The Social Responsibility of Business

Not too long ago many Americans were complaining that corporations were making too much money at the expense of “working families,” the environment, and society in general. The oil companies were evil because they were too profitable. Wal-Mart was evil because it did not fund health care insurance for its employees.


Now that many companies are struggling and some are in bankruptcy, complaints such as these are not quite as common. It seems that most of us would be happy if American business would just shake off the recession and start hiring again. The reality that it takes profitable companies to hire people and pay taxes becomes even clearer in an economic downturn.


So what responsibilities do business firms have anyway? Do oil companies have a responsibility to sell gas at break-even prices if consumers are angry about rising oil prices on the world market? Does Wal-Mart have a responsibility to provide health insurance to its employees?


The answer is much simpler than some might think. When a company is successful, its owners are rewarded with dividends and increasing stock values. At the same time, customers get products they are willing to pay for, employees get jobs at wages they are willing to accept, and the government gets tax revenue. Everyone wins.


Unfortunately, this just isn’t good enough for some. They demand that companies “give back” to society, as if they took something from it in the first place. They demand that the rewards earned by wealthy executives and shareholders who made all of this possible be redistributed. They argue that business has a “social responsibility” beyond that of earning honest profits. In short, they miss the point.


There is nothing wrong with a firm offering health insurance to its employees or contributing to a worthy cause in the community. Doing so helps retain good employees and supports a good corporate image. The problem is the notion that companies have a responsibility to do any of this. The free market already helps solve society’s problems by prodding firms to create and sell solutions. This is done through the normal course of business. When we suggest that firms have an obligation to help solve various social problems beyond the normal course of business, we are requiring them to allocate their resources to problem areas they are not equipped to address.


Soft socialists usually struggle to define social responsibility and they often confuse it with managerial ethics. Almost everyone agrees that honesty and integrity are important, but problems in this area concern ethics, not social responsibility. The irony is that the notion of a social responsibility is arguably unethical itself because it is rooted in the belief that one’s need justifies the reallocation of another’s wealth. This is a complicated debate, but it is safe to say that those arguing for social responsibility do not necessarily occupy the moral high ground. There is nothing moral about demanding that another’s wealth be used to solve society’s ills.


Overcoming this confusion is not too difficult if we ask the right questions. The next time someone says that a company “ought” to do something to solve a social problem, ask him why he is not spending his own money to address the problem. Ask why he feels justified to dictate how shareholders of that company allocate their own resources. Point out that the company already contributes to society by meeting consumer needs, hiring workers, and paying hefty taxes. This might be his first exposure to the concept of economic liberty.

6 thoughts on “The Social Responsibility of Business

  1. Dr. Parnell,
    Good stuff. On a similar note, I had a discussion recently with someone who said that they did not mind paying more in taxes in order to help those less fortunate. I said, well, you have two excellent options: donate to the IRS (I am pretty sure they would take it) or give to charity. That went no where of course. Then at the end of the discussion, she asked me if I knew of a way where she could claim she lived out of the city in order to avoid paying our city wage tax. I couldn’t believe it! The ignorance,inconsistency and hypocrisy (not sure which – hopefully it is ignorance so at least we can have some hope of educating them) of some folks is incredible. They are totally willing to spend other people’s money, but not their own of course!
    Thanks for your information. I am trying to engage in thoughtful debate with as many people as I can presently. You offer great information and perspective.

    I would be interested in your comments on the stimulus package in a future blog. I am troubled by the speed at which this was hammered through. As details emerge, I think people will go nuts.

    Finally, I am intersted in reading more about economics and was wondering if you could recommend some books. I have read several of Dr Sowell’s books as well as Samuelson’s “The Great Inflation”, Moore, Laffer et al “The End of Prosperity”, Wood’s “Meltdown”. I also have Shays “The Forgotten Man” in the queue.

    Sincerely, Jeff Ostrowski

    1. Good story–as you note, those who argue in favor of paying more taxes for X or Y are rarely willing to do it unless others join them. Concerning the “stimulus,” estimates suggest that only a fraction of it (~20%) will be spent in 2009 or 2010 anyway, so it’s really about the massive expansion of government. Talk radio (Hannity, Wilkow, Church, Levin) is doing a good job exposing the fraud, so I’m not sure what I can add to the conversation at the moment; I’ll probably post something soon…You’re reading good stuff. I would add Robert Higgs’ Against Leviathan to the list. Hayek’s The Road to Serfdom is still required reading. Walter Williams’ Liberty versus the Tyranny of Socialism is a nice collection of his recent work.

  2. Jeff: good books to read:
    “In Defense of Global Capitalism” by Johan Norberg.
    “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else” by Hernando de Soto.

    Some good micro/macro/international economics school books (to learn the principles. Check what books the best economic universities use)

    something from the austrian school of economics….
    maybe Cato institute havesome freestuff at (for students)

    The novels of Ayn Rand: The Fountainhead, Atlas Shrugged etc

    books of Milton Friedman, Hayek, Schumpeter etc are all worth reading….

    Stay away from crazy books of Naomi Klein…

  3. jeff:
    P. J. O’Rourke: On The Wealth of Nations: Books That Changed the World
    (The easy way out, if you dont want to read Adam Smith).

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