Freeman

ARTICLE

The Social Responsibility of Business

NOVEMBER 01, 1978 by BRIAN SUMMERS

Mr. Summers is a member of the staff of the Foundation for Economic Education.

The current debate over the social responsibility of business can perhaps be clarified by focusing on what society and business are—and what they are not.

Society is a collective concept designating a group of people. It is an abstraction, not an entity. Society has no body, no soul, no conscience, and no responsibilities. Only individuals have these attributes.

Business is also an abstraction, not a separate being. A business has no goals; businessmen have goals. A business has no responsibilities; businessmen have responsibilities. Instead of speaking of the "social responsibility of business," it is more accurate to speak of the "personal responsibilities of businessmen."

What, then, are the personal responsibilities of businessmen? It is almost presumptuous to even ask such a question, since no one has more than a vague idea of another person’s responsibilities. However, we can make a few general comments pertaining to the businessman’s status as an owner or as an employee.

We can say almost nothing about the responsibilities of an individual proprietor, except that he should pay his bills, live in a civilized manner, and obey the rules of common decency. Beyond that, what he does with his business is just that—his business, not ours.

It is somewhat different with corporate executives. Unlike a proprietor, an executive is not working with his own investment; he is working with the investments of the corporation’s stockholders. Thus, he is responsible to the stockholders. If the stockholders tell him to use corporate funds to support education, hire the handicapped, establish youth centers, combat drug abuse, and aid community development, it is his responsibility to do so.

But if the stockholders tell him only to earn profits, that is his sole corporate responsibility. However, this does not completely preclude corporate involvement in community affairs. Company sponsored community programs can improve worker morale, engender good will, and thus aid the executive in fulfilling his responsibility to the profit seeking stockholders.

The executive is responsible for his stockholders’ investments, both over the short term and the long term. Thus, he must ask if, over the long run, he is endangering their capital investments by sponsoring programs inimical to capitalism He must ask whether, in the long run, it will pay to advertise in anti business media. And he must consider whether the corporation should support institutions that are working to preserve what is left of the capitalist system.

Such a program of limited corporate responsibility will fail to satisfy many critics of capitalism. Perhaps this is because they fail to understand the operation of the free market profit and loss system.

In a free market, profit seeking performs a vital social function. Businessmen cannot arbitrarily set asking prices; competition leaves them little choice but to charge whatever the market will bear. Thus, the prime source of profits is the efficient use of scarce factors of production—conservation. The businessman earns profits by using as little as possible to provide consumers with as much as possible. The more a businessman cuts his costs of production, the more factors of production he leaves for other people to use. And the more he strives for profits, the more he must ignore his prejudices and deal with people solely on the basis of what they can contribute to the business.

The profit seeking businessman tries to give consumers the most for their money while making the most efficient possible use of scarce resources. What is irresponsible about that?

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November 1978

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