On Sept. 13, 1970, the New York Times published the “essay heard round the world.” In his manifesto, economist Milton Friedman argued that corporations have one – and only one – obligation: maximizing profits for shareholders.
Friedman’s “doctrine”, also referred to as the Shareholder Theory, became arguably the most consequential economic idea of the 20th century and, unarguably, changed America forever. Its singular focus on profits became the mantra for generations of business school graduates, CEOs and politicians alike.
According to Friedman, any business seeking “desirable social ends” – such as providing employment, eliminating discrimination, avoiding pollution or even using higher quality ingredients in food -undermines the basis of a free society. In other words, beyond complying with the law, Friedman believed that corporations have no moral or ethical responsibility to their workers or to society as a whole – only to its shareholders.
The Immeasurable Influence of the Friedman Doctrine
The influence of the Friedman Doctrine has been confirmed by various researchers and academicians. According to Marik von Rennenkampff, who served as an analyst with the U.S. Bureau of International Security and Nonproliferation, the broad adoption of this philosophy by American businesses has contributed to a half century of stagnant wages, dwindling worker benefits, the evisceration of unions and the outsourcing of millions of good paying jobs — all in the name of cutting costs to maximize profits for wealthy shareholders. Ramifications include:
- Decades of skyrocketing health care costs. At the same time, Americans became more obese, sicker (processed foods are enormously profitable).
- From 1945 to the early 1970s, incomes of all Americans grew at roughly the same rate. But middle and working class wages suddenly stagnated around 1973, just as Friedman’s Doctrine was being embraced by companies and businesses, ushering in immense levels of wealth and income inequality that plague the United States today.
- Pensions were the norm among America’s most prominent employers in the post-World War II years. But five decades of a profit-centric ethos perpetrated by the Friedman Doctrine made them largely extinct.
- Unions were dissolved or minimized as the Friedman Doctrine dictated that the union is an obstacle to realizing maximum profits for wealthy shareholders; an entity to be undermined and attacked.
- Subsequently, an enormous number of jobs were shipped overseas to vast numbers of cheap labor because of Friedman’s profits-at-all-costs ideology, destroying in the process countless American livelihoods, families and communities.
- Hostile takeovers, junk-bond financing and the erosion of protections for employees and the environment were outcomes of the drive to increase corporate profits and maximize value for shareholders.
- The Friedman endorsed outsourcing of American jobs in the name of shareholder profit is directly linked to the opioid epidemic and the extreme political polarization ravaging America.
- Republicans went from a pre-Friedman platform of championing a robust minimum wage, labor unions, Social Security and strong unemployment insurance benefits – all keys to a vibrant middle class – to fiercely opposing them.
- The rise of the stock market and the fall of interest rates has been directly attributed to the broad adoption of the Friedman Doctrine. In 1970 the Dow Jones Industrial Average was a little over 5,000, today it sits right at 30,000. In 1970 the one year Treasury rates were at 8%, versus today when they hover around .18%. It’s been said that the rise of the stock market has been built on the backs of retirees who once depended on fixed interest rates to provide a sufficient and reliable source of income in retirement.
- Researchers recently estimated that Friedman Doctrine fueled inequality led to the top 1 percent taking $50 trillion from the bottom 90 percent since 1975.
- The resulting millions of Americans who were poor, sick, disenfranchised, and angry became perfect prey for the promises and policies of Donald Trump.
The poverty engendered by this mass transfer of wealth, the devastation to the middle class, and the long-term costs of the Friedman Doctrine are incomprehensibly vast. Friedman’s myopic version of capitalism continued until the 2008 financial crisis, when the perils of short-term profit first focused results were vividly illustrated and the long-term economic and societal harms of a shareholder primacy philosophy were becoming increasingly obvious and urgent.
Slowly, since then Friedman’s naïve belief that what is good for shareholders is good for society has begun to be eroded, as a growing consensus of business leaders, investors, policymakers and leading members of the academic community have embraced the philosophy that business is not concerned merely with profit, but also with promoting desirable social ends; that business has a social conscience and takes seriously its responsibilities for, among others, providing employment, eliminating discrimination, and avoiding pollution.
But, the damage has been done and the church was not immune from the influences of Friedman’s ideas. Next week we will take a close up look at the many ways the Friedman Doctrine not only influenced, but transformed the local church.
Posted on February 2, 2021