Download Critics of Friedman

Critics of Friedman
Why Shouldn’t Corporations Be
Socially Responsible?
by
Christopher D. Stone
Friedman’s 3rd Supporting Point.
• Corporate managers have a responsibility to
the people who own the equity of the
corporation, namely, make the most profit
possible.
• Friedman says the reason is:
– “…the manager is the agent of the individuals who
own the corporation.” (p. 242 of our text)
What is being an agent?
• Stone says it is working for the best interests of
the person, group, or enterprise you are the
agent for.
• An example:
– A sports agent tries to get what the client wants –
some particular combination of money, length of
contract, trade vs. no-trade, etc.
• In other words, agents have to know what their
clients want and then have to work to get it.
Stone says there is no way corporate
executives are this kind of agent.
• There is no direct agency connection between
the typical shareholder and management
– It simply is not true that shareholders in major
corporations select their directors and thereby
establish a client-agent connection.
• Corporate executives do absolutely nothing by
way of finding out what shareholders want
Social Responsibility and
Economic Efficiency
by
Kenneth J. Arrow
What is the argument for saying that
companies ought to maximize profit
above all else.
• Companies pay what the market determines is a
fair price for the materials and labor needed for
production of goods and services.
• Customers pay what the goods and services are
worth to them.
• Profit therefore represents the net contribution
the company makes to the social good.
Arrow says there are lots of problems
with this argument.
• For example, the problem of externalities.
– This makes the maximization of profits socially inefficient.
– But the main point of capitalist theory is that the free
operation of the market is guaranteed to be optimally
socially efficient.
• What to do about externalities?
–
–
–
–
Impose regulations.
Internalize the costs (e.g., taxes, liability judgments).
Corporate/professional ethical codes.
But ALL of these add social responsibility to mere profit
considerations.