The Friedman Doctrine at 50: Alive, Well, Harder to Misuse

The Friedman doctrine: origins

“The businessmen believe that they are defending free enterprise when they declaim 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 providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are—or would be if they or any one else took them seriously— preaching pure and unadulterated socialism. “

This is what Milton Friedman wrote in 1970. Most of the text of his seminal essay could easily have been written in 2020. The jarring Cold War paranoia and the obsession with socialism do seem out of place, but perhaps not that much after a Trump presidency and the fallout from the recent election – communism and the “loss of freedom” are credible boogeymen again.

So, has anything changed in half a century?

What does the Friedman doctrine mean?

The critics of socially responsible business appear to have the same objection as they did five decades ago: it’s not the job of executives to be socially responsible. It’s their job to make money. Quoting Friedman again:

“…a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires.”

Here, the followers of Friedman immediately equated “desires” with “profits.” It did not occur to them that the “owners of the business” might have desires other than the making of money at all cost. Paradoxically, Friedman himself seemed to be patently aware of this, recognizing immediately after stating his proposition that, “Of course, in some cases his employers may have a different objective.”

Intentional misinterpretation 

Google “Friedman doctrine at 50” and you will see scores of articles proclaiming it dead and buried. It is not. It is alive and well, and holds as firmly as it did in the 1970s, or the 1870s for that matter. The job of the executives is to listen to the desires of the owners and manage the business according to their best interests, within the bounds of the law. The problem lies elsewhere.

Much like Rousseau, the American Founding Fathers, Nietzsche, Marx or any other “radical” philosophers with flammable enough ideas in their time, Friedman has been purposefully misinterpreted and weaponized to serve an agenda. In his case, the purpose of the exercise was to unleash the juggernaut of carefree, selfish capitalism that has produced the world in which we now live. Rather than the grandfather of neoliberalism, Friedman has been its instrument.

Example? The same administrations which swore by Friedman’s thinking on the economy chose to ignore, for instance, his views on the legalization of drugs. These views were based on the idea of personal liberty and were very much congruent with the rest of Friedman’s thought. But it was more profitable, politically and otherwise, to keep the minorities in jail, White people scared, and the cartels rich. Between 1980 and 1984 the federal annual budget of the FBI’s drug enforcement increased twelvefold.

The Friedman doctrine today: not dead, impotent

The political and financial mechanisms that run our society have not changed. Just like back then, it makes little sense to expect executives to act unilaterally on their own moral judgment irrespective of the wishes of the shareholders. Most of them, with honorable exceptions, are there to dance to whatever music is playing, for as long as it’s playing.

What is changing, then? The music. The interests of the shareholders. Their moral compass has evolved, because the society has moved on in terms of its awareness of certain issues – climate, racial justice, empowerment of women, etc. That’s all. In addition, the fact that most investing by individuals is by now index-based makes most such investors effectively shareholders of big corporations. 

What is at play, then, is a very slow, gradual and hidden-from-view process taking place in the minds of the citizens. Its secondary effect is obliging executives to care about issues other than profit. None of these developments have any implication on the truth value of the Friedman doctrine. The doctrine continues to live on and hold, but the benefits of its misinterpretation and weaponization are declining, at last.