Op-Ed: An analysis of Milton Friedman's "Social Responsibility" essay, and its relevance in modern times

By Grace Zhang ‘23

Fifty years is a long time. It is longer than I’ve been alive, and it is longer than my parents have been alive. Fifty years spans two wars, three generations, and twelve presidencies. A lot can change in fifty years. It’s been fifty years since Milton Friedman published “The Social Responsibility of Business is to Increase its Profit,” and while the changes of the last fifty years have rendered certain parts of his article false, the core message of delivering profit to shareholders is still applicable. In his essay, Friedman argued that the responsibility of corporations was solely to deliver as much profit to shareholders as legally possible, with no regard to social or environmental impacts. I think in the modern age, though, the pillars of shareholders and society are much more intertwined than they were fifty years ago. Businesses still exist to deliver value to their shareholders, but it is now significantly more lucrative for businesses and shareholders to value social enterprise and responsibility than to forego it.

Diving into the historical context of Milton Friedman’s piece, at the time of his writing, the government was the main entity responsible for individual welfare. Programs like Medicare, the GI Bill, and Social Security helped fund people’s access to health care, education, and a retirement pension. The private sector was free to focus solely on shareholder profit, as the general public was already being taken care of and had no quarrel with corporations. But in 2020, most of us rely on private companies for a retirement plan, healthcare, and other benefits. There are whole lists dedicated to “Top 100 Companies to Work For,” ranked by their employee benefits like paid maternal leave, tuition assistance, and day-care support.

Take, for example, Ernst and Young extending a new leave policy for both mothers and fathers, allowing them 16 weeks of fully paid parental leave when welcoming a child into their life--whether through adoption, surrogacy, birth, or other means. In recent studies done by the company, they found this policy decreased turnover rate among employees, increased general employee happiness, and attracted top employees to the company.  Better employees and lower turnover both allow for greater company efficiency and improve its competitiveness in the market, resulting in higher profit for the shareholders. Compared to when the government provided most of employee welfare benefits, the modern corporation’s emphasis on providing for its employees demonstrates the importance of social responsibility in generating profit, tying corporations’ modern value to its social responsibility.

Furthermore, corporations now have a much more varied shareholder base, too. From the start of the stock market well into the 1970s, stocks were traded as sheets of paper, and less than 5% of Americans owned stocks. The lack of accessibility made it so that only serious investors would be shareholders in a corporation, and serious investors often have many investments in several companies and are focused on their own portfolios and profits rather than on the welfare of individual companies. Thus, the focus of shareholders during Friedman’s time was on immediate profit. However, modern corporations have a much more diversified portfolio of people as shareholders in a corporation thanks to easily accessible electronic trading, and the “profit” that they demand to see from the company is no longer tied directly to immediate monetary gain. In modern corporations, employees often fall among the shareholders as well. Employees will oftentimes buy into their own companies because they believe in the value of their own business, and will be more vested in a company’s long-term growth and success compared to investors focused solely on his or her own profits. A corporation’s clientele and consumers, too, can now be often counter among its shareholders as well. For a similar reason as listed above of having an interest in the company’s general welfare and performance, they, too, would be less concerned with immediate profit compared to long-term success. Thus, corporations have less pressure to deliver immediate profit, and even though businesses still exist to fulfill shareholder desires, those desires now reflect long-term profit, social responsibility, and a better company overall.

To further explore the effects of businesses with an increasingly diverse array of shareholders, I wanted to turn attention to the ebbs and flows of the current stock market. Stocks trades now happen in a matter of milliseconds, often facilitated by company news and events that help or hurt stock price. Because there is now such a heavy emphasis on company image when it comes to determining stock value, corporations need to be a lot more careful with their actions. The increased scrutiny means corporations can no longer focus solely on delivering profits to their shareholders. Where before, news was accessible only through local papers and information was slow to get around, there is now a vast network of information online that broadcasts and amplifies a company’s every move. Every little action affects the company’s value, so sustainability and responsibility in corporations are vital to success and creating the profit necessary to give shareholders their due.

The world is not black and white, but rather shades of gray. Profit does not exist in a bubble. While Milton Friedman is correct in saying that a business’s end result should be to give value to its shareholders, he fails to see the bigger picture of value derivation. While profit may have been the sole focus of investors fifty years ago, it is no longer the only priority for shareholders. Social responsibility, a company’s public perception, their treatment of clients and employees, among other things, are what determine a company’s value in the modern world. To boil it down, it is no longer possible for businesses to deliver value or profit without committing to broader social responsibility as well.