One of the recurring themes at RWLGS is character. Capitalism demands it and civilization is only as good as it is integritous.
Humans are mostly selfish creatures; therefore when Milton Friedman told companies that they only existed to create profit for the stockholders in 1970 they immediately absolved themselves of any responsibility to the world, and by 1987 the entirety of corporate America had shifted so completely to this silly theory that Hollywood made the movie Wall Street.
To be clear, I’m not saying Friedman is technically wrong. But like so many of his era, he assumed a certain amount of baseline character and would have never imagined a corporate executive that could make tens of millions per year or a CEO making 350x the typical worker at their company. The reason he wouldn’t have imagined it is because it is patently immoral and he lived in a world where morality — at least a perceived version of it — was the norm, not the fodder of blog posts.
I’m 61 as of this writing and have observed the rapid decline in any form of corporate character. We have replaced it with wokism to placate the public instead of character — which is best expressed without fanfare.
My grandfather’s generation would have been too embarrassed by the compensation packages of today to accept them. There was a general understanding that you reinvested the excess profits into growing the business. The company of the 20th century often had profit sharing and real bonuses.
But something magical and terrible occurred in the 90s: we started paying executives with stock. As soon as we made the operators the benefactors the whole system started to topple.
Back to point number one: humans are selfish creatures. So when an operational decision has to be made regarding items like dividends, reinvestment or stock buybacks the choice is clear to the CEO: enrich themselves first and then use what’s left to run the company. This is what we have been watching in quarter-by-quarter slow motion for decades.
Now we’re at a crossroads. Friedman said, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” This is not only complete horseshit, it’s also bad for business. It’s a bastardisation of the Adam Smith comment “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam was talking about individuals, not companies, and in that context he was correct. The butcher was a member of his church and perhaps the Kiwanis or the Lions club. He likely volunteered to coach kids baseball or helped with the Christmas parade in his town.
The markets are brilliant at providing for our needs, as we are all interdependent elements in the whole of society, but when we transfer this thinking to the amorphous concept we call the multinational corporation we’re stuck with a completely different set of circumstances. How does Exxon or Disney need to behave to add back to their community and be part of our society with character and integrity? That is the question we need to wrestle with, and then we must accept that the proper role of government is to develop and enforce our agreed-upon parameters. Just like we did during every great expansion in our country’s history.
Today is as good a day as any to start looking at where and why we exist in relation to our society as a whole, and look at our social responsibility — not as a means to an end, but as our contribution to the shining city on the hill and our American experiment.
Suggestions and references:
https://financialpost.com/news/economy/milton-friedman-is-right-profit-is-a-companys-only-purpose (this guy is an idiot but his piece is full of excellent references)