Finance & Investment
Hey, Milton … Here We Are, After 50 Years of Friedmanomics

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.