Blogs » J.Q. Tomanek of Victoria » Business of business

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Over at HBR, I ran across this nifty blog post that quotes Milton Friedman, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” It sounds, and I may be wrong, that Fox tried to play the “Wow, listen to him, how cold for a business to be into profits.”

And that would definitely be case if it were true. I have yet to read Friedman, I am sure I will get to him soon, but I would be willing to bet that he wouldn’t think “profit-only” is the sole social responsibility of a business. Why would I conclude this? Well, the second half of the above quote is “…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.” Fox does use the whole quote but his article is based just on the first half. He offers what logicians call a red-herring.

But business must be in the business of profits because that is the best way for a company to know what others consider valuable and desired. Without the pricing system, a business begins to produce goods and services blindly or it offers them either too expensively or too cheaply. If Friedman really thought the sole purpose of business was profit-only then deception and fraud would be legitimate in the free market. With his mention of these two vices, I suppose he would agree that there can be other vices as well. Consider a company that treats women as non-equals to men. Granted this is an equal rights issue, but I am sure it goes back to deception in some form. I doubt the boss of this company would tell the woman in an interview, “By the way, we don’t promote women based on skill and ability. In fact, we discriminate based on sex.” Within most free market practices I know, a labor contract must be entered freely which presupposes knowledge of expectations from both the employer and employee. I doubt many women would even consider a position in that company. This would affect the profits as the better half of the workforce is rejected.

The article goes on about service. And at this point the red-herring is shot down like a dove on opening day because cold unbridled profit motive cannot compete with the gentle humanizing of service to others. So it must be one or the other right? It is either unbridled profit-only or service to others. There is not another option. It is either evolutionism or creationism; unbridled capitalism or socialism; geocentricity or heliocentricity; faith or reason; good works or faith; license or strict observance; big government or big business; angelism or demonism; flesh or spirit.

However, the fact is that business cannot do without either one. It is both, not either/or. A business is an organization that develops goods and services for others. If either one of these are neglected the business will eventually fail. The failure can be quite miserable for many as well. Think of Enron that sought profit-at-any-cost. Also think of a company that solely gives away it products. Neither survive. Business cannot be separated from morals because it very existence is to provide something for others but it cannot know what that something is without reading profits. It brings to mind the Communist problem when Russia had produced way too many size 13 shoes for the people. The people needed shoes and the nation did a study to find out what size it needed. Without the pricing system it was blind and couldn’t figure out what size was demanded. So it lined up the military and found size 13 was very popular. In the end, the people were left with a surplus of 13s.

Did I interpret Fox correctly? What are your thoughts?