Friedman on Social Responsibility

Among corporations today, there is growing acceptance for the business model demonstrated by WholeFoods and other civic-minded companies, who place their social contributions on the same plane as their earnings. John Mackey, founder and CEO of WholeFoods, believes in a holistic approach to business that creates “value for all of its constituencies.” In a debate on ReasonOnline, he maintains that the title of “stakeholder” applies to more than just the investors: there are customers, employees, suppliers, and the local community itself who each help define the nature and purpose of the business. By listening closely to the needs and desires of these interested parties, Mackey has built a multi-billion dollar company in less than 30 years. He believes that the happiness of his constituents can be pursued with “greater interest, passion, and empathy” than a business solely motivated by profit. His reasoning follows the line of thought of Adam Smith, one of the fathers of free-market economics, who explains in his book, The Theory of Moral Sentiments, that human nature is not tied simply to self-interest. It expands to include sympathy, empathy, friendship, love, and the desire for social approval. Mackey’s vision for “a new form of capitalism” pushes for corporate social responsibility as a means of repairing capitalism’s negative image created by “selfish, greedy, and uncaring” companies. He maintains that to do so would both fulfill our human nature and give us financial independence.


If Mackey is correct, he is putting a marketing face on a position that has many similarities to that taken by Milton Friedman. In 1962, he wrote the first edition of his book, Capitalism and Freedom, in an attempt to encourage a free society of men to take responsibility for themselves. His opinion of social responsibility on the part of a corporation is that:

“This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business—to use its 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” (p. 133).

In fact, Friedman employs another work of Adam Smith to describe the way an individual pursuing his own interest is “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it” (p. 421). Friedman minces no words in decrying the modern tendency to accept the shift in responsibility: “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible” (p. 133). The truth is that our nation was established with a clear system of checks and balances that allow redistribution decisions to be made by an elected body with clear guidelines. To do otherwise is an “inappropriate use” of corporate funds (p. 135). It depends on a powerless party of investors, whose only choice in the matter of where their social contributions go is to pull out of corporate America. Companies such as WholeFoods look at the entrepreneur as the decision-maker; since he took the majority of responsibility for founding a company, he should choose how the profits are divided. If he wants 5% to go to charities, so be it. Live with it or go elsewhere. If this is true, how does he decide what amount is proportional? By arbitrary guesswork and blanket approval, the way WholeFoods did? Friedman’s critique is that “the direction in which policy is now moving…is a step in the direction of creating a true divorce between ownership and control and of undermining the basic nature and character of our society. It is a step away from an individualistic society and toward the corporate state” (pp. 135-136). His view is that busi­nessmen advocating this strategy are “unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.”


His take on WholeFoods’ success is that the corporate mantra of responsibility to all constituencies is just a mask for holding profit as the bottom line. Any other tactic in such a competitive market would have put them out of business or forced them to sell. For instance, Friedman agrees that it may be in the best interests for a major employer in a small town to provide amenities for the townspeople or to improve their government, but that is because it will benefit the company long-term, not as a pure act of goodwill. It is one method a company can use to overcome the negative labels of “profiteering,” “soulless capitalism,” and “greedy management,” often leveled against corporate America. Friedman exposes this trick without condemning it: “If our institutions and the attitudes of the public make it in their self-interest to cloak their actions in this way, I cannot summon much indignation to denounce them.” He goes on to explain that WholeFoods’ core competencies are in enhancing the experience of grocery shopping, not in allocating part of their profits to society. Why couldn’t they build up equity by reinvesting profits in the company, or by paying it out as dividends to their stockholders to dispose of? A system of private property and free markets is a means of allowing people to freely cooperate in their activities to ensure that all of their resources are used in the most efficient and valuable way. It should not be handed off to a few corporate executives and entrepreneurs to distribute according to their limited interests and knowledge: namely, a monopoly.