Milton Friedman Was Right About Philanthropy After All

To most people in philanthropy, Milton Friedman, the Nobel Prize-winning economist who died last month, is probably best known — if he is known at all — as an opponent of corporate social responsibility, which he once called a form of “pure and unadulterated socialism.” He also compared the idea of requiring young people to perform national service to the Hitlerjugend, the Nazi Party’s youth movement.

But if such comments made Mr. Friedman easy to dismiss as an extremist, his ideas have nonetheless played an important role in shaping the environment in which the nonprofit world now operates. Moreover, on balance, they have helped philanthropy more than harmed it.

Take his thinking about corporate social responsibility. Writing in 1970, Mr. Friedman argued that too many business executives were ignoring their responsibilities to their shareholders, customers, and employees in order to pursue their own ideas of how to be good corporate citizens.

The result, he contended, would be bad not just for corporate profits, from which the wealth needed for individual and foundation giving flowed. It would also expose businesses to greater government control, in order to make corporations more accountable to the public for their actions, especially those they claimed were socially responsible ones.

Yet, Mr. Friedman was not against corporations trying to do good, if such steps were really intended to further the interests of the businesses involved. And today, that rationale, usually called “strategic philanthropy,” is the one companies most frequently offer for their socially oriented activities, which have become far more extensive than they were when Mr. Friedman first published his views. In addition, an increasing amount of corporate giving is now tied to marketing and public-relations programs, which seek to increase a company’s sales as well as its reputation.

How much benefit businesses really derive from such efforts is often debatable. Nonetheless, contrary to what Mr. Friedman’s critics thought, the notion that “the social responsibility of business is to increase its profits” (as his article on the subject was titled) is proving to be compatible with more corporate and other kinds of philanthropy, not less.

Likewise, Mr. Friedman’s views on national service have largely carried the day.

Mr. Friedman believed that an individual’s freedom to choose was a more powerful motivator for public-spirited actions than government requirements. As a result, he took an active role on the Nixon-era commission that recommended replacing the military draft, which Mr. Friedman regarded as a tax on young people, with an “all-volunteer force,” a controversial idea at the time.

Despite periodic calls to bring it back, conscription now has little support, especially among military leaders, who regard it as unlikely to produce the quality of soldiers who enlist voluntarily.

Mr. Friedman’s thinking about compulsory military service carried over to his attitude toward requiring young people to perform community service.

William F. Buckley Jr., the prominent conservative commentator, recalls that when he proposed a plan that would offer incentives to encourage high-school and college graduates to participate in national service rather than requiring them to do so, Mr. Friedman, his “hero” and ideological ally, rejected the idea, fearing that politicians might direct participants into partisan activities, or worse.

Today, military or civilian service is still far from being the common experience of all citizens that Mr. Buckley and many others wished it to be. Yet, even without conscription or extensive government inducements, volunteering by young people has been rising steadily and Americans are more likely to look to philanthropy and community organizations to improve social conditions than they once were.

Mr. Friedman’s opposition to national service was just one aspect of his skepticism about government. On other issues of concern to the philanthropic world, such as health care, education, welfare, Social Security, and urban development, he also criticized public policies, arguing that their supposed beneficiaries would generally be better off if they were abolished. He offered his own alternatives as well, including two that have had an enormous impact on nonprofit organizations and the people they are trying to assist.

One was that instead of paying directly for schools, clinics, or housing, the government should issue vouchers that would enable the needy to buy the services they required in the marketplace. In addition to increasing the ability of the poor and others to choose where to get help, Mr. Friedman believed that this approach would make providers of social services more effective by promoting competition among them.

Public policy has increasingly supported the voucher approach, especially in education, though not always in the way Mr. Friedman would have preferred. It is not clear whether the accessibility and quality of these services have improved as a result. But nonprofit groups do not seem to have suffered, even though their operating environment has grown more complex, since their traditional clients now have a wider range of options, including for-profit organizations and charities unwilling or unable to accept government grants.

Mr. Friedman’s other influential proposal was to replace welfare, food stamps, and other subsidies to the poor with a single “negative income tax” that would assure the poor a minimum amount of financial support that would decline as their earnings rose.

Although the idea was endorsed by liberals as well as conservatives, backers of the existing programs and opponents of a “guaranteed income” kept the plan from being adopted.

However, a more limited version of it, the earned-income tax credit, was enacted in 1975 and has become a key antipoverty tool, annually providing more than $35-billion in assistance to more than 20 million low-income families, who might otherwise need even more aid from charities.

With the negative income tax, as well as his other ideas, Mr. Friedman sought to defend individual freedom and private organizations against what he saw was an increasingly powerful and domineering state. Like his intellectual forebear, Adam Smith, he believed that reducing the influence of government would be good for philanthropy. By and large, he was right.

Leslie Lenkowsky is a professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.