A one-size-fits-all approach to both small businesses and large corporations isn’t appropriate.
We need to legislate livable wage requirements for large corporations and give small businesses that pay livable wages tax incentives.
The Social Responsibility of Business Is to Increase Its Profits
In September 1970, the New York Times published an article by Nobel laureate economist Milton Friedman titled The Social Responsibility of Business Is to Increase Its Profits.
Friedman wrote the article responding to the growing public and academic interest in corporate responsibility regarding environmental issues, civil rights struggles, and consumer protection. His controversial perspective dismissed social, ethical, or environmental concerns unless they directly contributed to profit. Others argued that businesses should consider broader stakeholder interests, including employees, communities, and the environment.
Friedman's premise was that the business of business is business. He emphasized that diverting from pursuing profit is equivalent to spending someone else’s money—shareholders, employees, or customers—for purposes that hadn’t been mutually agreed upon. He likened this spending of other people’s money to taxation without representation.
Friedman argued that a business's primary responsibility is to increase profits, and corporate executives should focus solely on maximizing shareholder value within legal and ethical boundaries. He posited that corporate social responsibility blurs the lines between the private and public sectors.
Let me repeat that.
Friedman believed businesses, particularly corporations, should maximize shareholder value and profits. Any deviation toward social justice or environmental concerns is outside a business’s fundamental responsibility unless it directly contributes to profitability. Instead, he asserted that the public sector—or government—should fulfill these societal roles. Addressing and managing social justice and general welfare issues falls under the umbrella of public responsibility.
Friedman posited that we should not blur the lines between corporate and public responsibility. Famous economists tell it like it is: there’s corporate responsibility and public responsibility.
If the business of business is business, and the responsibility of corporations is to increase profits, then what is public responsibility?
Government of the People, By the People, For the People
On November 19, 1863, President Abraham Lincoln gave a short speech to dedicate the battlefield cemetery at Gettysburg, Pennsylvania. The Gettysburg Address became the most quoted speech in history. It ends with the words, “that government of the people, by the people, for the people, shall not perish from the earth.”
The concept of government for the people binds our public responsibility. Lincoln conveyed that governance derives legitimacy from its ability to represent and serve the people, an idea rooted in the US Constitution. The Constitution is the agreement the American people and the states in the Union made to form a government.
Let me emphasize again that the people and states willingly chose to form a government, and they further chose that elected representatives would use the ratified Constitution as its governing document.
The Preamble states the purpose and intent of the document. It includes the words:
We the People of the United States, in Order to…establish Justice, insure domestic Tranquility… (and) promote the general Welfare…do ordain and establish this Constitution for the United States of America.
Let's expand on the verbiage in the Preamble just a bit.
We've already touched on the first words, "We the People." Lincoln referred to this as government of the people, by the people, for the people. The purpose of government is to serve the people. Friedman later referred to this purpose as the responsibility of the public sector.
So we could rephrase that portion of the Preamble to “It is the responsibility of the public sector and our elected representatives to…”
Next, we address “establish justice and insure domestic tranquility.” Last week, we discussed the concept of justice in the context of Plato. Justice is fair and equal treatment under the law, individual liberty, and the equitable distribution of resources that enable individual opportunity.
Justice creates a society where individuals fulfill their roles and contribute to the state's overall well-being. Addressing inequality reduces societal tension, maintains social order, and fosters a peaceful society.
Justice enables people to work and command a livable wage. It’s the equitable distribution of resources like education, healthcare, and housing that allows people to work and earn a good living. Access to resources gives everyone a fair chance at economic success. Achieving justice ensures domestic tranquility.
Justice isn’t a handout. Government shouldn't continuously redistribute wealth. Instead, we need to create a fair system where opportunities for housing, fair pay, health, education, and economic advancement are accessible to all. Justice is the government setting conditions and rules that enable individuals to achieve success.
With a shared understanding of justice, let’s build on our statement. We can expand it and say: “It is the responsibility of the public sector and our elected representatives to…create a society that strives toward individual opportunity and equitable distribution of resources…”
Now, we can move on to “promote the general welfare.”
