Is It Socially Responsible to Maximize Profits?
In recent years there has been growing public discussion of the
need for firms, especially large ones, to behave in a socially
responsible manner. Advocates of this view start from the
position that unadorned capitalism, and the associated goal of
profit maximization, does not serve the broader public interest:
Corporate profits clearly help firms’ shareholders, but the
public interest is not being served. In this view, corporate
social responsibility must involve more than simply maximizing
profits.
Others argue that firms should indeed focus on the goal of
maximizing profits and that, by doing so, they are providing
significant benefits to their customers and their employees, not
just their shareholders. In addition, it is the pursuit of profits
that leads firms to develop new products and production
methods, innovations that lie at the heart of ongoing
improvements in overall living standards. This opposing view is
grounded in the same insight of Adam Smith’s that we saw in
Chapter 1 —that the pursuit of private gain creates benefits
for society as a whole.
What about corporate profits generated through a production
process that damages the environment? Surely there are costs
imposed on society when firms, through their profit-maximizing
decisions, are led to emit poisonous effluents into the air or
into local waterways. Or how about firms—such as investment