Editors (DesJardins and McCall)

“Doing Business Ethics: An Analysis of Friedman”


1.       Editors identify two dimensions of Friedman’s views

          a.       Responsibility of business management (to maximize profit)

          b.       Support for minimally regulated free market capitalism (“laissez-faire capitalism)


2.       Editors argue that Friedman’s position is “radical”

          a.       Because it recommends significant changes in ordinarily accepted views of:

                    i.        (1) Business responsibility and

                    ii.       (2) Government’s role in the market

3.       (1) Ethical person in business must always make the decision that will most maximize profits (legally)

          a.       Managers should not be concerned with such things as fairness or compassion or other ethical norms

          b.       Managers should only estimate costs/income so as to maximize profit and consult their lawyers

          c.       Editor’s here ignore Friedman’s language about staying within “ethical custom”

          d.       This is different from ordinary idea that sometimes we must restrain acts that promote our interests because of ethical responsibilities to others

                    i.        Friedman believes that by promoting its self-interest, a business is acting ethically towards others

4.       (2) Any government intervention in the market is ethically wrong if it goes beyond preventing fraud and coercion and insuring free and open competition

          a.       So on Friedman’s view we could have an SEC (to protect against security fraud and insider trading) and a legal system to enforce contracts

          b.       But no role for OSHA, EPA (???), CPSC, FDA, NRA, FDIC

                    i.        Taxation would be limited funds need to police the free market

                    ii.       No government departments and programs such as Education, Health and Human Services, unemployment compensation, Social Security or Medicare

                              (1)     Interferences with a free society

                    iii.      No government aid to interstate commerce (highways, railroads, airport subsidies); no regulation of international trade (no tariffs or quotas)


5.       Editor’s dispute Friedman’s claim that a “free society” must be one where business is allowed to (mostly) ignore moral considerations and government regulation of the economy is minimal


6.       Friedman falsely equates laissez-faire capitalism with a free society

7.       A free society involves

          a.       Democratic political structures, where voters have the ultimate authority to make political decisions

          b.       Constitutional rights limiting majority rule:

                    i.        Because majorities can be tyrannical (e.g., force the minority to act as the majority wishes–say worship a certain god), free societies give citizens social/civil liberties (as embodied in bill of rights) which restrict the freedom of majorities to make certain decisions

          c.       Economic freedom

                    i.        Note that this is only part of a free society


8.       Capitalism and democracy not the same

          a.       Democracy is a political system (that specifies that political power rests ultimately in hands of people)

          b.       Capitalism is an economic system, distinct from political system of democracy

                    i.        An economic system determines how economic goods/services are produced and distributed

                    ii.       Capitalism is the economic system where means of production (business, land, industries) are privately owned and where economic distribution occurs by workings of a free market

          c.       Can be societies with widespread political freedoms (democracies) that don’t have capitalist economic structures

                    i.        Democratic socialist governments in Europe

          d.       Can be societies with capitalist economic structures with few democratic and civil liberties

                    i.        Dictatorships of Central and South America


9.       There are many different types of freedom and free society will involve tradeoffs between them

          a.       E.g., Business owners economic freedom may be restricted to protect civil liberties of others (laws prohibiting discrimination on basis of race or sex)

          b.       Business manager who sacrifices profits for some social objective may restrict freedom of stockholders to direct their property, but doing so may increase freedom of others to enjoy unpolluted air or nondiscriminatory workplace

10.     A free society is not necessarily threatened by restrictions of businesses economic freedoms, that is, by restrictions on the capitalist economy

          a.       U.S. is a free society, but it has much more regulation of markets than Friedman proposes


11.     Friedman’s argument:

          a.       Failing to maximize profits to pursue social objectives imposes costs (taxes) on shareholders (and employees and customers)

          b.       Imposing such taxes is wrong because it;

                    i.        Violates a political principle: Only elected representatives should impose taxes (and not private individuals in business)

                    ii.       Results in bad consequences: For managers are not experts in how best to achieve social goals (but rather in the are experts in running their business)


12.     Editors respond ( to ii.) that consequences may not be bad, because sometimes business managers may be in an excellent position to determine how to achieve social objectives

          a.       Friedman’s inflation example: Managers may not be in a good position to determine how their pricing policy will effect inflation

                    i.        Will holding down prices reduce inflationary pressures or, by leaving more spending power in customer’s hand, will it simply divert it elsewhere?

          b.       Editor’s pollution example: But managers of a firm discharging by-products of its production process into a river “should have exactly the expertise needed to determine in this by-product is harmful to local residents”

                    i.        If claimed ignorance of its harm, law might hold them negligible for not knowing

                    ii.       But why think that mangers and engineers of this polluting industry have the health expertise of doctors and researchers to determine if the pollutants are carcinogenic or harmless?

