From Smith to Friedman: Supportive or Subversive?

The concept of corporate social responsibility (CSR) has been evolving since Adam Smith, the 18th-century Scottish moral philosopher and pioneer of political economics, wrote his An Inquiry into the Nature and Causes of the Wealth of Nations. Smith asserted that the needs and desires of society could best be met by the free interaction of individuals and organizations in the marketplace.

Perhaps the most-often-cited quotation from The Wealth of Nations says "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest." In pursuing individual self interests, Smith suggested, the means would justify the ends—public prosperity resulting from those individual acts.

In The Theory of Moral Sentiments, he offered this seemingly contradictory observation: "How selfish so ever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it." Both sentiments are considered to be the early foundation of corporate social responsibility, when consumers became aware of the social benefits of creating wealth and of acting in ways that "advance the interests of society."

I was reminded of this last year as we began our pro bono work for Infoxchange, helping our less advantaged neighbors in Melbourne become familiar with computers and thus narrowing the digital divide. Essentially, it is an effort to boost social inclusion through access to technology. (Our entire story is in "The Question About Doing Good: Is It Worth It to Business".)

Andrew Carnegie, the steel tycoon recognized as one of the world's richest men in the late 1800s to early 1900s, believed two principles were necessary for capitalism to work. The charity principle, he suggested, required that society's more fortunate members assist the less fortunate—the disabled, the sick, the elderly and those unable to find work. The stewardship principle said that wealthy individuals and businesses should regard themselves as stewards, or caretakers, of their considerable resources. In Carnegie's world, the rich were to hold their money "in trust" for the rest of society and to use it for any purpose society regarded as legitimate. The stewardship principle applied to business meant that its role was "to multiply society's wealth by increasing its own through prudent investments of the resources that it is caretaking."

CSR is not without its detractors, however. The late Milton Friedman, an American economist and recipient of the Nobel Prize in Economics, decried corporate social responsibility as a "subversive doctrine." In a now famous 1970s article in The New York Times Magazine, Friedman declared that "the one and only social responsibility of business is to increase profits for shareholders."

Friedman notwithstanding, Smith's two-centuries old viewpoint continues to be the basis for free-market economies the world over. Smith recognized that the free market did not always perform perfectly, and therefore marketplace participants must act honestly and justly toward each other if the ideals of the free market are to be achieved.

Phil Harkness is a partner in the Melbourne office. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .