New Rigor in the Arguments for Corporate Social Responsibility

The most persistent reproach for corporate social responsibility came from Milton Friedman, a tiny economist of prominence who manages to cast a massive academic shadow even in death.

In September 1970, Friedman wrote for the New York Times Magazine, “Companies ‘Social Responsibility is To Raise Profit.” He persuasively claimed in it that corporate social responsibility was all twaddle, liberalism with a commercial wrapping that contradicts a democratic society. Businesses who exercised corporate responsibility were playing Robin Hood with money from someone else.

“The ‘Financial Responsibility of Industry’ debates,” Friedman said, “are notable for their theoretical looseness and lack of rigor. What does it imply to claim that ‘Company’ has obligations? Even citizens have responsibility.” Rather, businesses can increase their income and allocate money to shareholders so that individuals may instead contribute to any cause they wish; It was clearly unethical for corporations to do something but optimizing income, Friedman wrote. corporate social responsibility theory¬†offers excellent info on this.

When Friedman reported that the corporate donations to charity in 1970 was just a few decades old and was simply a pittance. While it was authorized in the State of Texas as early as 1917 (a number that rose to 26 States by the early 1950s), in 1952 it was a court decision in New Jersey that set the stage for modern corporate philanthropy. New Jersey enacted a statute in 1950 requiring corporations to make contributions to educational institutions. But it was uncertain if the legislation authorized chartered corporations to make contributions to charities before 1950. In a test case a valve and fire hydrant supplier from New Jersey called A.P. Smith Engineering Corporation contributed $1,500 to Princeton University. The gift was questioned in New Jersey courts by a party of shareholders.

The court found that the law was valid, and retroactively applied. The court held that higher learning institutions were important to the structure of government and free enterprise. Companies were increasingly conscious of this reality and therefore had a role to play in ensuring the continued life of these organizations as an question not just of continued sustainability but also of improving market conditions in the today.

The event, known as A.P. Smith Production Corporation vs. Barlow, permanently altered the business donation environment of America.

But the outcome was a pitiful sort of theoretical stalemate. Friedman and other Hayek-followers believed that democratic societies were compromised by corporate social responsibility. And The A.P’s counter claim. Smith’s decision, among some, was that it strengthened economic practices. The latter claim ultimately won the day. Giving USA estimates that, in 2006, American businesses give charity $12.72 billion.

But Google the word, to see how much influence Friedman’s post still has. Everything that will show up on the first page are pdfs of the article shared by business schools around the country!

Academics have gradually picked up the topic and think corporate social responsibility Really create business sense. Before the work conducted by Raymond Fisman and Geoffrey Heal of the Columbia Graduate School of Business and Vinay Nair of the Wharton School, I found out that corporations promoting a lot of corporate philanthropy are a warning to customers that the goods or services of a organization are secure. For high-advertising sectors they have noticed a productive partnership between corporate philanthropy and competitiveness. But the opposite was accurate of sectors with poor publicity.