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“The Social Responsibility of Business is to Increase its Profits”

December 5, 2011

Milton Friedman’s article of the same name outlines some interesting arguments in opposition of “socially responsible” businesses. Whether Friedman would include social enterprises in his criticism, seems debatable. While he challenges the ability of a business to make profit when it is syphoning some of its earnings into societal goals as well as the ability of an executive who orders this distribution of funds (as opposed to satisfying the desires of the stake holders) to maintain his position, he appears to make exceptions for businesses in which the stake holders have alternative goals to profit. For example, schools and hospitals have goals alternative to profit.

Perhaps the clearest of criticisms, though, comes from Adam Smith:
“Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, 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. I have never known much good done by those who affected to trade for the public good.”

Still, TROSA’s continuous growth and celebrated success suggest social entrepreneurship can at least overcome any shortcomings potential opponents may propose.

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