It's been fifty years since Milton
Friedman’s famous
essay
on the responsibility of business was printed in the New York Times.
I’ve often imagined talking with him about it and, with the Arctic melting, the
Pacific Northwest aflame, five tropical storms in the Atlantic at once, and
plastic infesting every inch of the planet, it’s high time for a chat. The conversation might go something like this ...
Hey, Milton — a word, please? Fifty years ago, you said company leaders who care
about anything other than shareholder value were “incredibly short-sighted and
muddle-headed in matters that are outside their businesses…”
I wanted to check on that, because there’s an environmental disaster, social
upheaval and
global pandemic out
there — actually, “out there” doesn’t quite cover it. They’re increasingly in
here, in the simplest parts of our daily lives — from degrading the air we
breathe
to making impossible the simple pleasure of attending a baseball game or
concert.
Do you see a role for your writings in helping to create this situation? I do.
And so do a lot of business
leaders.
You said a business must be free to pursue nothing but profits, “so long as it…
engages in open and free competition without deception or fraud.” But how does
much of what then happened — without opposition from you — not get described as
fraud? Real profits come after payroll, COGS, capex, depreciation, mortgages,
office cleanup and groundskeeping, right? Why don’t these include real
environmental costs?
You never dumped office trash on Michigan Avenue, expecting the public would pay
to clean it up, did you? Of course not, you did what responsible business owners
do: Hire a company to pick up trash and note the expense on an income statement
as a balance against profits. Why then, is it OK for the consequences and costs
of cleaning up after businesses to be paid by the public?
The UN sponsored a study of top global industries; it found that when you
took externalized costs into effect, essentially none of the industries was
actually making a profit. “None of the world’s top industrial sectors would be
profitable if they were paying their full freight. Zero. That amounts to [a]
global industrial system built on sleight of hand. As Paul Hawken put
it,
we are stealing the future, selling it in the present, and calling it GDP.”
Is this not deception?
Corporate execs were rewarded lavishly for raising share prices, but what if
those prices are artificially high because they don’t account for the costs
passed on to society? What if they don’t account for submerged (hidden)
risks
and the growing legal
liability
that unsustainable actions have created?
Is this not fraud?
I know your defenders will say that you and those who followed you opposed
pollution (several have said so directly to me, in fact.). And I know that might
be officially true — but actions speak much louder than words.
First, you and your followers didn’t put much value on social costs (one
famously said, “any concept of
social costs … becomes meaningless”), only individual private property rights.
However, even decades ago it was clear that such a position was at odds with
reality — for example, GHGs or ozone-destroying chemicals don’t respect property
boundaries (and we have examples of the Tragedy of the
Commons
going back 300+ years.)
Second, the answer you gave when I saw you speak at a Hoover Institution
event (and that you gave in this
interview) was that injured
parties could sue if needed, providing incentives not to pollute. However, it
only takes a second to see that this works in theory but not in reality — each
of hundreds of millions of people suing for a small amount of damages from ozone
depletion, for example, isn’t going to happen. This goes double for people in
other countries, who may not have access to US courts at all.
In addition, while you were alive, how much did you speak out against laws that
made it harder to sue? Harder to prove damages? Did you withdraw support from
conservatives who passed laws that limited the ability to sue or made it harder
to win?
You say you advocated your positions in the service of freedom and prosperity.
But should the freedom to breathe healthy
air
be limited because the victims don’t have to have the resources to sue, win and
continue to win appeal after appeal in the courts? Or because they don’t have
access to the country’s courts at all?
As far as prosperity: On a corporate level, more sales, more innovation, more
efficiency, more employee loyalty, less risk — all of these come from acting on
values, and all increase profits. (If I could, I would send you a copy of my
upcoming book, The Value of Values, which is all about how acting responsibly
actually increases profits. Alas, since you passed away in 2006, I won’t.)
On a societal level, is it true prosperity if stocks are worth more but we can’t
have a lot of what we want most? What if we can’t hug our relatives without risk
because of contagion; or breathe air without health consequences, because of the
climate crisis; or show our grandchildren a glorious coral
reef
because they’ve all died off?
Are we really richer if we have to devote more of our income to trying to
mitigate problems like these? And what if the reef is dead or an entire species
is extinct, so what we want can’t be bought at any price – doesn’t that count?
What is the responsibility of business? Fifty years on, it’s clear there’s more
to the answer than you thought.
Published Sep 22, 2020 8am EDT / 5am PDT / 1pm BST / 2pm CEST