A critique of corporate social responsibility in light of classical economics

Abstract

Classical economics maintains that managers of corporations are agents of the shareholders. The managers should make decisions in accordance with the wishes of the shareholders. For a corporation, it is typically assumed that shareholders want to maximize their wealth, and hence profit maximization is considered the goal of a corporation. On the other hand, the proponents of corporate social responsibility (CSR) maintain that corporations have a responsibility to all stakeholders beyond the shareholders. Corporations should make decisions while taking into account the effects of those decisions on different stakeholders. This commentary explores the concepts of market orientation and stakeholder orientation. Based on the writings of classical economists such as Adam Smith, Theodore Levitt, and Milton Friedman, I analyze how blind adherence to CSR runs counter to the foundations of classical economics. The effect of CSR on the liberal economics system and structure of corporations in terms of property rights, individual freedom, separation of government and business, and accountability is explored to support Gaski’s (AMS Review, 2022) position on these issues.