IVIILIUN FHItUMAN hen I hear businessmen speak eloquently about the \"social responsibilities of busi- ness in a free-enterprise system,\" I am reminded of the wonderful line about the Frenchman who dis covered at the age of 7o that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned \"merely" with profit but also with promoting desirable \"social\" ends; that business has a \"social conscience\" and takes seriously its responsibilities for providing employ ment, eliminating discrimination, avoiding pollu tion and whatever else may be the catchwords of the contemporary crop of reformers. In fact they areuor would be if they or anyone else took them seriouslypreaching pure and unadulterated so- cialism. Businessmen who talk this way are un- witting puppets of the intellectual forces that have been undermining the basis of a free society these past decades. The discussions of the \"social responsibili ties of business\" are notable for their analytical looseness and lack of rigor. What does it mean to say that \"business\" has responsibilities? Only people can have responsibilities. A corpora- tion is an artificial person and in this sense may have artificial responsibilities, but \"business\" as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom. Presumably, the individuals who are to be re sponsible are businessmen, which means individ- ual proprietors or corporate executives. Most of the discussion of social responsibility is directed at corporations, so in what follows I shall mostly ne- glect the individual proprietors and speak of cor~ porate executives. In a freeenterprise, private-property system, a corporate executive is an employee of the own- ers of the business. He has direct responsibility to his employers. That responsibility is to conduct the ' business in accordance with their desires, which generally will be to make as much money as pos- sible while conforming to the basic rules of the society, both those embodied in law and those em bodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purposefor example, a hos- pital or a school. The manager of such a corpora" tion will not have money prot as his objective but the rendering of certain services. In either case, the key point is that, in his ca- pacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them. Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straight- forward, and the persons among whom a voluntary contractual arrangement exists are clearly defined. Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he recognizes or assumes voluntarilyto his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel impelled by these respon- sibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job, for example, to join his country's armed forces. If we Wish, we may refer to some of these responsibilities as \"social re- sponsibilities.\" But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are \"social re- sponsibilities,\" they are the social responsibilities of individuals, not of business. What does it mean to say that the corporate ex- ecutive has a \"social responsibility\" in his capacity as 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 refrain from increasing the price of the prod- uct in order to contribute to the social objective of preventing ination, even though a price increase would be in the best intergsts of the corporation. Or that he is to make expenditures on reducing pollu- tion beyond the am0unt that is in the best interests of the c0rp oration or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate prots, he is to hire \"hardc0re\" unemployed instead of better qualied available workmen to contribute to the social objective of reducing poverty. In each of these cases, the corporate execu- tive would be spending someone els e's money fOr a general social interest. Insofar as his actions in accord with his \"social responsibility\" reduce re- turns to stockholders, he is spending their money. Insofar as his actions raise the price to cust0mers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money. The stockholders or the customers or the em- ployees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct \"social re sponsibility,\" rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it. But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be'spent, on the other. This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition oftaxes and the expenditure of tax proceeds are governmental functions. We have established elaborate consti- tutional, parliamentary, and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in accordance with the preferences and desires of the publicafter all, \"taxation without representation\" was one of the battle cries of the American Revolution. We have a system of checks and balances to separate the legislative function of imposing taxes and enacting expenditures from the executive function of col- lecting taxes and administering expenditure pro- grams and from the judicial function of mediating disputes and interpreting the law. Here the businessmanself-selected or ap- pointed directly or indirectly by stockholdersis to be simultaneously legislatOr, executive, and ju- rist. He is to decide whom to tax by how much and fOr what purpose, and he is to spend the pro- ceedsall this guided only by general exh0rtations from on high to restrain inflation, improve the environment, ghtpoverty and so on and on. The whole justication fOr permitting the c0r- porate exeCutive to be selected by the stockholders is that the executive is an agent serving the intemsts of his principal. This justication disappears when the corporate executive imposes taxes and spends the proceeds for \"social\" purposes. He