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The Nobel Prize winner Milton Friedman was praised by The Economist ( 2006 ) as “the most influential economic expert of the 2nd half of the twentieth century…possibly of all of it” . In 1970. he published an essay on the societal duty of concern in the New York Times Magazine. In his article. he explains in complex item about the impression of “social responsibility” of business communities within a corporate environment and their end to increase net incomes.

Indeed. at first glimpse. this quotation mark seems to capture the outlook of many of the histrions in the fiscal sector in our epoch. Banks and fiscal establishments are accused of moving unethically and merely in their opportunism to increase net incomes along with agents and investing bankers who are accused of chiefly taking high inducements and fillips by selling unconscionably high-default assets. Scholars argued that corporate administration weaknesss and deficiency of ethical behaviors were important causes of the fiscal crisis of fall 2008 ( Skypala. 2008 ) .

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This essay discusses the inquiry whether the above statement made by celebrated economic expert Milton Friedman is still relevant in the context of concern today and to what extent it is associating to the fiscal sector and in peculiar to the fiscal crisis of fall 2008. In order to turn to this job. it is of import to discourse the cardinal position behind Friedman’s thought since it needs to be to the full understood and taken. He stated that the societal duty of concern was to maximise net incomes and to make value for shareholders within the bounds of the jurisprudence.

Furthermore. he thought that utilizing corporate resources for strictly selfless intents would be socialism. Furthermore. corporations had no societal duty other than to pass its resources to increase the net incomes of its investors since merely investors as persons could make up one’s mind to prosecute in societal parts. Therefore. he believed that the corporate executives. who were appointed by investors to do net incomes on investings. could non prosecute in societal parts utilizing the corporate money. As a consequence. they could merely make so as a private person on their ain behalf.

Friedman devoted “social responsibility” to go againsting the involvement of the manager’s employers. In other words. if directors invest in “social responsible” undertakings. they will harm the concern since these investings will ensue in inefficiency and lost production taking to a decrease in shareholder’s wealth. His thought and the logic behind it have proven unconvincing to many bookmans ( Mulligan. 1986 ; Feldman. 2007 ; Wilcke. 2004 ) . Indeed. several statements can be shown which offset his thought. First. his theory does non let for the possibility that net incomes and societal duty can of all time be together.

It is necessary to see the restraint noted by Jensen ( 2002 ) who indicated that it is “logically impossible to maximise in more than one dimension at the same clip unless the dimensions are monotonic transmutations of one another” . This restraint implies that net incomes and societal public presentation can non be maximized at the same time. That is why there is a tradeoff between net incomes and societal public presentation. Still. it does non intend that net income maximization and societal public presentation can non be congruent.

In world. there are many illustrations which show that both can coexist. Several grounds are to be mentioned here. Nowadays. Bankss and fiscal establishments are more cognizant of their function towards the society since they realize that they are an built-in portion of it. Furthermore. they notice that they can lend positively to the environment and society with a positive consequence on their repute. making a higher house value. Furthermore. since legion dirts of houses go againsting morality and moralss in the late ninetiess and early 2000s ( e. g.

WorldCom and Enron ) the significance of Corporate Social Responsibility ( CSR ) is increasing enormously and included in the concern civilization of most of the fiscal establishments today. The construct of CSR means that “corporations have ethical and moral duties in add-on to their duties to gain a just return for investors and comply with the law” ( Munstermann. 2007 ) . So. about every big corporation is progressively puting to better its public presentation on sustainability assets. Banks and fiscal establishments know that society is ever enlightened when it sees that a house is engaged in charity and donating undertakings.

While it is true that battle in “social responsible” undertakings. for illustration donating for orphans of the developing states means explicitly higher disbursals and hence. cut downing the net income. it has a long term net income as good. Battle in donating undertakings has a positive consequence on the repute of houses. therefore. impacting positively the consumer behaviour of clients who will purchase more merchandises of house. therefore making net income. Friedman besides ne’er considers the really existent possibility that companies prosecuting in “social responsible” undertakings gain the support from the community and civil order that might. otherwise. finally turn against them.

