Student Business and Milton Friedman Essay Example

Student: Business and Milton Friedman Essay This is a research of analyzing the statement of Milton Friedman, which was posted on the New York Time in 1970. Following his idea we can see that the business need to do the best to increase its profit which he called that is social responsibility. However the changing of the world has denied his idea of social responsibility of a business by figure out the demand from consumer or shareholder, high pressure of the globalization to business. All of that factors has change the culture and the vision of business in the last decade. In the other hand, Milton Friedman had a forever right idea which is a business must â€Å"stays within the â€Å"rules of the game†Ã¢â‚¬ . Although his idea of social responsibility has been denied, the idea of a business must follow the rules and regulation will have been right. I. Introduction â€Å"There is one and only one social responsibility of business – to use its resources and engage in activities design to increase its profits so long as it stays within the rules of the game†¦Ã¢â‚¬  (Milton Friedman, 1970) According to the statement of Milton Friedman at the time of 1970, his vision of business is about the using the resources of the company in activities to design to increase its profit as long as possible. Milton Friedman has described business as a game that has the rules that every businesses must follow to survive and to win the game. We will write a custom essay sample on Student: Business and Milton Friedman specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Student: Business and Milton Friedman specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Student: Business and Milton Friedman specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Base on the statement of Milton Friedman we can recognize the significant factor of a business to be run smoothly and strongly is not only engage in increasing its profit but also follow the rules which considered as laws or legislation of the market that it taken in. In the other point of view, the game in the statement of Milton Friedman can be seen as the area or the countries that a business is joining which each of the area or country has its own rules. There for, business must â€Å"stay within the rule of the game†. II. From a perspective accounting, what are the â€Å"rules of game† that businesses must follow? From a perspective accounting, the rules of game that business must follow are the three level of accounting which are rules of Company legislation, Accounting standard and Stock exchange which apply to accounting entities. 1. Company legislation Company legislation applies to all companies, although public companies have more stringent rules than private companies. Specifically companies are required to present to share holders at an annual general meeting audited statements which comply with accounting standard. There are some company legislations, which are created by Australia Accounting Standard Board (AASB). For instant: First-time Adoption Of Australian Accounting Standards (AASB 1): This compiled Standard applies to annual reporting periods beginning on or after 1 January 2013 but before 1 July 2013. Early application is permitted. It incorporates relevant amendments made up to and including 18 December 2012. Prepared on 29 April 2013 by the staff of the Australian Accounting Standards Board. The objective of this Standard is to ensure that an entity’s first Australian-Accounting-Standards financial statements, and its interim financial reports for path of the period covered by those financial statements, contain high quality information that: a) is transparent for users and comparable over all periods presented; b) provides a suitable starting point for accounting in accordance with Australian Accounting Standards; and c) can be generated at a cost that does not exceed the benefits. (Source from Australian Accounting Standards Board 2013) . Accounting standard Accounting standard are the accounting rules that accounting entity need to follow in reporting the financial statement. Accounting standard concerns with how assets and liabilities should be measureed in identified in the statements. Traditionally each country develop it own standard. In Australia, every business entity need to follow the Australia accounting standard which is set by Austrailia Accounting S tandard Board (AASB). Here are the two accounting standard set by AASB: Statement of Cash Flows (AASB 107) This compiled Standard applies to annual reporting periods beginning on or after 1 January 2013 but before 1 July 2013 for for-profit entities. It takes into account amendments up to and including 18 December 2012 and was prepared on 10 May 2013 by the staff of the Australian Accounting Standards Board (AASB). Information about the cash flows of an entity is useful in providing users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilize those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certainty of their generation. The objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities. (Source from Australia Accounting Standard Board 2013) Property, Plant and Equipment This compiled Standard applies to annual reporting periods beginning on or after 1 January 2013 but before 1 July 2013. It takes into account amendments up to and including 10 September 2012 and was prepared on 10 May 2013 by the staff of the Australian Accounting Standards Board (AASB). The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them. (Source from Australia Accounting Standard 2013) 3. Stock exchange A  stock exchange  is a form of  exchange  which provides services for  stock brokers  and  traders  to trade  stocks,  bonds, and other  securities. Companies, which are listed on a stock exchange market must comply with the stockexchange financial disclosure requirement. These companies need to follow the rules and regulations of trading in stock exchange which are forced by the government. This is an example for rules of stock exchange which are set by AASB. Fair Value Measurement This compiled Standard applies to annual reporting periods beginning on or after 1 January 2013 but before 1 July 2013. It takes into account amendments up to and including 18 December 2012 and was prepared on 10 May 2013 by the staff of the Australian Accounting Standards Board (AASB). This Standard: (a) defines fair value; (b) sets out in a single Standard a framework for measuring fair value; and (c) requires disclosures about fair value measurements. 2 Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same – to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (ie an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). 