Abstract
Milton Friedman famously stated that the only social
responsibility of business is to increase its profits, a
position now known as the shareholder model of business.
Subsequently, the stakeholder model, associated
with Edward Freeman, has been widely seen as a heuristically
stronger theory of the responsibilities of the
firm to the society in which it is situated. Friedman’s
position, nevertheless, has retained currency among
many business thinkers. In this article, we argue that
Friedman’s economic writings assume an economy in
which businesses operate under the protections of
limited liability, which allows corporations to privatize
their gains while externalizing their losses. By accepting
limited liability, Friedman must also accept a view of
business as embedded in social interdependency, which
serves as the logical and moral foundation for corporate
social responsibility (CSR). To achieve consistency with
his economic principles, Friedman must either abandon
limited liability or modify his doctrine on CSR and his
related shareholder model of business.