Presents. about all companies working in the fiscal sector are in some sort of manner socially engaged. Looking at web sites of celebrated large Bankss like Deutsche Bank. JP Morgan. Goldman Sachs or Morgan Stanley. one can happen headers of Corporate Social Responsibility throughout the pages. Deutsche Bank has its ain study on CSR for each twelvemonth which reports battle in AIDS undertakings in South Africa and support of instruction for kids in India. JP Morgan reported an one-year contribution sum of $ 110 million for organisation in 33 different states and Goldman Sachs is actively involved in environmental undertakings.

This shows that about 4 decennaries after the celebrated essay of Friedman. companies do non follow his sole thought any longer but are – or are forced to – act socially responsible. On the other manus. a concern should seek to do net income since it is built-in in its nature and by definition ( except for non-profit organisation ) . Harmonizing to the Business Dictionary. a concern is an “economic system in which goods and services are exchanged for one another or money. Every concern requires some signifier of investing and a sufficient figure of clients to whom its end product can be sold at net income on a consistent footing.

” If a company does non do net income on a consistent and long-run footing. it will confront fiscal hurt and bankruptcy. Then. employees and workers will go unemployed which will impact the society negatively. For illustration. all the employees of Bankss traveling insolvent in the fiscal crisis like Freddy Mac and Fanny Mae and Lehman Brothers were confronting adversity. Hence. it is true that concerns are to a certain extent socially responsible to do net income in order to guarantee occupation security and to make more occupations. This helps the society and improves the economic system of the society.

But Friedman does non see the fact that if companies’ exclusive involvement would be net income doing. they can harm people and the surrounding environment. What if houses poison the H2O by disposing chemicals in rivers and sea – disposing toxic that leads to unwellnesss and decease of animate beings and human existences? Friedman besides fails to reason whether profit-generating actions like selling atomic bombs to terror organisations. or wittingly fabricating and selling faulty. health-threatening merchandises count as societal duty every bit long as the company makes net income.

Obviously. in the fiscal sector there are non activities such as bring forthing bombs or dangerous drugs. Even though this sector can non bring forth dangerous merchandises. it can make a value concatenation of unethical and careless activities that can damage the whole universe every bit good. One illustration is the Asiatic fiscal crisis in 1997 where moral jeopardies were mentioned as a major cause. Moral jeopardies are “negligent and deceitful insureds” ( Baker. 2000 ) . It besides refers to state of affairs that tempted otherwise good people.

The job with moral jeopardies in the Asiatic fiscal crisis was that Asiatic Bankss thought that they would have inexplicit warrants that they would be bailed out if they encountered fiscal hurt. Hence. these Bankss and companies were much more bad in their investings and kept puting progressively. If the investings fail. they will non hold to bear the cost since it will be picked up by the authorities. They were playing with people’s money and did non move in the societal involvement of their clients.

Alternatively. they were merely concentrating on doing every bit much net income as possible. The consequence is known to everybody: In 1997 the states of East Asia experienced the worst economic crisis they have ne’er seen earlier. Obviously. the latest and most discussed subject on morality in the two recent old ages has been the blameworthiness of stockholders and Bankss along with board managers for weaknesss that led to the fiscal crisis of 2008. On the one manus. the crisis can be blamed on mortgage agents. investing bankers and banks’ executives. Skewed inducements and greed contributed excessively much of the crisis.

For illustration. mortgage agents generate sub-prime mortgages but were paid irrespective of the result. That is why they were selling unscrupulously assets with high default hazard to clueless clients in order to have high committees. Not to advert “Wall Street Executives” who were concentrating entirely on how to increase their fillips and wage bundles. Besides. Banks who took on these mortgages were accused of shoddy hazard direction and unethical behavior. since they knew from the beginning that these subprime mortgages would finally be securitized and removed from the bank’s balance sheet.

