The Case against Social Responsibility

The idea of business undertaking social responsibility is anathema to most of the classical economists who see business essentially as an economic organization meant primarily to maximize profits. Their argument run as follows:

Violation of Rule of Profit Maximization: According to the doctrine of profit maximization first propounded by Adam Smith in 1776 a businessman implicitly discharges his social responsibility when in an effort to maximize profits, he improves efficiency and reduces cost and attends strictly to business interests leaving other activities to other institutions.

Economically Irrational: Assumption of social responsibilities by business either voluntarily or by compulsion is economically unjustified and irrational because the principles of social responsibilities are guided more by social laws than by market or price mechanism. The costs involved in social responsibility could up prices of commodities as the burden is invariably passed on to consumers by business. The scarce financial resources of business must not be frittered and must be used rationally to improve efficiency and to produce cheaper and better goods needed by society.

Business lacks Social Skills: To solve social problems one needs some basic social skills and must possess necessary insight expertise or training and sensitivity. Businessmen lack most or all of these skills or qualities. Social problems are therefore best left to specialized agencies and businessmen should not be saddled with such obviously incompatible or irreconcilable tasks which may jeopardize business interest.

Suspicions of Society: With vast financial and other productive resources at its command, business can wield enormous power which could be used to subtly influence the social activities of various institutions to suit its own business interests. As such, the involvement of business in social, religious or educational institutions will be viewed with suspicion by people in other walks of life.

Lack of Criteria or Yard stick:

The demands of society on business are many and varied. There are no fixed criteria or norm or an acceptable yardstick to lay down ground rules from business to undertake social responsibilities. In the absence of such a mutually acceptable criteria or yardstick for determining business social responsibility the intrusion of business into other activities will invite unnecessary criticism and open up a pandora’s box. By diverting attention from its main purpose, business will only be doing disservice to itself and to society.

Arguments of Milton Friedman:

A competitive Business cannot be Genuinely Selfless:

Management cannot commit funds irrationally just to satisfy public expectations in areas where there are no direct or indirect benefits. If an enterprise spends lavishly on social action programs and its competitors do not emulate the example, it will significantly increase the costs of the socially responsible institution and hence, its prices will be higher and it will certainly lose business. Managers as employees of share holders have no discretion to indulge in this type of extravagance. According to Milton Friedman, the Noble Laureate, social responsibility is theft, managers are trying to distribute what is not theirs, strictly speaking. It is an illegitimate exercise of power.

The corporation is basically an Economic Institution:

It is not a charitable agency, a community service institution. Outlays for general social responsibility activities will distort the allocation of scarce funds available to a firm and will turn the firm into a vast wasteland in the long run. Actually social responsibility should be the function of government, civic organizations and other social institutions. Social problems can be successfully solved only by those institutions best fitted to deal with them. In the case of a firm it has neither the necessary freedom nor the appropriate standards of selection for pursuing many of the socially desirable activities blessed by society. Social responsibility is clearly anti business rhetoric smuggled into the economic scene just to mollify an angry public.

Managers are not trained to pursue social Goals:

They do not have an appropriate apparatus to destroy the public brands and concentrate on public goods. They are not competent to orchestrate the non economic objectives successfully and decide the issue of turning corporate bad guys into corporate good guys applying their value judgments. If these pious intentions were turned down by the society they may find themselves suddenly in a no win position. Since there is considerable disagreement amongst the public as to what should be done corporate managers will be criticized no matter what is attempted.

Source: Strategic Planning

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