Review of Friedman (part 10): markets versus politics

We are still reviewing Milton Friedman’s 1970 essay on business ethics. Previously, Friedman had argued that CSR initiatives operate as a kind of stealth tax on shareholders and that taxes should be imposed via ordinary political processes. To his credit, Friedman finally identifies (and then responds to) a potential objection to his “CSR as taxation” argument in paragraphs 20 to 23 of his essay. He formulates the objection to his argument this way: “[some] problems are too urgent to wait on the slow course of political processes [;] … the exercise of social responsibility by businessmen is a quicker and surer way to solve pressing current problems.” But instead of weighing the relative merits of politics versus markets, Friedman dogmatically asserts that the above consequentialist type of argument “must be rejected on grounds of principle.” Why? Because it is not the role of businessmen to promote the public good. After all, their role, according to Friedman, is to maximize their profits! This argument, however, is circular, for it begs the question, what should the “social responsibility” of business be? (As an aside, Friedman does make an exception for sole proprietors, since such individuals are acting on their own behalf when they are making business decisions.) 

Friedman goes even further. He argues that corporate managers who attempt to promote CSR and activist stockholders who favor CSR initiatives are, in reality, attempting to circumvent or hijack the political process by foisting their will on the rest of us! Or in Friedman’s own hyperbolic words: “What [CSR] amounts to is an assertion that those who favor [particular CSR initiatives] have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic procedures what they cannot attain by democratic procedures.” Say what?! Aside from the imprudence of such pedantic rhetoric, the deeper problem with Friedman’s pro-democracy argument is that the world is not neatly divided into clear categories or distinct domains with “politics” on the one side and “markets” on the other. Politics sometime operate like markets (think of the competition between candidates and parties), and firms are full of politics (think of the glass ceilings in so many corporate boardrooms). Moreover, if we are going to talk about “principle” (to borrow Friedman’s term), why can’t markets as a matter of principle provide public goods, and why can’t the political process be more like markets? Alas, Friedman simply brushes off these intriguing possibilities in the course of his dogmatic diatribe against CSR.

In any case, we are now more than three-fourths way through Friedman’s classic essay, so bear with us; we will push on in our next post …

Image result for circular reasoning

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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2 Responses to Review of Friedman (part 10): markets versus politics

  1. Kathy H says:

    Agree with your analysis so far!

  2. Pingback: Preview of Class #6: Milton Friedman versus Elizabeth Warren | prior probability

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