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Milton Friedman, Revisited
A new e-book from the Stigler Center collects a broad and brilliant array of expert perspectives on Friedman’s enduring impact and the shareholder-stakeholder debate.
- By December 22, 2020
Fifty years ago, Milton Friedman declared in an op-ed in the New York Times that the social responsibility of business was to maximize profits. Friedman’s landmark article has massively influenced academia and business for the succeeding five decades. But with the growing importance of corporate social responsibility and environmental, social, and corporate governance (ESG) over that time, especially in recent years, Friedman’s ideas on the social responsibility of business have increasingly been called into question.
In honor of the 50th anniversary of Friedman’s influential op-ed, Booth faculty, alumni, and students, as well as the broader university community, embarked in the fall of 2020 on an intensive, passionate reexamination of Friedman’s legacy. In September, Booth hosted the Corporate Social Responsibility Revisited conference to explore a pressing question: How has CSR changed since Milton Friedman ignited the debate 50 years ago? In conjunction with the Booth event, the George J. Stigler Center for the Study of the Economy and the State at Booth hosted a two-day virtual conference, Political Economy of Finance 2020: Should Corporations Have a Social Purpose?
The George J. Stigler Center’s publication, ProMarket, also launched a series of articles under the heading, “Friedman 50 Years Later.” The ProMarket series captures diverse perspectives on the shareholder-stakeholder debate inspired by Friedman’s views. These articles, including several that had been previously published, have been collected into a 135-page free e-book, Milton Friedman: 50 Years Later.
“ProMarket has generated an admirably wide range of perspectives on Friedman’s world-changing (and still wise) essay,” writes Steven Neil Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at Booth and author of the e-book’s opening article, “The Enduring Wisdom of Milton Friedman.” Fellow contributor and Financial Times associate editor and chief economics commentator Martin Wolf—who mentioned the Stigler Center e-book in a recent article about Friedman in the Financial Times—adds: “The debate in this e-book represents a timely and fitting reassessment of how well [Friedman’s] view has stood up to the tests of time and the real world.”
Led by faculty director Luigi Zingales, the Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance at Booth, the Stigler Center is dedicated to understanding issues at the intersection of politics and the economy, providing research support, analysis of data and economic trends, and a wide range of courses, events, initiatives, and resources. Launched in 2018, the Stigler Center’s podcast Capitalisn’t—hosted by Vanity Fair contributing editor Bethany McLean and Zingales—explains how capitalism can go wrong and what we can do to fix it. The center’s publication, ProMarket, is dedicated to educating the public—based on rigorous academic research and data—about the many ways special interests subvert competition, in order to make the market system work better. “Both the academic publications and the general press have little space for an in-depth debate on important policy issues, like the social responsibility of business,” Zingales says. “ProMarket tries to fill this gap. The debate on Milton Friedman’s famous op-ed and the related e-book is an example of the richness of this space.”
Edited by Zingales, ProMarket managing editor Jana Kasperkevic, and ProMarket writer and editor Asher Schechter, Milton Friedman: 50 Years Later comprises 28 articles presenting a broad array of perspectives on Friedman, his work, and the relevance of his thinking for 2020 and beyond. The e-book features contributions from Booth faculty members Marianne Bertrand, Eugene F. Fama, Raghuram G. Rajan, Kaplan, and Zingales, as well as faculty from other institutions such as the Stanford Graduate School of Business, London Business School, NYU School of Law, Harvard Law School, Tel Aviv University School of Law, and Columbia Law School. Along with an introduction and conclusion penned by Zingales, the e-book segments the articles into four sections: Modern Defense of Milton Friedman; Stakeholders; When Shareholders Have Other Objectives; and Friedman Meets Stigler.
Kicking off the Modern Defense of Milton Friedman section with his article “The Enduring Wisdom of Milton Friedman,” Booth’s Kaplan argues in defense of the productivity, influence, and wisdom of Friedman’s thinking. “I believe we should start from the premise that the goal of shareholder value maximization has been extremely successful globally in the way that matters most,” writes Kaplan. “Shareholder value maximization has been successful because in many cases maximizing shareholder value is in harmony with delivering for stakeholders.”
