The late great Milton Friedman returns to a larger theme in the last part of his classic essay on business ethics (paragraphs 28 to 33): the different domains of markets and politics. To sum up Professor Friedman’s closing argument: he compares and contrasts politics with markets, concluding that markets are essential to a free society, while politics are an unfortunate necessity, a necessary evil. Why? Because markets are always based on consent: “In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate.” Politics, by contrast, are based on coercion and conformity: “The individual must serve a more general social interest –whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.” Let’s put aside the fact that the internal workings of most (if not all) firms fall under the “politics” side of the ledger. And let us also put aside the fact that electoral politics often operate like markets. Friedman’s distinction between politics and markets, like his Kantian critique of the true motives behind CSR, is worth taking seriously.
Philosophically or fundamentally speaking, markets and politics are at bottom just different ways of aggregating preferences and making decisions. Markets allow us to voluntarily express our preferences for goods and services. As long as there is free entry and fair competition in the markets for such goods and services, then the best producers and best service-providers will win out. With politics, however, a set of preferences, once selected (via some voting procedure), are imposed by force. Worse yet, politics do not guarantee the best of anything! (Exhibit A: insert a “Donald J. Trump emoji” here.)
Nevertheless, this distinction between markets (good) and politics (bad) can be deployed in support of CSR, not against it! That is, what if, instead of harming the foundations of a free society, CSR might end up making us freer? After all, if politics are about coercion and conformity, then wouldn’t it be better if the invisible hand of a plethora of business firms (instead of the iron hand of a centralized government) were to engage in CSR? Wouldn’t a freedom-loving people prefer business firms to experiment with different CSR initiatives, each firm operating as kind of mini-laboratory for sundry CSR projects. Ironically, then, far from making the case against CSR, Professor Friedman has unwittingly made a strong case in favor of CSR! In my next post, I will wrap up my review of Friedman.