Question

Outline what is meant by the Friedman Doctrine. List some reasons as to why this doctrine can be linked to the creation of environment damages that have been inflicted by businesses, provide a current business example of environmental damages.

Answer 1

BRIEF ANSWER:

Friedman’s Doctrine or the stakeholder’s theory is a kind of business theory which was proposed by the Nobel laureate Milton Friedman in an essay published in New York Times in 1970. The basic objective of the doctrine was to state the fact that the basic responsibilities of the firm lies under the hand of its shareholders.

This doctrine of Friedman or shareholder’s theory is successful in the business platform but there are some kinds of costs that the business owners will have to face and moreover it will also lead to some environmental costs as well.

EXPLANATION:

Milton Friedman was a classical economist who believed that the business theory or any other business decisions should be made on the basis of the interest of the shareholders of a firm. He also argues that the firm’s management should be socially responsible for its shareholders interest. The goal of the firms will be to maximise the returns of the shareholders. Friedman also argues that it is the shareholders who decide whether to join in the decision making process or not , rather than the manager's role which explicitly chooses them. In one word Friedman tries to reduce the role of the higher authority and try to focus on the shareholders only. But this doctrine of Friedman has a serious implication on the environmental hazard as well.

The major two reasons that Friedman’s doctrine will affect the environment are:

1. Shareholders try to free ride on the resources of the company as they know that the company won’t do anything to them as they bought some stakes of the company. It would lead to excessive use of the resources of the economy. Hence, it creates some environmental hazard.
2. The social costs of the company will be higher than the private costs due to the externalities which were caused by the stakeholders by polluting the resources. Hence, it also affects the environment as well as reduces the profits of the firms.

The major example that creates environmental damages is the case of Dupont in West Virginia in the USA. In that case the major producer of the fertilizer manufacturing company is Dupont that creates several environmental damages in the surroundings due to the mixing of a carbon chain C8 which is very harmful for the health as well as it affects the teeth and several complications to the body.