Business Ethics

Milton Friedman is a famous economist of the 20th century. In this paper, he argues against a business being concerned about social issues, except that which the law forbids. Here is a quote from the article:

There is one and only one social responsibility of business–to use it 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.

He also states elsewhere that a business needs to follow the law as well. So we can define his principle as follows:

MF: A business does no wrong in maximizing its profits when it is not breaking the law and engages in open and free competition without deception or fraud.

Why believe this is true? Friedman states that a manager's sole obligation is to its stakeholders. If the manager decides to use money from selling hamburgers to help save the rain forest, he is not maximizing profits for the shareholders which presumably is what they want. If they wanted money going to the rain forest, that would be fine too but if they want him to maximize profit, then he must do it as long as he does not break the law and engages in open and free competition.

In advanced societies, one may be tempted to think the law is good enough to keep businesses out of trouble. However, imagine a society where a "Hitman" company would not be illegal. A business could accept payment in return for killing someone. In such a society, a business could follow the Milton Friedman principle yet still be unethical.

Everyone would agree such a society should make a law against corporations being allowed to kill people. However, if a corporation has no social obligations outside of those mandated by law and free trade, then how could one say this? In this society, the act is not illegal, deceptive or fraudulent. The foundation on which this principle is built falls apart when considering this.

The only justification for laws limiting what a business can and cannot do comes from the ethical obligations of a business. Making a law stating businesses cannot kill people is only justified if businesses already have an ethical obligation to not kill people.

Since there are societies where the law can be seriously inadequate, one cannot simply follow the law to avoid any wrong. One must act ethically. If the Milton Friedman principle is to be justified, it must be done by appealing to the social responsibility of businesses. As has been shown, there are more responsibilities than following the law and avoiding deception (like not killing people). Therefore, the Milton Friedman principle fails.

See this paper for another negative assessment of Friedman's paper. See this post for a similar argument against the claim "One should not legislate morality."