Businesses as Civic Heroes, Not Selfish Villains: Milton Friedman Was Wrong – Part III

As I open Part III of the series, I once again repeat that I wish to do nothing but advance free markets, but am compelled to do so with the parallel advancement of virtue. Second, I wish to condemn any and all things that condone a communist/socialist ideology, as Friedman suggests in his article, is the motive for those who speak of any “social responsibility” in and from business.

In his famous article entitled, The Social Responsibility of Business Is to Increase Its Profits, Friedman differentiates between a corporation and an individual proprietor. His insight into the distinct difference between the two hints at the true purpose of business beyond what his dominant ideology  might indicate; that the purpose of business is to maximize shareholder wealth. He suggests that an individual proprietor can exercise his or her “social responsibility,” reducing financial returns to his or her enterprise, spending his or her own money, not someone else’s. He follows, “If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any objection to his doing so.” Yet Friedman objects unequivocally to a manager, the agent of corporate owners, doing the same. The difference between these two business entities is that of agency and a perspective of man as economic and political man alone. This points to a core problem with our U.S. corporations. Let’s explore this further.

Corporations are separate legal entities, registered in states, formed for the purpose of conducting any number of activities, both for profit and not-for-profit, spelled out in their Articles of Incorporation and governed by their Corporate Bylaws. Friedman writes that the general for-profit corporate purpose is to make as much money as possible while conforming to the basic rules of society. Begging for its own series, I’ll avert any desire to address the degradation of the basic rules of society other than to state that conforming to these rules today is an ever-declining moral low bar.

For profit corporations issue shares of stock or “interests” to raise capital for their start-up or burgeoning enterprises. The owners buying the stock or interests (in the case of an LLC) are likely seeking a return for their investment placed at risk within the enterprise, and rightly so. But is this all they are seeking? Should this be all that they are seeking? These are very important questions.

Friedman looks at the corporate “person” or legal entity as an artificial person and in this sense, that it may have artificial responsibilities. He adds that business cannot be said to have responsibilities, even in this vague sense. Only people can have responsibilities. Friedman is right here, and I must add that people also behave, something that organizations don’t do. A business corporation is nothing but an assembly of people charged with executing the work of the entity or corporation. If that pursuit is strictly the harvest of profit for the benefit of the shareholders as suggested in his article, notwithstanding the prior parts of this series where optimizing cooperation, caring for people, and pursuing justice were more fundamental to the purpose of business than profit, then that must be the work for which the corporation was formed. In this case, people and other stakeholders are simply means to the end of profit.

If an individual proprietor can have a heart and sensitivity for others and for justice, leveraging the resources of his or her business enterprise for the benefit of all stakeholders as decreed by the Business Roundtable in Part II of this series, then why can’t a corporation pursue its greater purpose of caring for its people, its suppliers, and its community and in doing so, creating more value, spawning higher returns and more opportunities for all? The core problem highlighted here is in the mind and heart of the owner/investor. Timothy Cardinal Dolan shares, “The Church has long taught that the value of any economic system rests on the personal virtue of the individuals who take part in it.” A corporation cannot be judged apart from the mind and heart of those owning and leading it. In this sense, these individual responsibilities are the responsibilities of the corporation. Friedman’s logic is flawed here.

This core problem points to the shameless invitation for shareholders, business owners, and business leaders to practice virtue in business. I believe there exists a governing dynamic that halts the U.S. slow boil toward socialism (see Part II) and protects life, liberty, and the pursuit of happiness for all.

It is this: the level of government intervention is inversely proportional to the level of virtue practiced in business. More virtue practiced equals less government intervention, and vice versa. Furthermore, when business leader and owner virtues are perfected by the Christian theological virtues of faith, hope, and love, not only is justice delivered from its rightful source, but God is revealed through businesspeople living according to truth.

This is not socialism or collectivism. This is prudence. Faith and reason meet here.

As Hollywood does, movies and media tend to reflect the trajectory of society. Prior to 1965, movies projected business leaders two-to-one as heroes versus villains. By 1975, reflecting the false Friedman doctrine and related cultural change, business leaders were cast in movies and the media two-to-one as villains. Unfortunately, this perception persists. Christian and Catholic business leaders must reclaim the moral high ground and ascend to their roles as heroes of commerce, purveyors of economic opportunity for all, practitioners of justice, and architects of liberty. The future of the United States of America and our democracy depend on it.

See the entire series here.

Photo: Pxhere

Dave Geenens

Dave Geenens

Dave Geenens is an Associate Professor and is the Assistant Director of the Thompson Center for Integrity in Finance and Economics in the School of Business at Benedictine College in Atchison, Kansas. His over 30-years of executive experience in addition to his Bachelor’s Degree, MBA, and CPA license (inactive) add a realism to his research and teaching. Dave has written four books and speaks often on the integration of faith and work and the critical role Christian virtue plays in protecting free markets and liberty. Since Dave writes on multiple topics including investing and philanthropy, nothing in this article is to be construed as investment advice and any investment of any kind includes a risk of loss.