Social Responsibility: Fact or Fiction?

What ought a person, corporation, or any other private entity do for society? Is there some kind of moral obligation to the general welfare even after paying taxes, a collectively decided and democratically enacted standard? And is social responsibility simply local in scope, or is it a global issue demanding global coordination? In determining this, we find out if “socially responsibility” is just rhetorical window-dressing, or, on the other hand, a firm conviction to what is true and right in practice.

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The article outlines two dominant philosophies regarding the answers to these questions and the arguments behind them. First, we will examine Milton Friedman’s popular argument against the rhetoric and practice of social responsibility for corporations. Following that, we will then look at Peter Singer’s  discussion on the topic at a more individualized level. Finally, we will attempt to find the best answer, and acknowledge it for its value.

The Social Responsibility of Business is to Increase Profits

Standing as philosophical backbone, Milton Friedman’s “The Social Responsibility of Business is to Increase Profits” outlines just what a corporation ought to do, why CEOs should not engage in philanthropy, and how such endeavors should be undertaken.

First, we must look at the merits behind the clarion call for social responsibility. Here, we find that people, and even businesses themselves, argue in favor of an increased role for business correcting social ills. As the argument runs, they must open their horizons to a higher level of social consciousness, and they must take and execute the responsibility of curbing inflation, reducing unemployment, or protecting the environment.

To Friedman, the merits behind this are scarce. Instead, those who argue that corporations or business somehow need to give back to the community really are doing nothing more than “preaching pure and unadulterated socialism.”

There are a number of justifications – most of which are very strong – that Friedman makes for the rejection of corporate social responsibility. First, those in charge of corporations are CEOs, but those CEOs do not make up the entire company. Instead, the shareholders and employees make up what is the embodiment of the corporation, not the lone executives on top. That said, there is first a problem of principle: the executive, acting through the guise of social responsibility, is actually spending the company's money. He is, more or less, levying taxes and deciding which subjectively “good” cause those taxes will go to.

Not only does this break the executive’s responsibility to the company’s shareholders and employees, but it is also the wrong medium to decide which social purposes money should go toward, according to Friedman. The levying of taxes and allocations of funds is primarily a government function, with a whole body of law and practice supporting it. When a businessman assumes that role, he effectively takes on the role of the government; however, in this he faces no accountability – he is “simultaneously the legislator, the executive, and jurist.”

Secondly, there is a problem of consequence. Should the executive be allowed to get away with spending other people’s money? Even if he should, how is an executive in the right position to gauge the proper response to inflation, unemployment, or environmental malpractice? He is a businessperson, not civil servant.

Working through this, says Friedman, we come to understand the “great virtue of private competitive enterprise.” The aforementioned questions have no good answers because the CEO, just like any businessperson, should be responsible simply for their own actions, their own self-interest, and the interests of the people who have hired him.

Essentially, to argue that there is some other cause the company needs to commit itself to is to argue in favor of a cause that the public, who decide these things through democratic procedures, have rejected. Simply put, the ‘responsibility’ suggested on the part of corporations is really just a failure to persuade the majority of the activists fellow citizens.

In the end, Friedman argues that this language of social responsibility by executives actually hurts the foundations of a free society, and most likely is nothing more than pandering in popular rhetoric. As a result, it paints a picture of “wicked” and “immoral” market forces that need to be corrected. It forces the CEO to coerce shareholders and employees to go along with private purposes. Business is not the medium for social interest, and by it providing jobs, equity, and investment in society, it is fulfilling its purpose.

That said, business should focus on one thing and one thing only: make profit within the rules of the games, without the use of deception or fraud.

What Should a Billionaire Give and What Should You?

One of the most distressing realities of the modern world is that millions of people die each year from easily avoidable causes. While a billion of us live at a previously unknown level of affluence, another billion of us suffer from extreme poverty, with nothing more than the value of one US dollar a day. Counting just children, 10 million die a year – that’s 30,000 a day – from avoidable, poverty related causes.