Again. the arising Bankss got paid up forepart for treating the mortgages without holding to retain portion of the hazard. Another factor is the deceptive evaluations of fiscal instruments recognition bureaus that were by far from independent. Organizers of the secured assets were allowed to pull strings the creative activity of secured assets by blending good assets with high hazard assets to the point of acquiring a ternary A-rating. If they did non acquire this evaluation. the assets were withdrawn. reconfigured and resubmitted.

Since bureaus are owned by Bankss. they were subjected to give best evaluations to these unsafe assets and mortgage agents cognizing the hazardous thought behind those assets sold them to unsuspicious investors. Harmonizing to Friedman. every party involved in the actions mentioned above showed “social responsibility” since they did non care about their societal duty to the universe but merely about maximising their net incomes. Obviously. the wake of the American fiscal crisis has shown that the societal duty of concern is decidedly non merely to increase their net incomes.

If Bankss. agents and loaners. comptrollers. the authorities and of import fiscal organisation did non falsely assessed or even ignored the magnitude of the hazards mentioned supra. if directors and investing bankers were non avaricious and showed herd investing behaviour. it can be argued that the crisis could hold been prevented. But the assorted parties acted amorally and socially irresponsible non caring about the societal effects of their actions. Consequently. the Asiatic crisis of 1997 and the planetary fiscal crisis of 2008 are two memorable illustrations that offset Friedman’s thought.

In decision. this paper has shown that Friedman’s petition of being socially responsible by concentrating entirely on increasing net incomes is today theoretically non accepted by Bankss and fiscal establishments. In contrast. in the twenty-first century societal responsible corresponds to the alliance of concern operations with societal and ethical values. It is seen as the key to crush the rival and to guarantee sustainable growing. But the latest fiscal crisis has shown that even though CSR is portion of the concern civilization of the big corporations. the cardinal participants in the big corporations do non pattern societal duty in a proper mode.

It seems that CSR and corporate administration are a digest of words and regulations that adds merely small value to the mundane concerns. Money has made everybody blind. Everybody wanted to hold a piece of the large bar taking them to take down their suppression threshold. The “social responsibility” of concerns should non be increasing net income but concentrating on what it truly means in pattern to promote stewardship. As a affair of fact. Bankss and fiscal establishments foremost need to demo societal and ethical mode in order to forestall another catastrophe like the fiscal crisis of 2008.

All in all. concerns need to concentrate on environmental and societal issues in the sphere of corporate duty since the society expects and demands duty of organisations. In fact. the jurisprudence expects it every bit good. Banks and fiscal establishments are challenged after the wake of the fiscal crisis – they have to happen a manner how to move in the best involvement of stakeholders. society. the authorities and the environment. still being able to do sustainable net income. It is now a petition from the society.

? References Baker. T. ( 2000 ) . Sing Morality. Business Dictionary. Definition of concern. Home page: hypertext transfer protocol: //www. businessdictionary. com/definition/business. hypertext markup language [ 1. 2. 2010 ] . Feldman. G. ( 2007 ) . Puting Uncle Milton Friedman To Bed: Reviewing Milton Friedman’s Essay on the Social Responsibility of Business. Labor Studies Journal ( 32 ) . 125-141. Jensen. M. C. ( 2002 ) . Value maximization. stakeholder theory. and the corporate nonsubjective map. Business Ethics Quarterly. 2002 ( 12 ) . 404-437.

Milton Friedman. a elephantine among economic expert. The Economist. Verfugbar unter: hypertext transfer protocol: //www. economic expert. com/business/displaystory. cfm? story_id=8313925 [ 28. 1. 2010 ] . Mulligan. T. ( 1986 ) . A Critique of Milton Friedman’s Essay “The Social Responsibility of Business Is to Increase Its Profits” . Journal of Business Ethics ( 5 ) . 265-269. Munstermann. T. ( 2007 ) . Corporate Social Duty: Gabler. Skypala. P. ( 2008. 17. November ) . Time to honor good corporate administration. Financial Times. S. 6. [ 28. 1. 2010 ] . Wilcke. R. W. ( 2004 ) .

