Ethics in business is such a difficult thing to regulate, legislate, or force compliance with. Businesses must create a profit in order to survive. As business students, the first things we were taught were to, as a manager, increase profit and increase stock price. Then we were told we had to do it ethically. Creating profit is a difficult thing to do and it is easier to make a profit if you act unethically. Milton Friedman claimed that, “the only social responsibility that any business should be concerned with is to make sure that it makes a profit!” (Hall). Mr. Hall then states that to act on this view would be the wrong thing to do. There are good and bad to both sides of their arguments and I will be going into the details of both, as well as if it is still relevant in 2019.
Milton Friedman believes that profit should be the sole responsibility of a company. Lets first look at why this could be a true and positive statement. Milton’s main argument is that profit is good for the stakeholders, company, and society. Milton said, “the only cases in recorded history in which the masses have escaped from grueling poverty ‘are where they have had capitalism and largely free trade’” (Corcoran, 2019). When the idea of profit being good is observed from the viewpoint of an economist, it becomes especially glaring at how fast the quality of life, not only improved for the rich, but the poor as well. Specifically, in most free western civilizations. This is even apparent in Japan, China, and South Korea.
This is undisputed that the past 300 years of free trade and the drive to make a profit has not only made the world better but has brought billions up and out of poverty. This is not making a case for businesses to act unethically though, which I believe is a terrible misconception about Milton Friedman’s work. Friedman is just suggesting that the good that comes from the use of Capitalism and the drive for profit outweighs the policies and regulation that refocus companies from profit to social responsibility and the betterment of society. The hard thing to sell to people about this idea of profit is that it sounds inherently greedy and like it is sacrificing the success of society for the betterment of a few people. When a company comes out saying they are switching from a profit first mentality to a socially responsible model, this sounds much more appealing to people and it sounds good, even though it may not work.
The issues with Milton Friedman’s statements are in fact glaring, as unregulated capitalism has in the past been a terrible issue, not just with income inequality, but with income mobility. I will explain this more later on. Robber barons were a large part of business in the 19th century, “robber barons were said to have stolen control over natural resources, paid unfairly low wages, and pushed out their competition using questionable business practices” (DiLallo, 2015). Carnegie and Rockefeller are two main people who are pointed to when asked what the downfalls of capitalism are. They cared only about their profit and used dangerous and unethical business practices that made the working class suffer. They amassed billions of dollars which at the time was an absurd amount of money. Rockefeller was at the time well worth over 300 billion USD. Employees were paid dirt poor wages, worked ridiculously long hours, worked in severely hazardous conditions, and often times in factories children worked as well. All of these terrible things which happened to the working class of the 19th century was done all in the idea of making a profit.
In 2019, there is still income inequality in the United States, but there must be a distinction between today’s world and 19th century when the hunger for profit dominated society. Income mobility is the ease of ability for people to switch economic classes. The largest myth which perpetuates political and economic culture particularly in the United States is the idea of 1% and 99%. People created the idea that the one percent is this ultra-rich group which holds half the wealth and they have been there for centuries at the top, keeping the poor down. Just like they were in the 19th century. Companies are now seen as the robber barons instead of individual rich men. When inequality is looked at, yes, they would in fact be right. “Over the past five decades, the top 1 percent of American earners have nearly doubled their share of national income” (Perry, 2017).
We know that inequality is increasing, but the idea that the top earners have been the top earners for years, and that the poor have always remained poor is in fact, wrong. “It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution” (Perry, 2017). Income mobility is significantly different than income inequality and paints a different picture when it comes to how companies that work only for profit are viewed. The issue with past income inequality in the 19th century was that there was no mobility, the rich dominated the poor and now that has changed. There may be a gap between the rich and poor, but the poor don’t have to stay poor and the rich wont always keep their wealth anymore.
Hall’s statement that it would be wrong to focus on profit, is misplaced, but he has a point. I disagree with the idea that the sole purpose should be profit and I disagree that the sole purpose of the company should be for the benefit of society. There has to be a middle ground with a form of regulated capitalism. Letting companies work towards a profit with oversight from regulators looks like a viable option. Free trade between countries and a general open marketplace are fantastic ideas that have worked for centuries. The regulation needs to be on company operations, reporting, and monopolies. The government must examine the companies in the market individually to find unethical behavior and not pass sweeping laws which alter the market in ways which make it undesirable to make a profit. Profit made in an ethical way should be pushed instead.
On social responsibility, the problem may solve itself through natural market processes. Many companies have seen the public demand rise in companies who are seen as socially responsible. CSR or corporate social responsibility is the idea that the company has a duty to lessen its negative impacts on society and amplify its positive impacts on society. Company image is so important nowadays that some companies are willing to bend over backward to make sure they are not seen as a company who has no disregard for society, but an active member of the community they sell to or service.
Patagonia, Ben and Jerry’s, and Lego to name a few. Patagonia has donated its entire US tax cut to fight climate change, Ben and Jerry’s speaks out against social issues knowing they might get backlash from certain groups, and Lego has overhauled their manufacturing to create a more efficient and eco-friendly operation. None of these three companies’ decisions directly increase their profits, some of them do the exact opposite. Companies gamble that the money spent now to boost their image will set them apart in the minds of consumers in the hopes to boost sales.
In conclusion, Milton Friedman’s idea that the sole idea a company should strive for is profit, should be held under scrutiny, but shouldn’t be outright dismissed. Common ground can be made between ethical profit, manipulation of ethics for profit, or the idea that the hunt for profit be eliminated. Hall makes a good point that it is wrong to go strictly for profit, but it is incorrect as a company to totally disregard profit. As long as there are people making a profit, people will believe they are doing it in an unethical way or that they don’t deserve it. The distinction must be made, when companies make a profit, companies who do it unethically should be shamed, and companies who do it ethically should be praised.
- Corcoran, T. (2019, January 18). Milton Friedman is right, profit is a company’s only purpose. Retrieved from Financial Post: https://business.financialpost.com/news/economy/milton-friedman-is-right-profit-is-a-companys-only-purpose
- DiLallo, M. (2015, July 11). Robber Barons: The Definition of the Dark Side of Capitalism. Retrieved from The Motley Fool: https://www.fool.com/investing/general/2015/06/11/robber-barons-the-definition-of-the-dark-side-of-c.aspx
- M.Hall, (2012), `Developments in context’,CSR Today Conference,UOWLondon 21.1.11.
- Perry, M. (2017, November 16). Some amazing findings on income mobility in the US including this: the image of a static 1 and 99 percent is false. Retrieved from AEI: https://www.aei.org/publication/some-amazing-findings-on-income-mobility-in-the-us-including-this-the-image-of-a-static-1-and-99-percent-is-false/