3 When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Because fair value is a market-based measurement, it is measured using the assumptions that market. (Source from Austrailia Accounting Standard Board 2013) Therefore, in an accounting perspective, the â€Å"rules of the game† that businesses must follow are the rules and regulation in three levels of acting. Those rules and regulations are the standards that all business must go behind to ensure their business is going within the circle of businesses rules. In the other hand businesses need to have ability to keep update on legislative and regulatory matters and changes, and determine the effects on business performance, mangement planning and decision-making. III. In the current environment, is Milton Friedman’s statement as relevant in 2013 as it may have been in 1970? â€Å"There is one and only one social responsibility of business – to use its resources engage in activities designed to increase its profit so long as it stays within the â€Å"rules of the game † (Milton Friedman, 1970) This is the statement of Milton Friedman which was posted on New Times Magazine, 1970. This famous statement has became the debated and conflicted topic until now. Carefully reading this statement, we see the two points of a business need to consider from Milton Friedman. Firstly,we will analyze the statrment of â€Å" one and only one social resposibility of business – to use its resources to engage in activities designed to increase profit † what we can directly understand of this statement is about the significance of the profit to a business due to its social responsibility. Milton Friedman asserted that â€Å"one and only one social responsibility† of a business is to increase its profit. We can deny that in business, a company need to get the profits to support for its survival and development. Yes, profit is the blood of the company however in modern business this idea is not so true at all. Nowadays, people is thinking more and more about the â€Å"social responsibility† of a business which is not as simply as it was in 20th decade which business’s social responsibility is to increase profit. In another point of view, business is presently facing an uncertain competitive environment with multiple demands and pressures from customers and numerous stakeholders. In modern business, people are now more concerned about ethics business, environmental responsibility and community responsibility which are changing due to the demands and need of consumers as well as the globalization. Ethics business concern about serious and high-profile breaches of corporate ethics resulting in damage to employees, shareholders, communities, and the environment—as well as share price—have contributed to elevated public mistrust of corporations. Therefore, demand for companies that are ethically governed is up. Sometime, people think that businesses, need to have obligation to contribute to community, society become increasingly expect business to have obligation to the society that it is located, the obligation to its employees and customers that it serves. Environmental responsibility is the obligation of a business need to have to the environment. For example of Exxon in 1989, in an accident of oil spill Exxon come into a depress situation of decreasing in sale volume. Therefore, Exxon needed to take responsibility to fix their mistake to recover after the scandal. In this point of view, a business MUST have the responsibility to environment that they take their business in. Environment responsibility nowadays is becoming a serious problem that people most pay attention which is considered as a significant obligation of the social responsibility. Community responsibility of a business came into people’s mind as the ethics and morality in business. The community responsibility is relevant to the human-being treatments which the behaviors of employers to employees is also a consideration. China, the paradise of labors which is now the biggest factory in the world. In some times, Chinese labors face to very bad employers who give them terrible working condition and poisonous working environment without any protect equipment and end of the month they just give them a small amount of salary in some companies they not even give money to the workers in 3 or 6 months. Therefore, businesses are now facing with many responsibilities that they to assume. Consequently, social responsibility is raising many arguments and debates in worldwide. What business do, they should thinking about their responsibility wisely. Because in the modern economy environment, the definition of social responsibility is not as correct as Milton Friedman said â€Å"†¦one and only one social responsibility of business – to uses its resources engages in activities design to increase its profit†¦Ã¢â‚¬  the demands of shareholder and pressures from consumer and the globalization has taken business into a higher social responsibility that they should follow. The other idea that we need to look at Milton Friedman’s statement is the â€Å"rule of the game†. Milton Friedman has described business as a game which has the rules that every businesses must follow for its survival and victory of the game. Base on the statement of Milton Friedman we can recognize the significant factor of a business to be run smoothly and strongly is not only engage in increasing its profit but also follow the rules which considered as laws or legislation of the market that it taken in. In the other point of view, the game in the statement of Milton Friedman can be seen as the area or the countries that a business is joining which each of the area or country has its own rules. There for, business must â€Å"stay within the rule of the game†. The world is now gradually getting acquainted to globalization. Globalization is now changing the way of business in over the world. But there are some barriers that international business need to put their mind on is the rules and the regulations are different among countries. Even the material fish in Vietnam is very low but they must follow the rules of USA to increase the selling price when Vietnamese fish come into their market. They are the rules and regulation that business have to research and must follow in a market/country, especially with the international businesses. In my opinion, due to the statement of Milton Friedman business must â€Å"stays within the â€Å"rules of the game†¦Ã¢â‚¬  has been a extremely correct idea until now. Businesses – they need to know and must obey the regulation in any way to survive in the economy. According to Friedman statement we can see that the world may change for some situations but following and complying the rules and regulation to survive had been never wrong. Basically, human community are living in the rules of nature as well as businesses survive in the â€Å"rules of the game†. IV. Conclusion To cut a long story short, there are two main ideas of Milton Friedman in his statement that we need to think about. Firstly, meaning of the first part of this statement is to emphasize the social responsibility of a business. It is clearly that the modern economy requires the business to have more social responsibility on what it does to make and increase it profit. The demand and high pressure of globalization on business enquire the adoption to have more obligation and duty to society such as environment, community or even thinking about ethic business. Moreover, business is now moving to the trend of humanity in which people believe that a good business should keep going on having good social responsibility beside its first target of increasing its profit. Secondly, this statement gives us a wonderful vision of Milton Fried about doing business and in my opinion, it will be never change until there is no business exist on earth. Because of the differentiation of geography, cultural and economic factors there always many rules of business in different market that they join in. Therefore, businesses need to research and follow the rules and regulation of the market or the country that enter. In addition, Milton Friedman has described the market/country as a game which has its own â€Å"rules of game† for the players who is the business. In the other hand, the modern economy asks business to keep â€Å"up to date† on legislative and regulatory matters and changes, and determine their effects on business performance, management planning and decision-making. Whatever the business do is just for the final goal which is to increase its rofit but forever and never a business can be success without staying within the â€Å"rules of the game†.