Sunday, May 23, 2021

The social responsibility of the firm in a post-Friedman era

The behavior of firms is ideally constrained by the regulatory and fiscal power of the State and by the competitive pressure of the markets. However, the processes of globalization and monopolization by large companies (especially technological multinationals) erode the disciplining role of the State and the market, so that if firms have profit as their sole objective, they become a source of inefficiency, inequality, deterioration of the environment and excessive accumulation of power. Reflection on these issues, which has made its way into some fora, including business institutions, at an international level, has so far had little echo in some countries like Spain, and it is time for it to come with more force. For this reason, it is necessary to raise the debate of a new purpose, necessarily broader, for firms, without this implying an impairment of a stronger role by effective governments with high capacity at all levels. In fact, a stronger State and a firm that is more capable of fulfilling its social mission and being a source of wealth, are complementary aspects, as revealed during the COVID-19 pandemic, and as it will be increasingly necessary in times of growing global and climate risks. 

In many cases a company oriented towards social objectives will be compatible with robust business finances, but we must be aware that this will not always be the case. It will not always increase profits. In any case, it is necessary to avoid that firms generate social problems to earn profits. This is one of the reasons why the separation of roles between the productive company, the market as an allocative mechanism and the redistributive state, becomes more ambiguous in an era of global disruptions, monopolization and capital mobility.  A new social contract must give rise to a more complex distribution of responsibilities (which also includes communities into the equation), with the objectives of increasing the productivity of our economy and, at the same time, contributing, in a context of coordination between levels of government and companies, to social objectives of equity and environmental sustainability. Greater participation of workers in company decisions, starting from the bottom with operational tasks and financial participation in ownership and profits, can contribute to improving transparency (necessary to facilitate control by all citizens) in decision-making, and to internalizing the effects of decisions on communities and promoting the creation and maintenance of good jobs (as Rodrik argued in our interview). 

Friedman claimed in the 1980s that under certain conditions, the firm's social responsibility was to make profits. Today these conditions are largely absent (due to the conditions that globalization imposes on the state and the market, and due to the power of large companies over rule-setting) and therefore the social responsibility of the firm must be broader. And it must begin by fulfilling its obligations to contribute to the State in a meaningful way through Corporate Taxes and Income Taxes for the high salaries of people with executive positions; and it must continue with a commitment to eliminate any form of corruption and improper influence over public decision-making. 

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