The general welfare is the well-being of citizens. This requirement identifies a responsibility to create conditions that improve the quality of life for all Americans.
Our final expanded statement can be: “It is the responsibility of the public sector and our elected representatives to…create a society that strives toward individual opportunity and equitable distribution of resources… to enhance the well-being of Americans, and to achieve these goals we establish this Constitution for the United States of America.”
This language juxtaposes Friedman’s view of corporate and public responsibility. The business of business is business, and corporate responsibility is to increase profits. The business of the public realm is to set conditions and rules that ensure individual success through legislative and regulatory means.
Corporate profit is essential for economic growth. The goal of corporations is to earn profits.
Public responsibility counterbalances the corporate drive for profits. It ensures economic progress contributes to the well-being of citizens and not just corporations. The institution is to maintain a balance between the corporate market and individual justice.
How would this institution of public responsibility achieve this balance?
Why do we treat small businesses like publicly traded corporations?
Like much of economic theory, Friedman’s argument focuses on the role of large corporations in maximizing profits. But there's an apparent disconnect when we apply this framework to small businesses.
Small businesses operate on a smaller scale than corporations. They have less access to capital, market power, and regulatory influence. Despite these differences, policies and expectations often treat them as equal players in the same market.
This leads us to our question: Why do we treat small businesses like publicly traded corporations?
Shouldn't small businesses with fewer resources have more support and different requirements than large corporations? Let's consider two obvious ways small businesses differ from corporations and why they should have different requirements.
First, small businesses use less infrastructure than large corporations and put less stress on that infrastructure, so they shouldn't have the same infrastructure tax requirements. They have a smaller physical footprint, require fewer resources, and generate less strain on public services like roads, utilities, and waste management. While corporations provide goods and services to the public, they also heavily utilize infrastructure—which is a business cost, not a socialized public fund. Businesses are responsible for their operating costs.
Second, many small businesses are owner-operated and can't pay themselves poverty wages. They face the reality of needing a house to heat and food to put on the table. They should get tax cuts to incentivize higher wages, whereas we should have a livable minimum wage standard for corporations. Large corporations have more resources and greater financial capacity; a minimum wage standard for corporations ensures workers are compensated fairly and can contribute to the economy. Tax incentives for small businesses and wage standards for corporations seek a competitive balance.
However, public responsibility still needs to achieve a goal. All Americans need justice, which means food on the table and heat in the house. Furthermore, a second intended outcome is to reduce reliance on social programs by ensuring sufficient wages. Giving small businesses a tax incentive to pay higher wages will only keep Americans off social programs if those small businesses actually pay livable wages. To receive the tax incentives, small businesses need to prove they paid their workers livable wages.
The business of business is to maximize profits. The business of the public realm is justice and the welfare of America. We need to encourage businesses to strive for profits, and we need to ensure corporations pay their workers a wage that lifts them above the poverty level.
We don't need a complex law. We need to legislate a fair corporate minimum wage that adjusts automatically over time and takes the cost of living in different areas into account:
Publicly traded corporations shall pay full-time wages representing a rate no less than the poverty level plus 50%, assuming the worker and three dependents, for that locality.
And for small businesses, we need a tax incentive:
We will reduce the tax burden for small businesses that pay livable wages by 10% across the board and target specific industries, such as retail and food service, with even more significant tax breaks.
Another benefit of treating small businesses differently than corporations is that it makes them more competitive. A visit to downtowns across America tells a common story about how big-box stores drove small retailers out of business. Large corporations leverage economies of scale to offer lower prices that small businesses can’t match, leading to a decline in local economic diversity. This phenomenon has reshaped downtown areas, resulting in economic blight and decreased community cohesion. We’re not going to put publicly traded corporations out of business, but we need to make small businesses more competitive.
A one-size-fits-all approach to both small businesses and large corporations isn’t appropriate.
The business of business is to maximize profits.
The business of the public realm is justice and the welfare of America. Justice is food on the table and heat in the house.
We need to legislate livable wage requirements for large corporations and give small businesses that pay livable wages tax incentives.
May God bless the United States of America.
Why do we treat small businesses like corporations?