An Appropriate Ethical Model for Business and a Critique of Milton Friedman’s Thesis. The Independent Review ( 2 ) . 187-209. The Nobel Prize winner Milton Friedman was praised by The Economist ( 2006 ) as “the most influential economic expert of the 2nd half of the twentieth century…possibly of all of it” . In 1970. he published an essay on the societal duty of concern in the New York Times Magazine. In his article. he explains in complex item about the impression of “social responsibility” of business communities within a corporate environment and their end to increase net incomes.

Indeed. at first glimpse. this quotation mark seems to capture the outlook of many of the histrions in the fiscal sector in our epoch. Banks and fiscal establishments are accused of moving unethically and merely in their opportunism to increase net incomes along with agents and investing bankers who are accused of chiefly taking high inducements and fillips by selling unconscionably high-default assets. Scholars argued that corporate administration weaknesss and deficiency of ethical behaviors were important causes of the fiscal crisis of fall 2008 ( Skypala. 2008 ) .

This essay discusses the inquiry whether the above statement made by celebrated economic expert Milton Friedman is still relevant in the context of concern today and to what extent it is associating to the fiscal sector and in peculiar to the fiscal crisis of fall 2008. In order to turn to this job. it is of import to discourse the cardinal position behind Friedman’s thought since it needs to be to the full understood and taken. He stated that the societal duty of concern was to maximise net incomes and to make value for shareholders within the bounds of the jurisprudence.

Furthermore. he thought that utilizing corporate resources for strictly selfless intents would be socialism. Furthermore. corporations had no societal duty other than to pass its resources to increase the net incomes of its investors since merely investors as persons could make up one’s mind to prosecute in societal parts. Therefore. he believed that the corporate executives. who were appointed by investors to do net incomes on investings. could non prosecute in societal parts utilizing the corporate money. As a consequence. they could merely make so as a private person on their ain behalf.

Friedman devoted “social responsibility” to go againsting the involvement of the manager’s employers. In other words. if directors invest in “social responsible” undertakings. they will harm the concern since these investings will ensue in inefficiency and lost production taking to a decrease in shareholder’s wealth. His thought and the logic behind it have proven unconvincing to many bookmans ( Mulligan. 1986 ; Feldman. 2007 ; Wilcke. 2004 ) . Indeed. several statements can be shown which offset his thought. First. his theory does non let for the possibility that net incomes and societal duty can of all time be together.

It is necessary to see the restraint noted by Jensen ( 2002 ) who indicated that it is “logically impossible to maximise in more than one dimension at the same clip unless the dimensions are monotonic transmutations of one another” . This restraint implies that net incomes and societal public presentation can non be maximized at the same time. That is why there is a tradeoff between net incomes and societal public presentation. Still. it does non intend that net income maximization and societal public presentation can non be congruent.

In world. there are many illustrations which show that both can coexist. Several grounds are to be mentioned here. Nowadays. Bankss and fiscal establishments are more cognizant of their function towards the society since they realize that they are an built-in portion of it. Furthermore. they notice that they can lend positively to the environment and society with a positive consequence on their repute. making a higher house value. Furthermore. since legion dirts of houses go againsting morality and moralss in the late ninetiess and early 2000s ( e. g.

WorldCom and Enron ) the significance of Corporate Social Responsibility ( CSR ) is increasing enormously and included in the concern civilization of most of the fiscal establishments today. The construct of CSR means that “corporations have ethical and moral duties in add-on to their duties to gain a just return for investors and comply with the law” ( Munstermann. 2007 ) . So. about every big corporation is progressively puting to better its public presentation on sustainability assets. Banks and fiscal establishments know that society is ever enlightened when it sees that a house is engaged in charity and donating undertakings.

While it is true that battle in “social responsible” undertakings. for illustration donating for orphans of the developing states means explicitly higher disbursals and hence. cut downing the net income. it has a long term net income as good. Battle in donating undertakings has a positive consequence on the repute of houses. therefore. impacting positively the consumer behaviour of clients who will purchase more merchandises of house. therefore making net income. Friedman besides ne’er considers the really existent possibility that companies prosecuting in “social responsible” undertakings gain the support from the community and civil order that might. otherwise. finally turn against them.

