What is the primary purpose of a business, according to Milton Friedman? Question 1 options:
Maximize profit for society
Provide employment for people
Contribute to social welfare
Maximize profit for owners or shareholders
The correct answer and explanation is:
Correct Answer: Maximize profit for owners or shareholders
Explanation (300 words):
According to economist Milton Friedman, the primary purpose of a business is to maximize profit for its owners or shareholders. This perspective was most famously articulated in his 1970 article published in The New York Times Magazine, titled “The Social Responsibility of Business is to Increase its Profits.”
Friedman argued that in a free-market economy, corporate executives act as agents for the owners of the business—the shareholders. Their primary responsibility is to conduct the business in accordance with the desires of the owners, which typically means maximizing shareholder value, as long as it stays within the rules of the game—that is, obeying the law and ethical customs.
He was critical of the idea that businesses should take on social responsibilities beyond making profits. Friedman believed that diverting a company’s resources to social causes could lead to inefficiencies and reduce the effectiveness of the free market. He argued that social welfare is better handled by individuals or elected governments, not corporate executives.
This view has been highly influential in shaping corporate governance and capitalist thought, especially in the latter half of the 20th century. It led to a focus on shareholder value as the primary metric of corporate success. Critics, however, argue that this narrow focus can lead to negative outcomes like environmental degradation, labor exploitation, and income inequality.
In recent years, alternative perspectives like stakeholder theory have gained traction, advocating that businesses should also consider the interests of employees, customers, communities, and the environment. Nonetheless, Friedman’s view remains foundational in discussions about the role of business in society.
In summary, Milton Friedman’s core belief was that the main responsibility of a business is to increase its profits, serving the interests of its shareholders, as long as it adheres to the legal and ethical standards of society.