bec0mes in ef- fect a public employee, a civil servant, even th0ugh he remains in name an employee of a private enter- prise. On grOunds of political principle, it is intoler- able that such civil servantsinsofar as their actions in the name of social responsibility are real and not just window-dressingshould be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expenditures to foster \"social\" objectives, then political machinery must be set up to make the assessment of taxes and to determine thmugh a politiCal process the objectives to be served. This is the basic reason why the doctrine of \"social responsibility" involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to al- tern ative uses. On the grounds of consequences, can the cor- porate executive in fact dis charge his alleged \"social responsibilities?" On the other hand, suppose he could get away with spending the stockholders' or customers' or employees' money. How is he to know how to spend it? He is told that he must contribute to fighting ination. How is he to know what action of his will contribute to that end? He is presumably an expert in running his company in producing a product or selling it or financing it. But nothing about his selection makes him an ex- pert on ination. Will his holding down the price of his product reduce inationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forc- ing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, custom- ers, and employees for this social purpose? What is his appropriate share and what is the appropriate share of others? And, whether he wants to or not, can he get away with spending his stockholders', customers' or employees' money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social re- sponsibility have reduced the corp0ration's prots and the price of its stock.) His customers and his employees can desert him for other producers and emp10yers less sorupulous in exercising their social responsibilities. This facet of \"social responsibility\" doctrine is brought into sharp relief when the doctrine is used to justify wage restraint by trade unions. The conict of interest is naked and clear when union officials are asked to subordinate the interest of their members to some more general purpose. If the union officials try to enforce wage restraint, the consequence is likely to be wildcat strikes, rank-and-file revolts, and the emergence of strong competitors for their jobs. We thus have the ironic phenomenon that union leadersat least in the U.S.have objected to government interference with the market far more consistently and coura- geously than have business leaders. The difficulty of exercising \"social responsibil~ ity\" illustrates, of course, the great virtue of private competitive enterpriseit forces people to be re- sponsible for their own actions and makes it dif- ficult for them to \"exploit\" other pe0ple for either selfish or unselfish purposes. They can do good but only at their own expense. Many a reader who has followed the argument this far may be tempted to remonstrate that it is all well and good to speak of government's having the responsibility to impose taxes and determine expenditures for such \"social\" purposes as con- trolling pollution or training the hard-core un- employed, but that the problems are too urgent to wait on the slow course of political processes, that the exercise of social responsibility by businessmen is a quicker and surer way to solve pressing current problerns. Aside from the question of factl share Adam Smith's skepticism about the benefits that can be expected from \"those who affected to trade for the public good\"this argument must be rejected on grounds of principle. What it amounts to is an as serti on that those who favor the taxes and expendi tures in question have failed to persuade a majority of their fellow citizens to be of like mind and that they are seeking to attain by undemocratic proce- dures what they cannot attain by democratic pro- cedures. In a free society, it is hard for \"evil\" people to do \"evil,\" especially since one man's good is an- other's evil. I have, for simplicity, concentrated on the spe- cial case of the corporate executive, except only for the brief digression on trade unions. But precisely the same argument applies to the newer phenome- non of calling upon stockholders to require corpo- rations to exercise sociaFfesponsibility (the recent GM crusade for example). In most of these cases, what is in effect involved is some stockholders try- ing to get other stockholders (or customers or em- ployees) to contribute against their will to \"social\" causes favored by the activists. Insofar as they suc- ceed, they are again imposing taxes and spending the proceeds. The situation of the individual proprietor is somewhat different. If he acts to reduce the returns of his enterprise in order to exercise his \"social responsibility,\" he is spending his own money, not someone else's. If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any objection to his doing so. In the process, he, too, may impose costs on employees CHAPTER 2: CORPORATE RESPONSIBILITY Unfortunately, unanimity is not always feasible. There are some respects in which conformity ap- pears unavoidable, so I do not see how one can avoid the use of the political mechanism altogether. But the doctrine of "social responsibility\" taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most ex- plicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a "fundamentally subversive doctrine\" in a free society, and have said that in such a society, \"there is one and only one social responsibility ofbusinessto use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.\" 57