Presents. about all companies working in the fiscal sector are in some sort of manner socially engaged. Looking at web sites of celebrated large Bankss like Deutsche Bank. JP Morgan. Goldman Sachs or Morgan Stanley. one can happen headers of Corporate Social Responsibility throughout the pages. Deutsche Bank has its ain study on CSR for each twelvemonth which reports battle in AIDS undertakings in South Africa and support of instruction for kids in India. JP Morgan reported an one-year contribution sum of $ 110 million for organisation in 33 different states and Goldman Sachs is actively involved in environmental undertakings.

This shows that about 4 decennaries after the celebrated essay of Friedman. companies do non follow his sole thought any longer but are – or are forced to – act socially responsible. On the other manus. a concern should seek to do net income since it is built-in in its nature and by definition ( except for non-profit organisation ) . Harmonizing to the Business Dictionary. a concern is an “economic system in which goods and services are exchanged for one another or money. Every concern requires some signifier of investing and a sufficient figure of clients to whom its end product can be sold at net income on a consistent footing.

” If a company does non do net income on a consistent and long-run footing. it will confront fiscal hurt and bankruptcy. Then. employees and workers will go unemployed which will impact the society negatively. For illustration. all the employees of Bankss traveling insolvent in the fiscal crisis like Freddy Mac and Fanny Mae and Lehman Brothers were confronting adversity. Hence. it is true that concerns are to a certain extent socially responsible to do net income in order to guarantee occupation security and to make more occupations. This helps the society and improves the economic system of the society.

But Friedman does non see the fact that if companies’ exclusive involvement would be net income doing. they can harm people and the surrounding environment. What if houses poison the H2O by disposing chemicals in rivers and sea – disposing toxic that leads to unwellnesss and decease of animate beings and human existences? Friedman besides fails to reason whether profit-generating actions like selling atomic bombs to terror organisations. or wittingly fabricating and selling faulty. health-threatening merchandises count as societal duty every bit long as the company makes net income.

Obviously. in the fiscal sector there are non activities such as bring forthing bombs or dangerous drugs. Even though this sector can non bring forth dangerous merchandises. it can make a value concatenation of unethical and careless activities that can damage the whole universe every bit good. One illustration is the Asiatic fiscal crisis in 1997 where moral jeopardies were mentioned as a major cause. Moral jeopardies are “negligent and deceitful insureds” ( Baker. 2000 ) . It besides refers to state of affairs that tempted otherwise good people.

The job with moral jeopardies in the Asiatic fiscal crisis was that Asiatic Bankss thought that they would have inexplicit warrants that they would be bailed out if they encountered fiscal hurt. Hence. these Bankss and companies were much more bad in their investings and kept puting progressively. If the investings fail. they will non hold to bear the cost since it will be picked up by the authorities. They were playing with people’s money and did non move in the societal involvement of their clients.

Alternatively. they were merely concentrating on doing every bit much net income as possible. The consequence is known to everybody: In 1997 the states of East Asia experienced the worst economic crisis they have ne’er seen earlier. Obviously. the latest and most discussed subject on morality in the two recent old ages has been the blameworthiness of stockholders and Bankss along with board managers for weaknesss that led to the fiscal crisis of 2008. On the one manus. the crisis can be blamed on mortgage agents. investing bankers and banks’ executives. Skewed inducements and greed contributed excessively much of the crisis.

For illustration. mortgage agents generate sub-prime mortgages but were paid irrespective of the result. That is why they were selling unscrupulously assets with high default hazard to clueless clients in order to have high committees. Not to advert “Wall Street Executives” who were concentrating entirely on how to increase their fillips and wage bundles. Besides. Banks who took on these mortgages were accused of shoddy hazard direction and unethical behavior. since they knew from the beginning that these subprime mortgages would finally be securitized and removed from the bank’s balance sheet.

