and liability laws that hold a firm responsible for pollution compel the firm to take those external costs into account; firms internalize the external costs. The firm still maximizes profits, but the profits account for the pollution costs now included in the cost of doing business. An economist would argue, as does Friedman, that “If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know
what it is? Can self-selected private individuals decide what the social interest is?” The appropriate forum for such decisions is the political and legislative arena or the legal system.

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