![]() (On the history of the “corporate civil rights movement,” see Adam Winkler’s eye-opening book We the Corporations.) While they have amassed significant rights, compelling corporations to obey the laws and fulfill the legal responsibilities that ordinarily accompany those rights has been more difficult.įorming a corporation for any purportedly legal purpose is very easy today. In the US, corporations have won many legal rights over the years, including civil and constitutional rights originally intended for citizens. In The Anarchy, William Dalrymple describes in fascinating detail how the East India Company, created in the early 17 th century and for much of its existence answerable only to its distant shareholders, routinely used violence to gain its ends in India. Early corporations were monopolies chartered by government. Rules become meaningless without effective enforcement, with the ultimate outcomes reflecting little if any “social responsibility.”Ĭorporations are abstract legal entities. ![]() Third, and worse yet, basic law enforcement and the principle of equal justice under the law also fail routinely in the corporate context. Thus, even if managers operate technically within the law, excessive market power and reckless conduct that distort markets and harm society can persist.((See, for example, Lee Drutman’s The Business of America Is Lobbying, how flawed claims maintain a dangerous financial system and too-big-to-fail institutions, and the evidence on corporate political and market power in Matt Stoller’s Goliath, David Dayen’s Monopolized, or Thomas Philippon’s The Great Reversal.)) Moreover, managers do not take the rules of society as given and often use corporate resources (i.e., shareholders’ money) to try to skew the rules. In the real world, governments often fail to design the best rules in society’s interest. He also assumes that businesses operate in an environment of “open and free competition without deception and fraud.” These strong assumptions are far removed from reality. ![]() Second, Friedman‘s argument relies on an implicit assumption that the basic rules of society protect all stakeholders other than shareholders. ![]() ![]() The widespread acceptance of his dictum, and implicitly of his false assumptions, have caused substantial and preventable harm.įirst, in banking and more generally (as Oliver Hart and Luigi Zingales discuss), “making as much money as possible” in the name of creating “shareholder value” may not produce the outcomes many shareholders, not to mention society at large, prefer most. Milton Friedman’s claim that business managers would fulfill their social responsibility by making “as much money as possible while conforming to the basic rules of society” is highly problematic. Milton Friedman predicated his shareholder value maximization credo on the strong implicit and explicit assumptions that the rules of society protect stakeholders other than shareholders, and that businesses operate in an environment of “open and free competition without deception and fraud.” These assumptions are far from true in the real world, where laws and even basic notions of justice are routinely perverted in the corporate context.Įditor’s note: To mark the 50-year anniversary of Milton Friedman’s influential NYT piece on the social responsibility of business, we are launching a series of articles on the shareholder-stakeholder debate. ![]()
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