Critics of Friedman

1
Critics of Friedman
2
Why Shouldnt Corporations Be Socially
Responsible?

• by
• Christopher D. Stone

3
Friedmans 3rd Supporting Point.

• Corporate managers have a responsibility to the
  people who own the equity of the corporation,
  namely, make the most profit possible.
• Friedman says the reason is
• the manager is the agent of the individuals who
  own the corporation. (p. 242 of our text)

4
What is being an agent?

• Stone says it is working for the best interests
  of the person, group, or enterprise you are the
  agent for.
• An example
• A sports agent tries to get what the client wants
  some particular combination of money, length of
  contract, trade vs. no-trade, etc.
• In other words, agents have to know what their
  clients want and then have to work to get it.

5
Stone says there is no way corporate executives
are this kind of agent.

• There is no direct agency connection between the
  typical shareholder and management
• It simply is not true that shareholders in major
  corporations select their directors and thereby
  establish a client-agent connection.
• Corporate executives do absolutely nothing by way
  of finding out what shareholders want

6
Social Responsibility and Economic Efficiency

• by
• Kenneth J. Arrow

7
What is the argument for saying that companies
ought to maximize profit above all else.

• Companies pay what the market determines is a
  fair price for the materials and labor needed for
  production of goods and services.
• Customers pay what the goods and services are
  worth to them.
• Profit therefore represents the net contribution
  the company makes to the social good.

8
Arrow says there are lots of problems with this
argument.

• For example, the problem of externalities.
• This makes the maximization of profits socially
  inefficient.
• But the main point of capitalist theory is that
  the free operation of the market is guaranteed to
  be optimally socially efficient.
• What to do about externalities?
• Impose regulations.
• Internalize the costs (e.g., taxes, liability
  judgments).
• Corporate/professional ethical codes.
• But ALL of these add social responsibility to
  mere profit considerations.