The Stakeholders section opens with “50 Years Later, It’s Time to Reassess” by Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at Booth, based on a talk he gave at the Corporate Social Responsibility Revisited conference. Rajan’s article is prefaced by the statement: “The biggest problem with shareholder value maximization is that it completely turns a tin ear to politics. The alternative is to maximize the value of long-term financial and nonfinancial investors in the firm—shareholders, of course, but also long-term debt holders, long-term suppliers, workers whose sweat equity is embedded in the firm. It is important for the corporate board to make clear who these investors are, whose interests it will elevate above other stakeholders.”
“Both the academic publications and the general press have little space for an in-depth debate on important policy issues, like the social responsibility of business. ProMarket tries to fill this gap. The debate on Milton Friedman’s famous op-ed and the related e-book is an example of the richness of this space.”
The next section, When Shareholders Have Other Objectives, includes Fama’s article, “Market Forces Already Address ESG Issues and the Issues Raised by Stakeholder Capitalism.” The Nobel laureate and Robert R. McCormick Distinguished Service Professor of Finance explores critical questions raised within the shareholder-stakeholder debate: “When do market forces push firms toward stakeholder goals, rather than just shareholder goals? When do market forces push firms toward ESG goals? When are political solutions to such issues warranted?”
That section also features another article derived from a session at the Corporate Social Responsibility Revisited conference, “Strength in Numbers: Using Data to Track Diversity and Inclusion.” In a conversation with Caroline Grossman, executive director of the Rustandy Center for Social Sector Innovation, and Mekala Krishnan, a senior fellow at the McKinsey Global Institute, Booth’s Bertrand, the Chris P. Dialynas Distinguished Service Professor of Economics and Willard Graham Faculty Scholar, addresses the challenges businesses face in measuring the impact of efforts to improve diversity and inclusion in the workplace.
In addition to the e-book’s introduction and conclusion, Stigler Center faculty director Zingales contributes two articles to the “When Shareholders Have Other Objections” section: “Does a CEO Have a Duty to Lobby?” and “Serving Shareholders Doesn’t Mean Putting Profit Above All Else,” coauthored with Nobel laureate and Harvard economist Oliver Hart. The latter, originally published in 2017, begins with the preface, “The time has come for companies, economists, and society to abandon the argument that the only responsibility of business is to maximize profits.” The authors go on to note: “In a recent paper we offer a different perspective, one that we believe is perfectly consistent with the fiduciary duties of corporate directors: Companies should maximize shareholder welfare, not value.”
The final section of the e-book, Friedman Meets Stigler, includes Stanford GSB professor Anat R. Admati’s article, “Milton Friedman and the Need for Justice.” Admati explores the validity of assumptions she sees underlying Friedman’s argument. “I hope those who continue to celebrate Friedman’s value maximization credo recognize that the assumptions Friedman makes about the environment in which businesses operate and the rules of the game by which they play don’t actually hold in reality,” Admati writes. “I also hope that they become forceful advocates for changes that would bring the world closer to the conditions needed for Friedman’s arguments to hold.”
The articles in the e-book resist easy summary both individually and as a whole, and the examples above do not do full justice to the arguments of each author. Indeed, the breadth and complexity of the perspectives in Milton Friedman: 50 Years Later attest to the subtlety and enduring power of Friedman’s thinking, as well as to the passion and commitment of each contributor to understand and influence the role of the corporation in the world today and its impact on shareholders and stakeholders.
“Love it or hate it, the piece that Milton Friedman wrote in the New York Times 50 years ago should be considered one of the most influential op-eds of the 20th century,” Zingales writes in “Friedman’s Legacy: From Doctrine to Theorem,” the e-book’s concluding chapter. “The fact that 50 years later the best minds in economics and the law have been willing to debate its consequences on ProMarket is a testimony to the enduring legacy of Friedman’s contribution.”
The Stigler Center's publication ProMarket is dedicated to discussing how competition tends to be subverted by special interests.
The Capitalisn’t podcast—from the Stigler Center in collaboration with the Chicago Booth Review—explains how capitalism can go wrong, and what we can do to fix it.