This article is really confusing. I suspect it’s because the thinking here is really bad. I thought I’d just post my progress, and check my understanding. This isn’t a complete analysis.
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the en vironment. Or that, at the expense of corporate profits, he is to hire “hard core” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stock holders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employes, he is spending their money.
This is weird. I don’t get it. An executive spends the money of the owners of the business. Sure. But I don’t think it makes any sense to say that he is spending the money of customers and employees when he raises prices of products or lowers wages. He isn’t a dictator that can force customers to keep buying from him or employees to keep working for him. Am I missing something?
Also why raising/lowering the prices? What he’s saying seems to imply that if you are e.g charging a customer the normal price then that’s not spending their money, but if you increase the price you’re now spending their money? Am I somehow reading this way out of context? because It doesn’t make any sense to me.
The thing he seems to be trying to establish here is that acting according to “social responsibility” means acting against your employers, customers, employee’s interests. I don’t think his argument so far makes sense.
Friedman says:
The stockholders or the customers or the employes could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct “social responsibility,” rather than serving as an agent of the stockholders or the customers or the employes, only if he spends the money in a different way than they would have spent it.
But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.
He already has the permission of the owners to spend their money. That is his job. They could disagree and dispute about how exactly he might do that, but an executive is expected to use great creativity in running the business. They’re the highest ranking employee, tasked with directing the company.
If it was decided by the board of directors that the executive was misusing funds that were entrusted to him then that more resembles embezzlement, which is a crime, than tax.
Taxes are funds collected by the government. They’d probably be called that if they weren’t taken involuntarily. Taxes aren’t just any funds that are the spent on someone else’s behalf, nor funds which are the result of embezzlement or theft or fraud etc. Friedman is using confusing terminology and I suspect it’s to make a bad argument.
This seems like an important point that Friedman is making that parts of the remainder of the essay are going to hinge on. But it seems confused. I don’t know if I have the skill to rescue what the rest of the essay is about from this confusion.
I think the point of his tax idea is this:
If they are to impose taxes and make expenditures to foster “social” objectives, then political machinery must be set up to guide the assessment of taxes and to determine through a political process the objectives to be served.
He thinks that if executives are going to behave instead as civil servants (as they apparently do when they spend money against their employers wishes, i.e tax them(!?)) that they should be selected by a political process like a general vote, not a market process (i.e, like being hired by the business owners).
He thinks spending the money of others without their permission is a privilege that should only be granted to people selected by a political process.
This is the basic reason why the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.
The article’s argument so far seems to me to attempt to explain why an executive acting according with ‘social responsibility’ means acting ‘against their employers wishes’ which apparently amounts to taxing them which means the executive is like a civil servant which means that they should’ve actually been selected by a political process, not a private one.
Then he says that accepting the doctrine of the social responsibility of business involves the acceptance of the socialist idea that business execs should be selected by political, and no private means.
Does my interpretation so far make sense? Am I way off?