Fifty-two years ago, economist Milton Friedman published a prophetic warning. Writing for the New York Times , he identified a growing threat to free societies: executives who, instead of focusing on profit, spend other people’s money “responsibly Social”. Friedman was emphatic: the companies that followed this path weren’t just well-meaning and deluded; they financed an insidious attack on capitalism itself. Soft-hearted capitalists were dragging the economy down a road that can only lead to socialism. featherweight columnist who tried to affect indignation. Within six years, he would win a Nobel in economics. Five decades later, it would be hard to deny that Friedman had sniffed something out. stakeholder capitalism has gone from a niche concern to a mainstream fashion. It is celebrated with pomp and ceremony by the Business Roundtable and top investment fund managers, including Larry Fink of BlackRock. ESG’s rent-seeking gang is swimming in more cash than a cabaret during the Gold Rush, while ambitious Republicans prey on the excesses of “lacerating capital” . But many do not see the greater threat.
It may be easier today to assess how corporate social responsibility risks making them less efficient while channeling resources to unpopular causes on the left, but Friedman saw a much bigger problem. He saw in stakeholder capitalism a “fundamentally subversive doctrine” that could drive a free society off a cliff. This was the nightmare he staked his reputational capital on to warn against.
To assess this warning, it is useful to turn to his book ‘Capitalism and Liberty’, quoted by him in the article. It had been published eight years earlier and is based on a series of lectures given at Wabash College during the year of 1956. This shows that the issue was not a passing concern for Friedman, but rather an issue he had been very concerned about fourteen years of writing the New York Times article. And, as he notes in both the article and the book, his skepticism was shared by Adam Smith, who, in ‘The Wealth of Nations,’ wrote of the businessman who, “seeking his own interest, often promotes the interest of others.” society more effectively than when he actually seeks to promote it.”
The core of Friedman’s objection is simple: in our society, “individuals own fundamentals of property”. The doctrine of social responsibility nullifies ownership in favor of collective goals. Making companies, instead of the State, the arm of the collective “social good” gives the impression of avoiding political collectivism. But this is an illusion. Corporate social responsibility is a harsh detour from the capitalist highway. It leads down a corporate road that may be picturesque, but it leads to socialism.
This road starts with turning businesses into a kind of slush fund to fund activists who are too radical to succeed through political campaigns. As Friedman says, corporate social responsibility is a shortcut to a type of taxation without representation. “Those who defend the taxes and expenditures in question have failed to persuade the majority of their fellow citizens to act in this direction [e] they want to achieve with undemocratic expedients what they did not achieve with democratic expedients.”
Half a century after Friedman’s article, we are beginning to wake up to this illiberal state of affairs. Indeed, Andrew Stuttaford recently wrote for Capital Matters showing how business and investment managers are “using other people’s money to push for societal change that, in a democracy, is best decided by an elected legislature.”
Politicians like Ron DeSantis are taking the opportunity to denounce the agenda of companies, from Disney to Ben & Jerry’s, and seek to steer companies in a direction more palatable to their constituents. But it is not a panacea. At least it serves to mark an acceleration towards the road of political collectivism.
It doesn’t matter which side politics is on, if we keep going in the wrong direction. Asking businesses to reflect the values of their constituents rather than focusing on making money is to fail in an attempt to evade the lines of corporate social responsibility.
The lie at the bottom of this doctrine, as Friedman understood it, is that these decisions are uncontroversial. Its advocates rely on the vague public instinct that big business knows the right thing to do and choose another course out of greed—or progressive indoctrination. But, as Friedman noted, and our polarized times confirm, “one man’s good is another man’s evil.” He asks in ‘Capitalism and Liberty’: “Can self-selected individuals decide what the social interest is?” Of course, our entire democratic enterprise is screaming “no” at the top of its lungs. This, at least, is one thing the Democratic and Republican states can agree on; and that’s what politics is for. But politicized companies, however democratic, are not good for anyone.
Friedman says that stakeholder capitalism professes “that collectivist ends can be achieved without collectivist means.” This is your fatal illusion. When people see how much corporate power has been seized by political activists, they will inevitably demand the right to political oversight expected in other spheres, and in doing so, they will throw capitalism away. “If businessmen are civil servants rather than employees of their stakeholders, then in a democracy they will sooner or later be chosen by public techniques of an election or nomination.” And so our charming little road — which seemed far more pleasant than the aggressive and profitable highway of capitalism — reaches its destination. of proprietary individuals go together. Republicans need to understand this and get their constituents back down the highway of capitalist individualism. We are already in the wrong direction. Pursuing business politicization from the right will only sink the accelerator.