Milton Friedman’s Profit Maximization Dogma Dying?

I recently read something that kind of shocked me:

“As Joe Biden declared on the campaign trail in 2020, “Milton Friedman isn’t running the show anymore!””

The Atlantic, “The Sordid Legacy of Milton Friedman”, Kim Phillips-Fein, 11/13/2023

That Joe Biden quote came from a book review in The Atlantic. So, even the President thinks that shareholder dogma has passed its prime?

Has more people than I thought started questioning that shareholder dogma? It is hard to tell because nobody really talks about shareholder values in our day-to-day work or in magazines glorifying the shareholders.

As a matter of fact, today when the news talk about layoffs, they no longer say that the share price went up upon announcement of a layoff. Maybe they do and I’m not picking it up. I remember, back just before I started working or maybe just after, reading about share prices skyrocketing upon announcements of layoffs and thinking “that’s not nice of the shareholders; these are regular people who buy your products.”

That’s kind of the genesis of my thinking that shareholders are a huge part of the problem: they don’t really care about the workers because it’s money in their pockets. If you run the thinking to its extreme end, where layoffs equal money in your pockets, at some point, you will no longer have customers buying your goods because they don’t have money. At some point, the market disappears.

I almost think that is why sometime in the 90s, corporations started to look at global sales because the home US market was really weak. They couldn’t sell to the American public because they’ve been laid off too much. That’s a theory of mine because there was a period when companies looked outward across the world to boost their faltering US sales.

The book in the book review basically recounts the life and thinking of Milton Friedman, which was kind of interesting but did not capture my interest as that Joe Biden quote. There is the usual obligatory mention about the main purpose of businesses:

“In a famous New York Times Magazine essay, he suggested that corporations had no “social responsibility” at all; they were accountable only for increasing their own profits.”

The Atlantic, “The Sordid Legacy of Milton Friedman”, Kim Phillips-Fein, 11/13/2023

I didn’t know about this New York Times Magazine article until years later, sometime after the Great Recession of 2008. I didn’t realize that someone had posited that businesses did not have to care about the welfare of the communities they operate in: if an oil company despoiled a landscape with gushing oil, it didn’t matter as long as they made off with the profits. Yeah, they could despoil the environment, and no one could call them out for it because their primary focus was the bottom line.

That’s a totally wrong philosophy as we can see today in the aftermath of what has happened to our climate. We should have known better back then.

But this philosophy was a gravy train for the shareholders because they reaped the benefits from his dogma. From back when they cheered the layoffs of workers to today with the widening income inequality.

The author of this book review stated that Milton Friedman is the reason the Republican Party is in dysfunctional disarray and prone to extremism. I don’t know about that; my thinking hasn’t gone in that direction.

“The startling rise in economic inequality and the continued erosion of middle-class living standards have called into question the idea that downsizing the welfare state, ending regulations, and expanding the reach of the market really do lead to greater economic well-being—let alone freedom.”

The Atlantic, “The Sordid Legacy of Milton Friedman”, Kim Phillips-Fein, 11/13/2023

The article closes with the following damning statement about Milton Friedman:

“Still, Friedman—­and the libertarian economic tradition he advanced—­bears more responsibility for the rise of a far right in the United States than Burns’s biography would suggest. His strategy of goading the left, fully on display in the various provocations of Free to Choose and even Capitalism and Freedom, has been a staple for conservatives ever since. He zealously promoted the kind of relentless individualism that undergirds parts of today’s right, most notably the gun lobby. The hostile spirit that he brought to civil-rights laws surfaces now in the idea that reliance on court decisions and legislation to address racial hierarchy itself hems in freedom. The opposition to centralized government that he championed informs a political culture that venerates local authority and private power, even when they are oppressive. Perhaps most of all, his insistence (to quote Capitalism and Freedom) that “any … use of government is fraught with danger” has nurtured a deep pessimism that democratic politics can offer any route to redressing social and economic inequalities.”

The Atlantic, “The Sordid Legacy of Milton Friedman”, Kim Phillips-Fein, 11/13/2023

So, are we really moving toward a different thought about Milton Friedman’s insistence that the primary goal of businesses is profit? It remains to be seen.

I do know that recently I have been doing some year-end research on thoughts about the future, especially in finance/FP&A, and every once in a while, I’ll run into something about broadening one’s focus to stakeholders rather than shareholders. Thinking about the impact to the communities rather than just the bottom line. Adding ESG reporting rather than just the financial reporting.

We could be moving slowly into something different.

I just wish an economist would come up with a new philosophy to push Milton Friedman’s off the pedestal.