In light of the fiftieth anniversary of Milton Friedman’s famous statement that the “social responsibility of business it to increase its profits,” Dustin Austin approaches the question of social responsibility from a systems perspective, highlighting the perverse feedback loops created by Friedman’s line of thinking:
In a political system where corporations can influence policymaking – via lobbying, financial support for candidates, or other means – Friedman’s contention justifies corporations investing to shape policies in their interest. For, if the expected return on expenditures committed to influencing regulations is greater than a company’s weighted average cost of capital, and if lobbying against regulations is permitted under what Friedman terms the ‘rules of the game’, then the notion that companies have a social responsibility to maximize profits equates to firms having a social responsibility to resist any regulation that appears costly. Not all companies may choose to act this way, but the key is that companies have a profit incentive to do so and so enough companies will. And, over a long enough period, this will affect the behaviour of the whole system.
