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In Defense of the Unabashedly Profitable

Original Article

A business is not a family or a charity or a government. It has a specific social function with a specific purpose, which implies specific duties. One of its responsibilities — its duties — is to make a profit. I know that Milton Friedman argued famously in 1970 that profit-maximizing was the only responsibility of executives, and that’s an overstatement.

Still, think about it.

The opposite of profit is loss. Unprofitable companies disappear, along with whatever goods, services, and jobs that they provided. If executives act willfully against their responsibility to seek and make a profit, they will have failed in one of their primary duties.

We all have other moral responsibilities, and that applies to corporate executives too. Their moral responsibilities, by extension, apply to their corporations (which are not themselves agents with responsibilities). Unfortunately, far too much that travels under the cover of so-called “Corporate Social Responsibility” (CSR) fails to capture that intuition. Instead, CSR has often become a euphemism for fashionable political goals that are not only morally debatable but economically unfeasible. As a result, they have given companies incentives to engage in fake but conspicuous virtues — invoking “green jobs,” “sustainable development,” “stakeholder value” and so forth — that on closer inspection do little or no good, often amount to little more than payoffs to shake-down groups, and would harm the companies themselves but for good marketing and government subsidies.

The utilitarian could argue that to get corporations to “act responsibly,” we must seek ways to align economic incentives, so that corporations will have positive economic incentives to do the right thing. That’s true, so far as it goes; but there’s more to it. When “social responsibility” is defined by political fashion, and in a way that contradicts the duties that executives and corporations have to stockholders, then corporate decision makers end up with conflicting “duties,” at least one of which must be sacrificed. Even if they wanted to do the right thing, they couldn’t. So to forge a solution, there must not only be an alignment of incentives, but also an alignment of duties.

Real externalities are a legitimate concern. Some are so vague or impossible to anticipate, however, as to be beyond reckoning. And sometimes the good spin-offs outweigh the bad. Still, how do we deal with the real negative externalities? I like Christopher Meyer and Julia Kirby’s suggestion that the way forward is for corporations, preferably voluntarily, to figure out ways to internalize the tangible externalities of their actions.

The devil’s in the details of course. If poorly defined, their proposal could lead to all manner of regulatory malfeasance. But at its best, successful companies (like Apple in their example) will get better at anticipating externalities. This looks like a natural evolution of business in an age in which so much can be detected.

In any case, behind Meyer and Kirby’s suggestion (charitably interpreted) is a universal moral principle: thou shalt not steal. When I knowingly pollute someone’s land without compensating them, for instance, I am, in effect, stealing their property. If I defraud a customer, I’m not behaving responsibility. I’m stealing.

And this gets at a simple but important point: while businesses, especially large corporations, can now have global effects, their moral responsibilities still derive from the same old moral principles that apply to all of us: don’t lie, don’t steal, don’t murder, don’t defraud. Or, to put them positively: tell the truth, and respect the lives, property, and dignity of others.

Sure, applying these basic principles in specific circumstances can be extremely complex and often hard to execute. And sure, “corporate social responsibility” often refers to activities that have little to do with either good outcomes or the bottom line. The solution for the real externalities will lie, however, in carefully defining real duties, including the duty of businesses to seek profit; and then making sure these duties are aligned properly with corporate leaders’ other basic duties to their fellow human beings.

What we should esteem, in other words, are businesses that avoid lying, cheating, stealing, or otherwise abusing the public trust, and at the same time are robustly and unabashedly profitable.

Companies that achieve this going forward are likely to be those that most successfully internalize real externalities, rather than merely appearing to do so.

Jay Richards is author of Money, Greed, and God: Why Capitalism is the Solution and Not the Problemand Senior Fellow and Director of Research at Discovery Institute.