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The Contrasting Views Of Milton Friedman And Ralph Nader On Corporate Social Responsibility

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Corporation is a legal entity made of natural persons or other legal entities that holds legal identity within the society. Corporate social responsibility is the duty of a corporation to create wealth in ways that avoid harms to, protect, or enhance societal assets. The idea of Social Responsibility interrelates the obvious interrelationship between business corporations, government and American society, is based on the fundamental idea that the corporations have duties that go beyond carrying out their basic economic functions in a lawful manner because the overall performance of a firm is to maximize the social benefit.

Though economists could agree on the existence of corporate responsibility, they differ in the fundamental definition of these responsibilities. Conservative economists, such as Milton Friedman, claim that business is most responsible when it makes profit efficiently, not when it misapplies its energy on social projects, where as in contrast, consumer activists, such as Ralph Nader, spell out responsibilities that include corporate contribution to the enhancement to the social well being.

In this paper, I will be discussing the fundamental idea behind the views of Milton Friedman and Ralph Nader towards Corporate Social Responsibility and analyzing the rationale behind the differences, quiet contrasting to each other, on the general principles that guide corporate responsibility towards the society.

Milton Friedman - The Anti-Corporate Social Responsibility

Milton Friedman was a conservative economist and an intellectual who made major contributions to the field of economics for which he was awarded the Nobel Prize in Economics for his achievements in the field of consumption analysis.

With unshakable belief that free market promotes freedom and democracy, Friedman stated: "We believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free." ("The Tyranny of Controls" in Free to Choose: A Personal Statement, by Milton Friedman and Rose Friedman, published by Harcourt Brace Jovanovich)

Milton, well known for his anti-CSR views, believed corporations have no social responsibility whatsoever other than to use its resources to increase the profits of its investors within the rules of the game and it is up to the investors as individuals to engage in social contributions. He believed that the corporate executives, who are appointed by the investors to make profits on the investments, cannot engage in social contributions using the corporate money; however, they could do so as a private individual on their own behalf. In his book, Capitalism and Freedom, Friedman advocates minimizing the role of government in the free market in his book.

Ralph Nader - The Pro-Corporate Social Responsibility

Ralph Nader, noted consumer rights activist and attorney, played large role in the formation of many governmental and non-governmental organizations for the welfare of consumers, workers and the environment, such as Environmental Protection Agency (EPA), Occupational Safety and Health Administration (OSHA) etc.

Ralph Nader is a vocal advocate of Corporate Social Responsibility. He believes, in contrast to Milton Friedman, the Corporations must take responsibility for their actions. The responsibility of a corporation, according to Nader, is for the greater good of the society and Corporate has fair responsibility towards their consumers, ensuring product safety; environment, impact on natural resources; and workers, ensuring occupational safety.

The contrasting views of Milton Friedman and Ralph Nader

It is often said that bad economic policy reflects disagreement among the experts; that if all economists gave the same advice, economic policy would be good. Economists often do disagree, often based on their ideological positions. Milton Friedman and Ralph Nader, though they fundamentally differ, have long list of followers among economists and activists for their idea on Corporate Social Responsibility. In this section, we will analyze the rationale behind the differences in their views various general principles of Corporate Social Responsibilities.

Principal #1: Corporations are economic institutions run for profit

Friedman argues that thencorporations should be primarily and only be judged on economic criteria. The Corporate executives are appointed by the investors and are responsible for maximizing the profitability of their employers, the investors. Friedman argues that if a manager spends corporate funds on social projects, he or she is diverting shareholders' dollars to programs they may not even favor. Similarly, if the cost of social projects is passed on to the consumers at higher prices, the manager is spending their money. If the market price of a product does not reflect the true cost of producing it, but includes costs for social programs, then the market's allocation mechanism is distorted.

Ralph Nader, on the other hand, questions, "if the government is going to provide corporation with services, or give away its assets, is there any reason it should not charge, or should charge below-market rates?"(The Testimony of Ralph Nader Before the Committee on the Budget U.S. House of Representatives June 30, 1999.). He argues that Corporation's social responsibility is complementary to what it receives as favors, corporate welfare programs, from the government. In his book Active Citizenship, He asserts that the corporate executives

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