                              (1)     Is this the company’s job?

                              (2)     Someone might argue that it is the government’s job to figure this out and then impose pollution regulations on the relevant industries.

          c.       Alleviating poverty example: Managers might be in excellent positions to determine if a wage increase for one employee (rather than another who might be equally or somewhat more qualified) will do more to alleviate poverty

                    i.        Government (anti-poverty) officials may not have the information or ability to determine who most needs the $

          d.       General point: Sometimes managers pursuing social responsibility will have the relevant expertise to produce good consequences and sometimes will not; Friedman’s argument is a hasty generalization from one example


13.     Editors response (to i., that it is politically wrong for managers to tax shareholders for social objectives that managers choose based on own personal moral decisions)

          a.       These “taxes” are just imposition of costs

          b.       Costs include not just $, but foregone opportunities (“opportunity costs”)

          c.       One person’s costs is typically another person’s benefit

          d.       Every managerial decision will involve imposition of costs

                    i.        If executive decides to spend profits to modernize production facilities, she imposes costs on shareholders, employees, and customers

                    ii.       If managers decide to pollute rivers (but no more than legally allowed) in order to maximize profits, they benefit their shareholders and impose costs on river users

          e.       Friedman’s own view has manager’s imposing costs on shareholders on the basis of his/her own moral decisions

                    i.        Friedman says that one should restrict pursuit of profits when required by the rules of the game (“law and ethical custom”)

                    ii.       But what ethical custom (or the law) requires is often not clear and the manager will have to use his/her own moral judgment to decide if ethics prohibits a certain profitable venture

                              (1)     e.g., a (legal) sweepstake contest that exploits the vulnerability of elderly people

                              (2)     Is this coercive, deceptive, or fraudulent (moral restrictions that Friedman accepts)

                              (3)     Manager will have to use her/his own personal moral judgment


14.     Another interpretation of Friedman’s argument: Shareholders right to control their property

          a.       Shareholders as owners of corporations have the right to control their property and when managers disregard owner’s desire to maximize profit they violate this right

15.     Editors first reply:

          a.       Distinction between

                    i.        Overriding people’s rights (restricting freedom with a legitimate justification)

                    ii.       Violating people’s rights (restricting freedom w/o justification

          b.       Often a private property owner’s right to control his/her property can be justifiably overridden in the name of social objectives

                    i.        Zoning laws: Restrict what private property owners can do in order to promote social objectives such as preserving aesthetic integrity of historical neighborhoods or securing other public goods (segregating strip joints and elementary schools, building types and heights)

          c.       Such restrictions (or overriding) of owners rights to control private property are not “fundamentally subversive of a free society”

          d.       Neither are managers decisions to do something other than what the shareholders want

                    i.        Managers (who are private citizens) overriding shareholder rights to control their property?? Sounds politically problematic

16.     Editor’s second reply

          a.       Shareholders are better thought of as “investors” not owners, for owning a share in a corporation does not give you the right to control how it operates

          b.       That right is with the managers

          c.       If shareholders disagree with management they can sell their stock and seek higher returns someplace else

          d.       But they also can try to join other shareholders and have the managers fired and change the policy.


17.     Friedman and many other seem to think that obedience to law is enough to insure ethical behavior

          a.       “Corporate ethics” officers and programs are often simply concerned with complying with the law

18.     Obedience to law does not guarantee ethical behavior

          a.       Law may be unethical (e.g., Nazi Germany)

          b.       Blind obedience to law does not make ethical responsibility go away

19.     Law typically prohibits only the most serious moral failings and requires at most a moral minimum

          a.       If we value individual freedom we should not want the law to require all moral behavior

                    i.        Legally require charity, common decency, personal integrity, that parents love their children, etc.

                    ii.       Prosecuted for lying to your friends?

          b.       Ethics does and should extend much further than the law

20.     Telling business that its ethical responsibilities end with obedience to the law is inviting more legal regulation

          a.       If business doesn’t clean up its own ethical act, new laws will force it to

21.     What is legal is sufficiently ambiguous that managers who are trying to obey the law will often have to make their own decisions

          a.       And many of these decisions about legality will be ethical in nature

          b.       E.g., what is a “reasonable accommodation” for employees with disabilities?