So, while a business may exist for some specific purpose – buying, selling, or trading – is it ‘right’  for us to focus purely on our own interests with total disregard for the unfathomable tragedies that millions go through each day?

Peter Singer provides an interesting analogy: imagine walking by a shallow pond and seeing a child who is in danger of drowning. While we did nothing to cause the child to be in the pond, most people would say that, if we can save that child with hardly any inconvenience, we have the obligation to do so. Others may say that, despite the difficulty, we must help the child. This is the idea behind social responsibility, and it can be applied to ethical business practice too.

Singer further asserts the analogy lacks one crucial element – we are not an innocent bystander. For example, corporations of the United States have long disregarded the governments of developing countries, and instead sought only their resources. Because of this, rebellion and civil war is encouraged – whoever controls the government, makes the money. In that sense, corporations knowingly buy stolen goods, but instead of being criminals, they are seen as legal owners of the purchased commodity.

The effect of this is bloodshed, poverty, corruption, and avoidable deaths. And while the wealth is supposed to “trickle down”, 10 percent of the world’s population has yet to see the benefits. They have nothing to sell that we want, they have no markets to pursue, and they have no money to compete with larger business.

Singer, here, points to private philanthropy instead of state support. As he contends, “Unconstrained by diplomatic considerations or the desire to swing votes at the United Nations, private donors can more easily avoid dealing with corrupt or wasteful governments. They can go directly into the field, working with local villages and grass-roots organizations.”

He also points out the ease many of the rich and super rich would have at defeating poverty. The UN’s Millennium Development Goals lay out some of the hopes to be realized by 2015 – for example, reduce by half the proportion of people who suffer from hunger  and reducing by three-quarters the rate of maternal mortality – and, as Jeffery Sachs calculates, the cost of completing much of these goals was $121 billion in 2006, and will be $189 billion by 2015.

As Singer details, the United States alone could defeat many poverty related deaths and hardships if the rich and super rich were to donate a larger portion of their incomes. Interestingly, the top 14,400 people (that’s our top 0.01 percent) in the United States could tackle the UN’s proposal within two years, while retaining half their earnings. However, that burden should not fall on such a small minority. Instead, if the entire top 10 percent of the United States, along with the top 10 percent of every other nation, were to privately combat poverty, it would be possible – in fact, easy – to reach the UN’s goals, which would then look modest.

What is really comes down to is whether people will begin to see the degrading conditions some people face as the scenario where a child drowns in a puddle. Sure, we may scuff up our shoes, and may even have to buy a new suit, but if it means saving millions of life and better the conditions of billions of others, isn’t it worth it?

A Rejoinder

Both authors, Milton Friedman and Peter Singer, bring together compelling arguments regarding social responsibility and its merits as a project worth undertaking. However, through the analysis, Singer’s argument runs most true – not just because it is morally attractive, but also because of the sheer simplicity of the scheme. Truly, without the worry of excess bureaucracy, private individuals could easily remedy much of the world’s illness.

Nevertheless, Freidman makes strong points on the real responsibilities of executives. Their responsibility is primarily to their corporation; however, that is not to say that those corporations can’t have a mission of social responsibility themselves. If business adopts the optimism and direction Singer presents for private individuals, the power to enact change would be increased with amazing multiplicity. Truly, whole markets could be established around social responsibility, and some truly have – look at CommonStudio or Formalitees, for example.Pin It

In conclusion, it is important to remember that social responsibility does exist. It exists in the form of volunteerism, civic engagement, and community awareness. The world provides the platform for both wealthy people and prosperous individuals, and that is not something that should be taken for granted.

Creating a better world means more than simply making profit – it means solving real problems that real people face. If anything, we as consumers should demand social responsibility, both from business and from ourselves. If we do, we can combat poverty, better our own lives, and save the lives of millions of others.

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