Extremist Language Modified

In Business Week (15 March) we have a continuation of the “social responsibility” debate in which Professor Milton Friedman elaborates on his view that: “Social Responsibility” is “Fundamentally Subversive”. In doing so he sticks to his line by creating wriggle room to arrive at a more sensible – and proper Smithian position - that incorporates firms seeking to meet their own interests by adopting socially responsible stances on the spending of their revenues.

“Q: Your 1970 article on social responsibility is entitled "The Social Responsibility of Business Is to Increase Its Profits." Does that belief still apply today?
A: Yes, I still hold fully with that article. I haven't seen any reason to change or add anything to it.”

No ambiguity there! They should stick to making profits and nothing else. But the follow up question shows cracks in the iron stance of ‘Profits and nothing but profits’:

“Q: So nothing has changed in the operating environment that might make companies need to engage with the community more today than in the past?

A: It's covered in that article. I point out that a company that is playing a large part in a community may want, for its own purposes and profit, to maintain good relations with the community and to engage in community activity. In doing so, it would be pursuing its own profit. But, of course, it may believe that it will be better public relations if it labels its actions an act of social responsibility. I believe most of the claims of social responsibility are pure public relations.”

This is a moderation of his extremist position, which implied – nay, asserted – that spending on anything unassociated with maximizing its profits is ‘subversion’ (by which he means a kind of 'socialism').

It must be modified because the extremist position is untenable. It may be popular with certain types of businessmen and women, because ‘nothing but profits’ is a rallying cry against any and all interference by society on whatever they do (their laissez faire dogma) – and these people pay good money to hear this dogma repeated – but the fact is there are numerous interferences in business decisions based solely on restricting the self interests of business.

Friedman merely wants it to be labeled in whatever way businesses feel comfortable, as long as it is recognized by those who need to know that it serves their interests and is chosen freely by them, not by interfering ‘do-gooder’ third parties.

“How they label it -- whether they call is social engagement or social responsibility -- is not the real issue,” says Friedman, adding, as long as they do not spend “directly or indirectly any substantial fraction of its profits on such social activities”, because if they did they would be “competed out of existence”.

When asked about Coca Cola having to deal with local boycotts of its products in India, Friedman extends the use of deceptive language. He is asked: "Should Coke consider those activists as stakeholders who need to be addressed?" No, answers Friedman: “They should consider them as problems for running the business. They have to be counted, and it's perfectly sensible for Coca-Cola to spend money on trying to reduce the influence of such groups.” And, crucially, “It may be that the most efficient way to do that is by pretending that they are stakeholders.”

The deceptive method is plain. Use whatever names you need for the purposes of PR, these names might fool others but we [nudge, nudge, wink, wink] know the reality. It is nothing to do with a firm’s social responsibilities or for doing good (cue for Smith’s quote about firms trading for the public good); it is pure self-interest and profit maximizing behaviour.

With this approach, the hard line of nothing but profits is modified (as it should be). Smith’s position was already clear: “merchants and manufacturers” should not be left to do whatever they want in the pursuit of their self interest. That was too dangerous for society.

Left to themselves, they would create monopolies, anti-competitive devices and high prices in conspiracies against the public; hence, laws are needed to prevent these abuses. Left to themselves, they would pay their employees in company owned shops at high 'prices' fixed by the company: hence laws are needed to make them pay employees in cash. Smith’s remedies for the same kinds of problem in the 18th century led to a whole host of interventions in the freedom of decision making by profits-only businesses.

Liberty for Smith was always liberty under the laws of justice. And what constitutes the law depends on the temper of the age. As new abuses appear, legislation eventually catches up to prevent them. In the battle for the minds of the electorate and the attention of legislators, firms find it is in their interest to intervene actively to change public perceptions and modify legislative remedies.

Where they can and as often as they can, businesses repeats out of their contexts quotations from Adam Smith to oppose all kinds of decent laws to remedy abuses, from women and child labour in the 19th century, and laws for shorter working hours, holidays and injuries at work ever since.

Adam Smith was never a laissez faire ideaologue, Milton Friedman is becoming more 'Smithian'.

[All quotations from Business Week online, 15 March 2005: acknowledged as the Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved.]