Milton Friedman

Definition

Milton Friedman was an American economist who was a prominent advocate for free-market capitalism and limited government intervention. His ideas had a significant impact on the way organizations approach ethical conduct and social responsibility in business.

5 Must Know Facts For Your Next Test

1. Friedman believed that the primary social responsibility of a business is to increase its profits, as long as it operates within the rules of the game and engages in open and free competition, without deception or fraud.
2. Friedman argued that corporate social responsibility initiatives, such as environmental protection or philanthropic efforts, are a form of 'taxation without representation' and should be left to individuals and governments, not businesses.
3. Friedman's views on the role of government in the economy were highly influential, advocating for a minimal role for government and a reliance on free-market forces to allocate resources and drive economic growth.
4. Friedman's ideas were central to the shift towards neoliberal economic policies in the 1980s, which emphasized deregulation, privatization, and a reduced role for government in the economy.
5. Friedman's emphasis on shareholder primacy and the pursuit of profit maximization has been criticized by proponents of stakeholder theory, who argue that businesses have a responsibility to consider the interests of all affected parties, not just shareholders.

Review Questions

• Explain how Milton Friedman's views on the social responsibility of businesses influenced organizational ethical conduct.
  • According to Milton Friedman, the primary social responsibility of a business is to maximize profits for its shareholders, as long as it operates within the law and engages in open and free competition. This view emphasizes that businesses should focus solely on financial performance and shareholder returns, rather than considering the interests of other stakeholders or engaging in corporate social responsibility initiatives. Friedman's ideas have been highly influential in shaping organizational ethical conduct, as they prioritize the pursuit of profit over other social and environmental considerations.
• Describe how Milton Friedman's advocacy for free-market capitalism and limited government intervention relates to the management of a socially responsible business.
  • Milton Friedman's economic views, which emphasized free-market capitalism and minimal government intervention, have had a significant impact on the way businesses approach social responsibility. Friedman argued that the sole responsibility of a business is to maximize profits for its shareholders, and that corporate social responsibility initiatives are a form of 'taxation without representation' that should be left to individuals and governments. This perspective has been criticized by proponents of stakeholder theory, who argue that businesses have a responsibility to consider the interests of all affected parties, not just shareholders. Friedman's ideas have contributed to a business environment that often prioritizes financial performance over social and environmental concerns, making it challenging for organizations to manage a truly socially responsible business.
• Evaluate the extent to which Milton Friedman's views on the role of business in society have influenced current debates around corporate social responsibility and stakeholder theory.
  • Milton Friedman's views on the social responsibility of businesses, which emphasize the primacy of shareholder interests and the pursuit of profit maximization, have been highly influential in shaping contemporary debates around corporate social responsibility and stakeholder theory. Friedman's ideas have been central to the shift towards neoliberal economic policies that prioritize deregulation, privatization, and a reduced role for government in the economy. This has contributed to a business environment that often prioritizes financial performance over social and environmental considerations. However, Friedman's views have also been criticized by proponents of stakeholder theory, who argue that businesses have a responsibility to consider the interests of all affected parties, not just shareholders. This ongoing debate reflects the tension between the pursuit of profits and the need for businesses to address broader societal concerns, and highlights the complex and multifaceted nature of corporate social responsibility.

Related terms

Monetarism: An economic theory developed by Friedman that emphasizes the role of the money supply in influencing economic activity and inflation.

Chicago School of Economics: The school of economic thought associated with the University of Chicago, where Friedman was a professor, which promoted free-market policies and limited government intervention.

Shareholder Theory: The idea, championed by Friedman, that the sole responsibility of a business is to maximize profits for its shareholders, rather than considering the interests of other stakeholders.