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Among philosophers writing in business ethics, something of a consensus has emerged in the past ten years regarding the social responsibility of business. Although these philosophers were critical of the classical view of Milton Friedman (the purpose of the corporation is to make profits for stockholders), the consensus view had much in common with Friedman, so much so that I referred to my own statement of this position as the neoclassical view of corporate responsibility (Bowie 1982). The heart of the neoclassical view was that the corporation was to make a profit while avoiding inflicting harm. In other formulations the corporation was to make a profit while (1) honoring the moral minimum or (2) respecting individual rights and justice. Tom Donaldson arrived at a similar neoclassical description of the purpose of the corporation by arguing that such a view is derived from the social contract that business has with society (1989).
The stakeholder theory made popular by Ed Freeman does seem to represent a major advance over the classical view (Freeman 1984; Evan and Freeman 1988). It might seem inappropriate to refer to the stakeholder position as neoclassical. Rather than argue that the job of the manager was to maximize profits for stockholders, Freeman argued that the manager's task was to protect and promote the rights of the various corporate stakeholders. Stakeholders were defined by Freeman as members of groups whose existence was necessary for the survival of the firm-stockholders, employees, customers, suppliers, the local community, and managers themselves.
Despite the vast increase in scope of managerial obligations, a Friedmanite might try to bring stakeholder theory under his or her umbrella. of course, the managers must worry about the rights and interests of the other corporate stakeholders. If you don't look after them, these other stakeholders will not be as productive and profits will fall. A good manager is concerned with all stakeholders while increasing profits for stockholders. In the Friedmanite view, the stakeholder theorist does not give us an alternative theory of social responsibility; rather, he or she reminds us how an enlightened Friedmanite, as opposed to an unenlightened one, is supposed to manage. The unenlightened Friedmanite exploits stakeholders to increase profits. Although that strategy might succeed in the short run, the morale and hence the productivity of the other stakeholders plummets, and as a result long-run profits fall. To protect long-run profits, the enlightened manager is concerned with the health, safety, and family needs (day care) of employees, a no-question-asked return policy, stable long-term relations with suppliers, and civic activities in the local community. In this way, long-run profitability is protected or even enhanced. In the classical view, the debate between Milton Friedman and Ed Freeman is not a debate about corporate ends, but rather about corporate means to that end.
Moreover, some classicists argue, the neoclassical concern with avoiding harm or honoring the moral minimum does not add anything to Friedman's theory. In Capitalism and Freedom (1962) he argues that the manager must obey the law and moral custom. The quotation goes like this:
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
If there really is a social contract that requires business to honor a moral minimum, then a business manager on the Friedmanite model is dutybound to obey it. To the extent that the moral minimum involves duties to not cause avoidable harm, or to honor individual stakeholder rights, or to adhere to the ordinary canons of justice, then the Friedmanite manager has these duties as well. Even if Friedman didn't emphasize the manager's duties to law and common morality, the existence of the duties are consistent with Friedman's position.
Unfortunately, the compatibility of the classical Friedmanite position with obedience to law and morality is undercut by some of Friedman's most well-known followers. The late Albert Carr (1968) substituted the morality of poker for ordinary morality. Indeed he argued that ordinary morality was inappropriate in business:
Poker's own brand of ethics is different
from the ethical ideals of civilized human
relationships. The game calls for distrust
of the other fellow. It ignores the claim
of friendship. Cunning deception and
concealment of one's strength and intentions,
not kindness and openheartedness,
are vital in poker. No one thinks any the
worse of poker on that account. And no
one should think the worse of the game
of business because its standards of right
and wrong differ from the prevailing
traditions of morality in our society....
Even more pervasive has been the influence of former Harvard Business Review editor Theodore Levitt. He defends various deceptive practices in advertising, which seem to be in violation of ordinary morality, as something consumers really like after all (1970):
Rather than deny that distortion and exaggeration
exist in advertising, in this
article I shall argue that embellishment
and distortion are among advertising's
legitimate and socially desirable purpose;
and that illegitimacy in advertising consists
only of falsification with larcenous
intent.... But the consumer suffers from
an old dilemma. He wants "truth," but he
also wants and needs the alleviating
imagery and tantalizing promise of the
advertiser and designer.
The writings of these authors give Friedman's theory that "anything for profit" ring that its critics hear. But Friedman need not be interpreted in that way. Many profit-oriented business people do not espouse that interpretation; neither do some academic Friedmanites. What needs to be done is for the Friedmanite school to declare Carr and Levitt heretics and excommunicate them from the faith. The Friedmanites also need to include as part of their canon some statement of the moral minimum idea so the phrase "rules of the game" in Capitalism and Freedom has some flesh and bone.
On one important point the neoclassical theorists and the Friedmanites are already in explicit agreement. Both positions argue that it is not the purpose of business to do good. The neoclassicists agree with Levitt that providing for the general welfare is the responsibility of government. A business is not a charitable organization.
Business will have a much …