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On my flight back from Kuala Lumpur to Melbourne yesterday, I took the opportunity afforded by flying AirAsiaX (sans onboard entertainment) to read another sizeable chunk of “Creative Capitalism: A Conversation with Bill Gates, Warren Buffet, and other Economic Leaders”. I guess I’m a bit slow in getting to the literature of leading global economists but I can now say I’ve read Milton Friedman’s “The Social Responsibility of Business”, an essay first published in The New York Times Magazine, September 13, 1970 (and included as an Appendix to the Creative Capitalism book).

I hadn’t missed anything significant!

In a nutshell, Friedman’s argument is that the role of business (and it’s executives) is to maximise financial returns for shareholders, and nothing else really matters.

He somehow believes (and managed to attract a number of followers who concur with his belief) that, because a corporation is not a living entity in it’s own right, you can only address the issue of social responsibility to the individuals who are employed in, or shareholders of, that corporation and that this must then, by definition, become an individual rather than a corporate responsibility.

One of my first observations as I read this piece of intellectual contortionism was how Friedman appears unable to understand or accept complexity, ambiguity, uncertainty and subjectivity in business. He seems to live in a black and white world. This is usually a sure sign of a true academic who is determined to make the real world fit into a neatly defined formula or definition.

But the point at which I finally decided Friedman’s article was completely off target was when he stated:

‘What does it mean to say that the corporate executive has a “social responsibility” in his capacity as a businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example … that he is 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.’

Extrapolated into another scenario, Friedman would no doubt argue that a corporate executive would be duty-bound to offshore their operations to low-cost developing countries wherever it maximised profits, and this should only be done at the very lowest possible labour rates allowed by law so as to maximise corporate profits, even if the developing country has no effective wage protection and it is exploitative of the workers, provided that doesn’t bring financial harm to the company through loss of reputation — indeed, to pay a more ‘humane’ or ‘reasonable’ wage to staff than the absolute minimum that could have been negotiated is a reflection of an executive not performing his duties to the company.

How Friedman’s essay came to be seen as a pivotal exposition on the topic of Social Responsibility in business I really can’t say. I have no doubt Friedman is highly regarded in academic circles for his intellectuality, but what can I say? This piece just confirms my long-held attitude towards academic intellectuality.

If you divorce theory and philosophy sufficiently from the everyday world, you eventually learn how to sound learned. But do you actually address the issues of the real world? And will your theorems and hypotheses stack up in practice?

It’s this kind of indoctrination and thought-deceivership that influences oil company (and many other) executives to take safety short cuts in the hope that their calculated risk will pay off as financial returns for the shareholders. Clearly, that can be a pretty short-sighted approach.

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