Milton Friedman’s argument that corporations refrain from engaging themselves in social and political issues is compelling. But his argument likely doesn’t apply in today’s world, a world where “social consciousness” actually drives business.
Writing for The New York Times in 1970, Milton Friedman famously argued that businesses, or more precisely business executives, should avoid the temptation to go out of their way to be “socially responsible.” Instead, they ought to focus on maximizing profits within the legal and ethical framework erected by government and society. To act otherwise, he reasons, is to spend other people’s money—that of shareholders, employees, or customers—in ways they have not signed up for. Thus, by sacrificing profitability, the “socially-responsible company” robs their affiliates of agency.
Though nearing fifty years of age, Milton Friedman’s windily and aptly-titled essay The Social Responsibility of Business Is to Increase Profits feels like it could have been written today. Many of the hypotheticals he cites of corporate social responsibility—“providing employment, eliminating discrimination, avoiding pollution”—are charmingly relevant in the era of automation anxiety, Boycott, Divestment and Sanctions (BDS), and fossil fuel divestment campaigns. His solution is that businesses sidestep the whole mess and focus on what they do best: increase the bottom line. All the while, they play by the rules set forth by the public. The idea is elegant and simple, but it’s increasingly untenable in today’s political climate.
One reason for this is that business and government, the institution Friedman believes will reign business in, have grown much closer, even as the latter has grown comparatively weaker. In sharp contrast to the get-government-out-of-business attitude that prevailed in the boardrooms of the 1970s, modern industry groups collectively spend hundreds of millions to get the ears of lawmakers, hoping to obtain favorable legislation or stave off laws that would hurt them. Corporate (and other) lobbyists are known to write and edit bills, sometimes word for word.
You could convincingly argue that this is done in pursuit of profit: Boeing, for example, spent $17 million lobbying federal politicians in 2016 and received $20 million in federal subsidies the same year. As of a 2014 report by Good Jobs First, an organization that tracks corporate subsidies, Boeing had received over $13 billion of subsidies and loans from various levels of government. Nevertheless, this is wildly divergent from Friedman’s idea of business as an adherent to, not architect of, policy.
As business has influenced policy, so too have politics made their mark on business. Far more so than in the past, today’s customers expect brands to take stands on social and political issues. A report by Edelman, a global communications firm, finds a whopping 60% of American Millennials (and 30% of consumers worldwide) are “belief-driven” buyers.
This, the report states, is the new normal for businesses—like it or not. Brands that refrain from speaking out on social and political issues now increasingly risk consumer indifference, which, I am assured by the finest minds in marketing, is not good. In an age of growing polarization, every purchase is becoming a political act. Of course, when you take a stand on a controversial issue, you also risk alienating people who think you’re wrong: 57% of consumers now say they will buy or boycott a brand based on its position on an issue.
This isn’t limited to merely how corporations talk. Firms are under increasing social pressure to hire diversity officers, change where they do business, and reduce their environmental impact, among other things. According to a 2017 KPMG survey on corporate social responsibility, 90% of the world’s largest companies now publish reports on their non-business responsibilities. This reporting rate, the survey says, is being driven by pressure from investors and government regulators alike.
It turns out that a well-marketed stance on social responsibility is also a powerful recruiting tool. A 2003 study by the Stanford Graduate School of Business found 90% of graduating MBAs in the United States and Europe prioritize working for organizations committed to social responsibility. Often, these social objectives can be met in ways that employees enjoy: for example, cutting a company’s carbon footprint by letting employees work from home.
In light of all this, Friedman’s suggestion that businesses eschew social responsibilities and focus solely on profitability seems like something of a false dichotomy. The stakes are too high now for corporations to sit on the sidelines of policy, politics, and society. Businesses increasingly find themselves taking on such responsibilities in the pursuit of profitability. Whether that’s good or bad is up for debate. But as businesses have grown more powerful and felt the need to transcend their formerly transactional relationships with consumers, it seems to be the new way of things.
Eddie Ferrara writes about policy from a data-driven perspective. He studied sociology at the University of Massachusetts Amherst. He blogs at eddiethoughts.com. Follow him on Twitter @EdwardFerrara_.