Making sense of the current economic system.

Behold one of the main reasons for our current economic woes.  Profit over social responsibility.  The ultimate goal of corporations are to maximize profits based on Friedman's theory, hence we get why many corporations could care less about it's workers, environment, or social standing.  Check out this article by James Hacker.

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Are corporations expected to be socially responsible actors? Or are they purely market players, expected to play by the rules of the game but seek no benefit outside their own bottom line? Milton Friedman believed that “corporate social responsibility” was a wash, little better than fraud. Specifically, he believed that “the social responsibility of business is to increase its profits.” Only in this manner would a given business be able to expand and survive without “defrauding” its owners.

While Friedman’s reasoning is sound, his answer (exclusive focus on profits) is too simplistic for the modern business environment.

Friedman based his critique of “corporate social responsibility” upon the principal-agent problem. In the modern corporation, the owners of a firm are rarely its managers. Rather, the owners employ non-owning managers whose job it is to run the firm as successfully as possible. In general this means (to Friedman) maximizing profit. Only by doing this will the manager of a company deliver the promised value to the firm’s owners. As Friedman puts it, the manager “has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society…”

If a company’s management was actively pursuing “social responsibility” in a serious manner (i.e. not solely as a PR exercise), then they were effectively using the business’s money (and therefore the owners’ money) to solve social problems. Assuming that this social activity contributed little or nothing to the company’s bottom line, to Friedman this constituted a willful misuse of company money. In his eyes, managers were using their positions as agents of the principal (owners) to levy a form of tax on their corporation, and then using the proceeds from said tax to solve broad social problems. To Friedman, this was ridiculous. Corporations shouldn’t need to tax themselves to solve social problems; that’s what the government was for. If the popularly-elected government didn’t see fit to target a given problem, then what right did private companies have to tax their own owners to do the same?

To Friedman the only way to guarantee an equitable and free society was to have business focus narrowly on meeting the desires of its owners, leaving the business of social improvement to the government. In this manner, owners could trust that their funds were being used to the ends for which they were intended, and any social value created was incidental and not at the expense of the corporation’s owners. In this system, the only role of business, its true “social responsibility,” is to increase its own profit — and therefore the profit accrued to its owners and managers.

Also see this video to see what our system has now become.