By Marc Sidwell
Tuesday, September 13, 2022
Fifty-two years ago today, the
economist Milton Friedman issued a prophetic warning. Writing for
the New York Times, he identified a growing threat to the free society: corporate
executives who, instead of staying focused on turning a profit, spent other
people’s money on “social responsibility.” Friedman was emphatic: Companies
that went down this road were not just well-meaning and misguided. They were
bankrolling an insidious attack on capitalism itself. Soft-hearted managers
were dragging the economy down a road that could end only in socialism.
Friedman’s full-throated attack on the
social responsibility of business was shocking even at the time, but he was no
lightweight commentator peddling synthetic outrage. Within six years, he would
be awarded the Nobel Prize in Economics. Five decades later, it is hard to deny
that Friedman was on to something. Stakeholder capitalism has gone from niche
concern to the dominant fashion. It is trumpeted by both the Business
Roundtable and the world’s biggest investment managers, including Larry Fink of
BlackRock. ESG rent-seekers are raking in cash faster than a gold-rush
whorehouse, while ambitious Republicans make hay over the excesses of “woke
capital.” But many don’t see the larger threat.
It may be easier to appreciate today how
corporate social responsibility risks making companies less efficient while
funneling resources to unpopular, left-wing causes, but Friedman saw a much
larger problem. He saw in stakeholder capitalism a “fundamentally subversive
doctrine” that could lead the free society over a cliff. This was the nightmare
he staked his reputational capital to warn against.
To appreciate his alarm, it helps to turn
to Friedman’s book Capitalism and Freedom, which he cites in the
article. The book had been published eight years earlier and was itself based
on a series of lectures given at Wabash College in Indiana in 1956. It shows
that this topic wasn’t a passing concern for Friedman, but an issue he had
worried about deeply for 14 years before he wrote in the Times.
And, as he notes in both his article and at more length in the book, his
skepticism was shared by Adam Smith, who wrote in The Wealth of Nations of
the self-interested businessman who, “by pursuing his own interest he frequently
promotes that of the society more effectively than when he really intends to
promote it.”
The heart of Friedman’s objection is
simple: In our society, “individuals are the ultimate owners of property.” The
doctrine of social responsibility overrides that ownership in favor of
collective goals. Making corporations, not the state, the arm of a collective
“social good” gives the impression of avoiding political collectivism. But this
is an illusion. Corporate social responsibility is a sharp turn off the main
highway of capitalism. It leads onto a corporatist back road that may be
picturesque but winds its way toward socialism.
The journey begins by turning business
into a kind of slush fund for activists too radical to get their way via
political campaigning. As Friedman put it, corporate social responsibility is a
sort of taxation without representation. “[T]hose who favor the taxes and
expenditures in question have failed to persuade a majority of their fellow
citizens to be of like mind and . . . they are seeking to attain by
undemocratic procedures what they cannot attain by democratic procedures.”
Half a century after Friedman’s article,
we have started to wake up to this illiberal state of affairs. Indeed, Andrew
Stuttaford recently wrote
for Capital Matters pointing out how businesses and
investment managers are “using other people’s money to push for societal
changes that, in a democracy, are more properly decided upon by an elected
legislature.”
Politicians such as Ron DeSantis are
seizing the opportunity to denounce the agenda of corporations from Disney to
Ben & Jerry’s and to seek to shift firms in a direction more palatable to
their voters. But this is no panacea. If anything, it just marks an
acceleration down the road to political collectivism.
It doesn’t matter which side your politics
fall on if you keep heading in the wrong direction. Demanding that businesses
reflect the values of your constituents rather than focus on making money is to
fail to escape the trap that corporate social responsibility sets.
The lie at the heart of this doctrine, as
Friedman understood, is that such decisions are uncontroversial. Its advocates
rely on the vague public instinct that big business knows the decent thing to
do and chooses another course out of pure greed — or woke indoctrination. But
as Friedman pointed out, and our polarized times confirm, “one man’s good is
another’s evil.” He asks in Capitalism and Freedom, “Can
self-selected individuals decide what the social interest is?” Of course, our
entire democratic enterprise cries “no” at the top of its voice. This, at
least, is one thing both red and blue states can agree on; it’s what politics
is for. But politically run businesses, however democratic, are in no one’s
interest.
Stakeholder capitalism professes, Friedman
says, “that collectivist ends can be attained without collectivist means.” That
is its fatal conceit. Once people notice how much corporate power has been
taken by political activists, they will inevitably demand the right to the sort
of political oversight expected elsewhere and throw out capitalism in the
process. “If businessmen are civil servants rather than the employees of their
stockholders then in a democracy they will, sooner or later, be chosen by the
public techniques of election and appointment.” And so our charming back road —
which seemed far more pleasant than the aggressive, profit-driven freeway of
capitalism — reaches its destination.
Profit-driven business and a free society
of property-owning individuals go together. Republicans at least need to
understand this and lead their constituents back toward the main road of
capitalist individualism. We are already headed in the wrong direction.
Pursuing the politicization of business from the right will only floor the
accelerator.
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