Sunday, May 27, 2007

What Social Responsibility?

Tibor R. Machan

Over the last several decades the field of business ethics has become very popular in colleges and universities, including business schools around the world. Actually, all professional ethics courses have gained entry into the curriculum—medical, legal, engineering, and the other ethics. (Oddly, though, the ethics of education and scholarship have not joined this trend!)

In the field of business ethics the focus has tended to be on what has come to be called the Social Responsibility of Corporations (SRC), as if it were a foregone conclusion that what corporations ought to do is to benefit society. One explanation of this focus is that in the field of economics, which is regarded a social science, it is widely accepted that what corporate managers will do—not so much what they ought to do—is to improve the company’s bottom line.

Back in 1961 the late Milton Friedman did write an article for The New York Times Magazine, widely republished, insisting that the moral responsibility of corporate managers is to strive to make the company profitable. Up until that time it was simply accepted as given that this is what corporate mangers would be doing—this follows from the general assumption in economics that in the market place everyone embarks upon the maximization of utilities, which is pretty much the same thing as trying to make a profit. But Friedman change this somewhat by claiming that this isn’t only what corporate managers do but it is also what they are morally obliged to do. Why? Because that is what they promised to do to the company’s shareholders and investors.

In response to Friedman a great many people who came from the field of philosophical ethics began to write extensively about business ethics and insisted that what corporate managers ought to do is to mange companies so they would benefit stakeholders. Which is to say, the moral responsibility of corporate managers is not to improve the bottom line but to help all those who could benefit from what the company is doing, all those who have a stake in the company’s fortunes. This is what became the SRC movement. And today there are journals, magazines, conferences, and many books that advance the idea that the moral responsibility of corporate managers is to benefit society, not the owners—shareholders, investors, stockholders—of the company.

This line of thinking is a not altogether subtle attack on the nature of capitalist economy. In a capitalist system, companies are owned by those who buy shares and invest in them and their purpose is to succeed in the market place, measured, naturally, by how profitable they are, how good a return they bring in from their owners’ investment. The details depend on the kind of firm in question of course but this is the general understanding of capitalist business.

From the beginning the idea of capitalism has been criticized by many people because it treated profit making as a good thing. Going into the market place with the intention of bringing home a good return on one’s investment just appeared to be too greedy, too avaricious. Never mind that, in fact, once one makes a good return on one’s investment, it is an open question what one will do with the wealth one has accumulated. So the practical impact of rejecting the capitalist model is not so much a rejection of wealth but a rejection of the private allocation of wealth. Critics of capitalist business, in other words, do not want private individuals to be in charge of spending the profits made in business. They would like the public—that is, government—to decide what happens to the wealth.

This used to be called socialism but now that the grand experiment in that political economic system has had innumerable setbacks across the globe, the term “socialism” has been dropped. Instead we have SRC or stakeholder theory. If some such idea can catch on, it will have the same impact that socialism does—undermine the rights of individuals to allocate their wealth and place this power into the hands of politicians and bureaucrats. All this without having to fess up to favoring socialism.

What needs to be debated in the field of business ethics is whether ownership confers the rightful power to allocate resources. There should be no question-begging presumption that companies must serve society—after all, if they do their business well, they do that anyway while they are seeking to make profits. How profits should be used should be left to those who earned them.

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