Again. the arising Bankss got paid up forepart for treating the mortgages without holding to retain portion of the hazard. Another factor is the deceptive evaluations of fiscal instruments recognition bureaus that were by far from independent. Organizers of the secured assets were allowed to pull strings the creative activity of secured assets by blending good assets with high hazard assets to the point of acquiring a ternary A-rating. If they did non acquire this evaluation. the assets were withdrawn. reconfigured and resubmitted.

Since bureaus are owned by Bankss. they were subjected to give best evaluations to these unsafe assets and mortgage agents cognizing the hazardous thought behind those assets sold them to unsuspicious investors. Harmonizing to Friedman. every party involved in the actions mentioned above showed “social responsibility” since they did non care about their societal duty to the universe but merely about maximising their net incomes. Obviously. the wake of the American fiscal crisis has shown that the societal duty of concern is decidedly non merely to increase their net incomes.

If Bankss. agents and loaners. comptrollers. the authorities and of import fiscal organisation did non falsely assessed or even ignored the magnitude of the hazards mentioned supra. if directors and investing bankers were non avaricious and showed herd investing behaviour. it can be argued that the crisis could hold been prevented. But the assorted parties acted amorally and socially irresponsible non caring about the societal effects of their actions. Consequently. the Asiatic crisis of 1997 and the planetary fiscal crisis of 2008 are two memorable illustrations that offset Friedman’s thought.

In decision. this paper has shown that Friedman’s petition of being socially responsible by concentrating entirely on increasing net incomes is today theoretically non accepted by Bankss and fiscal establishments. In contrast. in the twenty-first century societal responsible corresponds to the alliance of concern operations with societal and ethical values. It is seen as the key to crush the rival and to guarantee sustainable growing. But the latest fiscal crisis has shown that even though CSR is portion of the concern civilization of the big corporations. the cardinal participants in the big corporations do non pattern societal duty in a proper mode.

It seems that CSR and corporate administration are a digest of words and regulations that adds merely small value to the mundane concerns. Money has made everybody blind. Everybody wanted to hold a piece of the large bar taking them to take down their suppression threshold. The “social responsibility” of concerns should non be increasing net income but concentrating on what it truly means in pattern to promote stewardship. As a affair of fact. Bankss and fiscal establishments foremost need to demo societal and ethical mode in order to forestall another catastrophe like the fiscal crisis of 2008.

All in all. concerns need to concentrate on environmental and societal issues in the sphere of corporate duty since the society expects and demands duty of organisations. In fact. the jurisprudence expects it every bit good. Banks and fiscal establishments are challenged after the wake of the fiscal crisis – they have to happen a manner how to move in the best involvement of stakeholders. society. the authorities and the environment. still being able to do sustainable net income. It is now a petition from the society. ?

Mentions Baker. T. ( 2000 ) . Sing Morality. Business Dictionary. Definition of concern. Home page: hypertext transfer protocol: //www. businessdictionary. com/definition/business. hypertext markup language [ 1. 2. 2010 ] . Feldman. G. ( 2007 ) . Puting Uncle Milton Friedman To Bed: Reviewing Milton Friedman’s Essay on the Social Responsibility of Business. Labor Studies Journal ( 32 ) . 125-141. Jensen. M. C. ( 2002 ) . Value maximization. stakeholder theory. and the corporate nonsubjective map. Business Ethics Quarterly. 2002 ( 12 ) . 404-437. Milton Friedman. a elephantine among economic expert. The Economist. Verfugbar unter: hypertext transfer protocol: //www. economic expert.

com/business/displaystory. cfm? story_id=8313925 [ 28. 1. 2010 ] . Mulligan. T. ( 1986 ) . A Critique of Milton Friedman’s Essay “The Social Responsibility of Business Is to Increase Its Profits” . Journal of Business Ethics ( 5 ) . 265-269. Munstermann. T. ( 2007 ) . Corporate Social Duty: Gabler. Skypala. P. ( 2008. 17. November ) . Time to honor good corporate administration. Financial Times. S. 6. [ 28. 1. 2010 ] . Wilcke. R. W. ( 2004 ) . An Appropriate Ethical Model for Business and a Critique of Milton Friedman’s Thesis. The Independent Review ( 2 ) . 187-209.

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