One of the greatest economists of all time died on Thursday Nov 16. Milton Friedman, the OG Chicago school professor, made a difference in the world with his work. He influenced Greenspan and more importantly, he influenced entrepreneurs from Bill Gates to Warren Buffet.
I minored in Economics in the 80’s and studied much of Uncle Milty’s work. His book, Free To Choose (co-written with his wife, Rose) is a must read almost thirty years after its initial publication.
However, one of Friedman’s ideas that I disagree with is the following: “The only role of a company in society is to make profits.” He believed in Adam Smith’s concept of the invisible hand of the market. If a company was bad for society, the invisible hand would wrench the means of production away from it. If a company made a profit, it was an indicator of its contribution to society. This is an outdated pre-econ/technology concept. Nestle made a profit in third world countries selling baby food formula to mothers that mixed it with contaminated ground water. Wal-Mart made money paying people substandard wages. Tobacco companies make money day after day creating lung cancer in humans. Companies can make money without providing enrichment for the community or planet.
We cannot expect non-profits and the government to fix all that is broken in our society. The whole spirit of capitalism and entrepreneurship is to create a company that “can change the world.” But with the rise of the stock market and easy access to cash, we serve the church of the shareholders. We treat them (mostly economic transients) like they are owners. So if we serve them with profits, that’s all we have to do.
Companies like Whole Foods believe that profits are the means to create a bigger enterprise that can make the world healthier. Their legacy will be in promoting the organic food revolution.
There are dozens more companies that see their role in society as one of citizenship. They appreciate the incredible synergy that businesses generate. I am currently conducting research on these companies and how they see the role of business in a broken society. The world is changing. The kids of tomorrow (and their grandparents) will reward companies that add social-value. They will buy from them, work for them and value their stock. Friedman’s concept of the role of company is outdated. It doesn’t account for the ongoing progression of economic value in society.
Let’s bury his idea with him. Rest in peace Uncle Milty. You were a mighty voice against Keynes and government intervention. You mastered the science of inflation accounting. But companies today need to step up and join forces with non-profits, charities, bloggers and governments – and bring our force to bear on the myriad of social needs that surround us. You can’t be right all the time, dude.