1. What criticisms does Friedman raise against business managers who engage in “socially responsible” practices? Explain. Friedman criticizes business managers who engage in socially responsible behavior by using the argument that there is a different set of criteria for social responsible behavior of a person, who happens to be a corporate executive (businessman) versus that same person acting as an individual in a free-society.
A business manager’s main responsibility is to maximize the profit of the corporation. When that person combines those roles and directs a corporation to take on a social responsible cause, because it would either increase cost or decrease revenue, it would be equivalent to a tax on the customers, shareholders and employees without their consent and in some cases, knowledge.
Friedman further argues that a business manager who engages in socially responsible activities is in effect acting as a socialistic governmental agent in that a socialist government acts in the interest of the people it is set up to govern, while not fostering a free market or cultivating capitalism. A corporate executive would count on capitalism to ensure profits are maximized. In short, a business manager cannot successfully have a split focus on the goals of the corporation. If he is going to maximize profits, he cannot actively partake in socially responsible activities.
Friedman says the political principle that underlies the market mechanism is unanimity (agreement) and the principle that underlies the political mechanism is conformity. Explain. The political principal that underlies the market mechanism of unanimity is in a sense opposite to the principle that underlies the political mechanism. Unanimity calls for voluntary cooperation that does not require social values beyond what the group agrees upon. In conformity, people may disagree, but must still cooperate with the decision.
As it would be impossible to get all of the people to agree all of the time, utilizing unanimity would be impractical, which would automatically assume that the political mechanism would have a greater chance of utilization than the market mechanism. 2. What criticism(s) does Christopher Stone raise against a view like Friedman’s? Explain. The criticism that Stone raises is that namely corporations are not people and that there are important differences between human beings and artificial beings (corporations).
Stone would further argue that the corporation did not make a direct agreement with the shareholder that the sole responsibility of the corporation is to maximize profit since most shareholders are not the original purchasers of the outstanding shares. According to Stone, a shareholder would have a certain expectation of how the shares they purchase will perform at the time of purchase and that although the shareholder has that belief, it is not an implicit contract to perform in that manner.
The projected performance may not even include the maximization of profit in the stocks underlying expectation. Stone’s position allows for a split focus for a business manager in that although the corporation should be lead in a way that allows for profitability, the business manager should not be prohibited to engage in socially responsible activities or causes. How might Friedman respond? Friedman would argue that a corporation’s business manager has a duty to the shareholders to maximize profits, not to be socially responsible and that these are independent activities.
Although the shares more likely than not were purchased from a previous shareholder as opposed to the corporation, for Friedman, there would still be an inherent expectation that the leader of a corporation act in a way that maximizes profits, regardless of who the promise is originally made to. The business manager who engages in socially responsible activities is acting on a personal nature and these activities could be at the expense of corporate profit, which in Friedman’s view is a tax that the shareholders may not be aware of and would not approve.