WilsonDebatePaper1

Adrienne Wilson  Sustainability Problems   Debate Paper #1 //Is increasing profits the only social responsibility of business? // Social responsibility is the ethical concept that an organization or an individual has an obligation to benefit or “give back” to society. That means that for corporations, in addition to their responsibilities to earn a fair return for investors and comply with the law, will also incorporate moral, ethical, and philanthropic responsibilities. The history of social responsibility can be traced back to at least the 1800s when Yorkshire wool baron Titus Salt created Saltaire, a model community outside Bradford for his staff, where each home has running water. Later, in 1911, David Lloyd George introduced the National Insurance Act. It requires businesses to make contributions to unemployment and sickness insurance for all staff. In addition, Ralph Nader founded the Centre for Responsible Law in the US to expose corporate abuses and lack of enforced regulation in 1969.

Some people however, like Milton Friedman, Nobel Prize laureate, do not agree with this additional imposed duty and think that businesses are only responsible for maximizing profit for the business owners (namely, investors). However, as economics is defined as the allocation and dispersal of scarce resources, it is argued from the other side that it is actually within corporations’ best interests to perform social responsibility. In this way it is argued that businesses should not only pay attention to their investors and owners, but also to take into account the lives and needs of its consumers, its employees, the environment, and the people indirectly affected by the corporation’s business practices (via location, resources, suppliers, proximity, etc) – thereby being socially responsible.

The debate of whether corporations should be socially responsible is in itself a multi-layered concern as sub-issues must be addressed when pressed for an absolute solution. Such sub-components include the extent to which governments should have a role in the situation, liability and product responsibility, and the how social contributions from corporations should be made.

In Milton Friedman’s "The Social Responsibility of Business is to Increase its Profits", Friedman supports the affirmative position and argues that executive’s should respond to only his or her shareholders and their interests since, after all, the executive is employed by them to do as they wish with the company, “which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.” He goes on to make the point that social responsibilities are done by individuals, not businesses (unless it was a collective decision among shareholders). Friedman supports this by claiming that if any other action is taken, the executive is no longer acting in the interest of his employers as they do not benefit. For example, if the head of a corporation were to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation, that would be an act against his direct responsibilities to his or her shareholders (the company owners). If the executive was to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment, the corporate executive would be spending someone else's money for a general social interest.

Unfortunately, what many economists that support this side do not take into account is that the rules they govern themselves by were created by humans, without regard to the natural environment. The rules they have laid out and followed are correct when it is purely based on principle and not on consequences. The biological processes of the Earth do not take our abstract ideas into consideration, and the whole ideology behind the need for economics revolves around the scarcity of resources. Besides, by demonstrating concern for the environment, human rights, community development and the welfare of their employees, corporations can make their firms even more profitable, especially if they gain a competitive advantage by appealing to the growing numbers of socially and environmental oriented consumers, investors and employees.

There is always a trade-off between economic development, in the material sense, and the welfare of the society and environment. Social responsibility means sustaining the equilibrium between the two. Joe desJardins makes his counter argument against Milton Friedman in “Business and Environmental Sustainability”. He writes that since businesses have the power and the resources to alleviate problems like extreme poverty, political repression, war, famine, disease, and natural disasters, they should. The only responsible way to conduct business is to require that must be practiced in a way that can address the needs of consumers, be ecologically informed enough so that the earth's capacity to support life is not diminished by that activity, and be ethically sensitive enough that the human dignity is not lost or violated in the process. In this way he makes the assertion that businesses not only have a duty to their consumers and shareholders, but also to their environment (where they gather resources from), and the people affected along the way. He goes on to write that “justice and common decency, as well as self-interest, requires that these problems be addressed by those living in the economically developed world.”

The issue with social responsibility is that only some companies will feel obliged to execute it. These companies will then lose out to corporations that do not feel the need to contribute to society in terms of competitive advantage, and in the process, will lose out in market share. In addition, corporations are meant to provide services and products to society and in doing so, are performing a social responsibility by supplying jobs and products that people use every day. Businesses make their profit by optimizing their resources despite how scarce they may be. The better the job of optimizing and the more they produce with less, the more assets society receives. In addition, society itself supports this model of business by buying their products and using their services. In this way people are making the decision that the service and products such corporations provide are worth more to them than the lack of social responsibility corporations have. By demanding more out of corporations, businesses feel pressured to comply with their shareholders and customers, to the point that even social obligations are being sacrificed.

Offering a third viewpoint, John Mackey, CEO and founder of Whole Foods, has this to say: “I believe that the enlightened corporation should try to create value for //all // of its constituencies. From an investor's perspective, the purpose of the business is to maximize profits. But that's not the purpose for other stakeholders--for customers, employees, suppliers, and the community. Each of those groups will define the purpose of the business in terms of its own needs and desires, and each perspective is valid and legitimate.” Mackey makes the association that the most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of. While he also agrees with Milton Friedman’s note on how executives have an intrinsic responsibility to the investors, he also thinks that this 40-year old view is too narrow, especially for ever-changing times. In addition, he makes the point that the entrepreneurs, not the current investors in a company's stock, have the right and responsibility to define the purpose of the company. Because it is the entrepreneurs who create a company, who bring all the factors of production together and coordinate it into viable business, it is also the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders--including the investors. “At Whole Foods we ‘hired’ our original investors. They didn't hire us,” John Mackey says.

My own perspective is as follows: corporations performing outside of their perceived goals and producing inferior products must fix their standard operating procedures. In addition, corporations should change their business practices if they are responsible towards suffering but neglect remedying their transgressions and are unwilling to assist their employees when they are capable of doing so. This is their social responsibility. The control corporations have in the world has gotten out of hand and businesses are in part responsible for many of the problems present in the 21st century. For example, they can’t be considered either a business entity or an individual with political rights at the same time. It’s also not ethical to allow corporations to break laws and regulations if they can “pay off the fine” or escape from perceived punishment with ease.

Citations: "Corporate Social Responsibility - Organization, Levels, Definition, Model, Type, Company, Business, History." //Reference For Business - Encyclopedia of Small Business, Business Biographies, Business Plans, and Encyclopedia of American Industries//. Web. 04 Oct. 2011. . //ENGAGE//. Web. 04 Oct. 2011. . "Rethinking the Social Responsibility of Business." //Reason Magazine//. Web. 04 Oct. 2011. . "The “Social Responsibility” Of Business Is To Earn A Profit." //Outside The Beltway | OTB | Online Journal of Politics and Foreign Affairs//. Web. 04 Oct. 2011. . "What Are the Social Responsibilities of Business? - by Bert Alweiss - Helium." //Helium - Where Knowledge Rules//. Web. 04 Oct. 2011. . "What Are the Social Responsibilities of Business? - by C.V.Rajan - Helium." //Helium - Where Knowledge Rules//. Web. 04 Oct. 2011. .