On January 25th, 2019, Karthik Ramanna (University of Oxford) presented his current research topic “The social responsibility of business is to increase its profits; but not for the reason you think” at the WHU Research Seminar in Finance & Accounting. His current research work focuses on a book that Karthik Ramanna is writing on Free Markets in America.
Nearly fifty years ago, Milton Friedman famously argued that the social responsibility of business is to increase its profits. Anything else, he noted, would usher in waste and mediocrity. The author finds that in the period since, as our public institutions have failed us, several corporations have stepped in offering to address pressing social problems such as climate change. Tempting as this may seem, beware the cure worse than the disease – corporate political activism is a threat to liberal democracy. In the author’s opinion, corporations are designed to turn a profit, and this is a good and useful thing. They cannot and should not be expected to solve society’s non-market problems – doing so depreciates public institutions and, moreover, the evidence suggests corporations will simply use such political engagement as an opportunity to extract more profit.