Milton Friedman

Definition

Milton Friedman was a prominent American economist known for his influential ideas on capitalism, free markets, and the role of government in the economy. His work has significantly impacted discussions surrounding corporate social responsibility and international business ethics, advocating for minimal government intervention and emphasizing that the primary responsibility of businesses is to maximize shareholder value.

5 Must Know Facts For Your Next Test

1. Friedman won the Nobel Prize in Economic Sciences in 1976 for his research on consumption analysis, monetary history, and stabilization policy.
2. He famously argued that the only social responsibility of business is to increase its profits, which has sparked significant debate regarding the role of ethics in business practices.
3. Friedman believed that a free market leads to economic efficiency, innovation, and overall societal benefits, arguing against government regulation.
4. His writings laid the groundwork for modern conservative economic policies, particularly in the United States during the late 20th century.
5. Friedman's ideas have influenced not just economists but also politicians and business leaders worldwide, shaping the landscape of international business ethics.

Review Questions

• How does Milton Friedman's perspective on shareholder value relate to corporate social responsibility?
  • Milton Friedman's perspective asserts that the primary responsibility of a business is to maximize shareholder value. This view contrasts with the broader concept of corporate social responsibility, which suggests that companies should also consider their impact on society and the environment. While Friedman argues that focusing solely on profit maximization ultimately benefits society through wealth creation, critics argue that this approach can lead to unethical practices and neglect of social obligations.
• Evaluate Milton Friedman's contributions to the understanding of free markets and their implications for international business ethics.
  • Milton Friedman’s contributions to the understanding of free markets highlight the belief that minimal government intervention fosters competition and innovation. His emphasis on free markets as a means to enhance economic efficiency has significant implications for international business ethics, suggesting that ethical behavior may arise naturally from competitive pressures. However, this raises questions about whether reliance on market forces alone is sufficient to address ethical dilemmas faced by businesses operating globally.
• Assess how Milton Friedman's theories could inform modern discussions about globalization and corporate governance.
  • Milton Friedman's theories provide a foundational perspective for modern discussions about globalization and corporate governance by emphasizing profit maximization as a central tenet. In a globalized economy where companies operate across diverse regulatory environments, Friedman's belief in free markets may lead corporations to prioritize shareholder interests over local ethical considerations. This poses challenges for corporate governance as companies navigate varying expectations regarding social responsibility and ethical behavior in different cultural contexts.

Related terms

Shareholder Theory: The theory that a company's primary responsibility is to its shareholders, meaning that its main objective should be to maximize profits and increase shareholder wealth.

Free Market Economy: An economic system where prices are determined by unrestricted competition between privately owned businesses, emphasizing minimal government intervention.

Corporate Social Responsibility (CSR): The concept that businesses should consider their impact on society and the environment, balancing profit-making with social good.