Friedman doctrine

Milton Friedman takes a shareholder approach to social responsibility. This approach views shareholders as the economic engine of the organization and the only group to which the firm must be socially responsible. As such, the goal of the firm is to maximize profits and return a portion of those profits to shareholders as a reward for the risk they took in investing in the firm. He advocates that the shareholders can then decide for themselves what social initiatives to take part in rather than having their appointed executive, whom they appointed for business reasons, decide for them.

Friedman argued that a company should have no "social responsibility" to the public or society because its only concern is to increase profits for itself and for its shareholders and that the shareholders in their private capacity are the ones with the social responsibility. He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.^[1][2]

In the book, Friedman writes: "There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."^[3]

The idea of the stockholder theory, some argue, is inconsistent with the idea of corporate social responsibility at the cost of the stakeholder. For example, a company donating services or goods to help those hurt in a natural disaster, in some ways, may be considered not taking action in the best interest of the shareholder. Instead Friedman argues that shareholders should themselves decide how much and to whom they would like to make donations. Some may argue that goods provided to society in a time of need build further allegiance to a corporation and in theory, meet the stockholder theory's requirement to look in the best interest of the stockholder.

The Friedman doctrine is controversial. In left-wing social activist Naomi Klein's book The Shock Doctrine, she criticizes the theory, saying most citizens become impoverished while corporate elites gain enormous wealth.^[4]

The empirical data provided by the research and scholarship of Professor Rudy Rummel demonstrates the nations or communities with fair rules, fairly enforced upon all people regardless of political position, are superior in important human measures. ^[5] Rummel's work shows liberal democracy, which is necessary for the second condition of Friedman's stockholder theory "play by the rules", are far superior in terms of human development, GDP/capita, and lowering poverty. These conditions of fairness require democracy and private property according to Rummel.

References