Milton Friedman

Definition

Milton Friedman was a renowned American economist who was a prominent advocate for free-market capitalism and a critic of government intervention in the economy. His views on corporate social responsibility (CSR) have significantly influenced modern business practices and economic thought.

5 Must Know Facts For Your Next Test

1. Friedman argued that the only social responsibility of a business is to increase its profits, as long as it stays within the rules of the game and engages in open and free competition.
2. He believed that corporate social responsibility (CSR) initiatives were a form of 'taxation without representation' and that businesses should focus solely on maximizing shareholder value.
3. Friedman's views on CSR were heavily influenced by his belief in the efficiency of free markets and his skepticism towards government intervention in the economy.
4. His ideas on CSR have been criticized for neglecting the interests of other stakeholders, such as employees, communities, and the environment, in favor of prioritizing shareholder profits.
5. Friedman's ideas on CSR have been highly influential in the development of the shareholder theory of corporate governance, which has dominated much of the business world in recent decades.

Review Questions

• Explain Friedman's perspective on the social responsibility of businesses.
  • According to Friedman, the only social responsibility of a business is to increase its profits, as long as it stays within the rules of the game and engages in open and free competition. He believed that corporate social responsibility (CSR) initiatives were a form of 'taxation without representation' and that businesses should focus solely on maximizing shareholder value. Friedman's views were heavily influenced by his belief in the efficiency of free markets and his skepticism towards government intervention in the economy.
• Analyze the key differences between Friedman's perspective on CSR and the stakeholder theory of corporate governance.
  • Friedman's perspective on corporate social responsibility (CSR) is in stark contrast to the stakeholder theory of corporate governance. While Friedman argued that the only responsibility of a business is to maximize profits for its shareholders, the stakeholder theory posits that businesses should consider the interests of a wider range of stakeholders, including employees, communities, and the environment, in addition to shareholders. Friedman's views have been criticized for neglecting the interests of these other stakeholders in favor of prioritizing shareholder profits, whereas the stakeholder theory emphasizes the need for businesses to balance the competing demands of various stakeholder groups.
• Evaluate the lasting impact of Friedman's ideas on modern business practices and economic thought.
  • Milton Friedman's ideas on corporate social responsibility (CSR) have had a profound and lasting impact on modern business practices and economic thought. His advocacy for free-market capitalism and his belief that businesses should focus solely on maximizing shareholder value have heavily influenced the development of the shareholder theory of corporate governance, which has dominated much of the business world in recent decades. While Friedman's views have been criticized for neglecting the interests of other stakeholders, his ideas have played a significant role in shaping the economic policies and business practices of many countries around the world. However, the growing recognition of the need for businesses to consider the broader social and environmental impacts of their activities has led to a re-evaluation of Friedman's ideas and the emergence of alternative models of corporate governance.

Related terms

Neoliberalism: An economic and political philosophy that emphasizes free-market capitalism, deregulation, and reduced government intervention in the economy.

Shareholder Theory: The view that a corporation's sole responsibility is to maximize profits for its shareholders, as opposed to considering the interests of other stakeholders.

Monetarism: An economic theory that focuses on the role of the money supply in influencing economic activity and inflation, and advocates for limited government intervention in the economy.