** Written for Dr. Robert Mittelman, STNL 331: Strategy for Business and Sustainability, Royal Roads University, October 23, 2020.
In his classic 1970 opinion piece, “The Social Responsibility of Business Is to Increase Its Profits”, Milton Friedman complains about lack of rigour in saying what it means to have social responsibility. He says that the responsibility of an executive is to conduct the business according to shareholder desires, generally to make money legally, and that business as a concept can’t have responsibility (Friedman, 1970). I concede that the concept of business can’t have responsibility – there’s no agent to pin the responsibility on, and so Friedman focusses on the executive instead. However I believe that if businesses in general have a purpose, which is to create wealth, then they also have one key responsibility, which is to pay for what they use.
What is social good?
Just as Friedman complains of lack of rigour, I complain of his lack of rigour in defining “social good”, which he references many times in his paper. He doesn’t offer his own definition, just speculates on the motives of others. He suggests that fighting inflation is good. Inflation is a mechanism for governments to control the size of their debts. Debt is how almost all government functions are paid for, and so I don’t see any inherent problem with inflation.
Another suggestion is that business should employ or train the “hardcore unemployed”, which is a strawman (Friedman, 1970). Some businesses, generally non-profits or government contractors, take it on themselves to train the unemployed. However, the typical business is not asked to employ anyone. They seek out people to do their work. Businesses do not provide jobs; people provide labour. Businesses are only asked to pay their employees a fair wage.
In the same sentence, Friedman says “controlling pollution” might be a social good (Friedman, 1970). It’s important not to spread filth and pollution across the earth, but in this case, it seems like Friedman means pollution in general. This is a straw man. All that’s required is that a business control their own pollution.
The only fundamental social good required of business is to clean up after themselves and do their share to maintain society. Social responsibility comes up because businesses fall short of meeting this low bar.
Unilaterally Imposed Tax
If an executive spends money on social programs instead of on making more money, says Friedman, he’s taxing shareholders, customers, or employees against their will and spending their money without representation (Friedman, 1970). It’s very logical the way Friedman lays it out, but he has the relationship the wrong way around. He assumes businesses are the source of value. I say before they can be a source of anything, they need to use existing resources. Those resources are common property, or commons.
The traditional definition of “commons” is the pasture in the middle of a village, where any shepherd could graze their flock. The “tragedy of the commons” happens when an unscrupulous shepherd brings too many sheep, leaves them too long, and overgrazes the field. This leaves it unusable for the rest of the villagers. For modern times, I stretch the term to include all common resources. A business may own a piece of land, but the air that drifts over it and the water that falls on or runs through it is commons. A business may pay for eight hours of an employee’s time, but the collective physical and mental health of the labour force is commons. I’ve never heard of any corporation giving birth to or raising a child; the existence of a fit, trustworthy and educated labour pool is also a common good.
Use of the Commons
I don’t see executives imposing unfair taxes on others. I see executives enabling their shareholders to leech off the commons. In “Walmart’s Sustainability Journey,” we learn that when Lee Scott took over as CEO of Wal-Mart, 46% of their employees’ children lived in poverty or needed state support to supplement the poor wages their parents earned (Lambdin & Spicer, 2012). They were using the state’s common wealth to pay for the labour they used.
In the 1970s, as told by Colin Boyd in “The Nestlé Infant Formula Controversy and a Strange Web of Subsequent Business Scandals”, Nestlé received international condemnation for marketing infant formula to mothers in developing nations. They promoted the lie that Nestlé’s formula was better than breast milk and provided free samples that would last just long enough for a mother’s milk to dry up. When the mother was dry and the free formula was gone, Nestlé had a locked in customer (Boyd, 2012). They wasted and destroyed the wealth of motherhood in order to replace it with a commercial good.
In 2011, a fuel truck driver for Columbia fuels, drunk at the wheel, crashed his truck and spilled 43,000 litres of gasoline and 700 litres of diesel into the Goldstream River, one of the most important salmon habitats in BC. Tons of contaminated dirt had to be removed from the riverbed (Dickson, 2012). The salmon run is the basis of two major industries in our province, the cornerstone of the local food chain, and an important symbol of our identity as West Coasters. Columbia Fuels’ employee threatened that common wealth with his carelessness.
The firms named in these stories caused widespread social harm. In some cases, they have paid fines or created social programs to rehabilitate their image – but have they paid in full for the damage they caused? Several Nestlé executives were sentenced to prison for their role in the infant formula scandal, but did Nestlé compensate for every child that died of malnutrition as a result of their actions (Boyd, 2012)? Columbia Fuels compensated drivers who were stuck on the Malahat for 22 hours because of their spill, but have they paid for the life of every salmon they killed (Dickson, 2012)? Wal-Mart is trying to clean up their image and increase their minimum wage, but have they compensated the children who grew up not only in poverty, but without the love and attention of their parents who were away for long hours earning terrible wages at Wal-Mart?
The purpose of business is to create wealth and allow humans to accomplish great things in cooperation that wouldn’t be possible for individuals working alone. But to accomplish these great things, they take the existing wealth of humanity and transfer it to themselves. The responsibility of business, I argue, is to return that wealth once they have made their profit. If they can’t account for the life of every child, every salmon, every litre of contaminated water – then maybe some social programs are a good start.
Boyd, C. (2012). The Nestlé Infant Formula Controversy and a Strange Web of Subsequent Business Scandals. Journal of Business Ethics, 106, 283–293.
Dickson, L. (2012, September 13). Fuel-truck crash on Malahat near Goldstream risked many lives, court told. Retrieved September 2020, from Times Colonist: https://www.timescolonist.com/news/fuel-truck-crash-on-malahat-near-goldstream-risked-many-lives-court-told-1.23275
Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. The New York Times Magazine, 32.
Lambdin, L., & Spicer, A. (2012). Walmart’s Sustainability Journey: Lee Scott’s Founding Vision. Wal-Mart Sustainability Case Project, 1.