Question

In: Economics

Good morning. I'm participating in a debate, topic: 'profits are the only business of business' and...

Good morning. I'm participating in a debate, topic: 'profits are the only business of business' and I kindly ask you experts out of curiosity, whether Friedman Hilton's view is outdated? Why is it not? Also, would be interesting to see examples of questions that could be asked from an opponent 'for'. Thank you and have a lovely week ahead!

Solutions

Expert Solution

Friedman Milton's view that 'profits are the only business of business' is outdated but not completely because the ultimate goal of a business is definitely making profit. But the question is, is making profit wrong? How will an economy grow if businesses don't make profits. Private sector or even the public sector aims at making profit, some of which they invest back into the business in order to expand, and rest is either saved or consumed. The consumption is a part of GDP, hence greater the consumption,greater will be GDP. And the savings, forms the loanable funds market, from where small as well big business, households take loans for various purposes. All these factors are the drivers of growth of an economy. And greater the GDP, greater will be the developmental expenditure - whether on infrastructure, education, health etc. and greater will be these expenditures, greater will be the employment opportunities, even for low-skilled personnel. This in turn will further enhance the growth prospects of the economy, socially as well as economically.

Businesses do have social responsibility of reducing the negative externalities caused by their actions and adequately compensate the affected people. Businesses also have the responsibility of investing some amount in socially developmental activities. But all these can be done when they earn good amount of profits. Thus, making the profits as their ultimate goal because first and the foremost goal of any individual is his/her survival .

Another question is that, if companies are forced to keep some amount separate for CSR activities like companies are given tax benefits if they invest in CSR activities. What good will it do to the society? when companies can not invest their money in activities which they feel are truly socially required. they will invest in the affluent social organizations or the activities defined by government, which will provide them with a certificate of undergoing CSR activity, thus enabling them to have tax benefits. Such investments are not so worthy as there are smaller organizations and people engaged in social activities but have a crunch of funds. Given the fact, companies will not invest there (despite of the fact they might want to invest there) because there they will not get the certificate.

Hence, businesses can fulfill their social motives only if they make profits. Therefore, profit is the ultimate driving force.


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