A Free Market Manifesto That Changed the World, Reconsidered

A Free Market Manifesto That Changed the World, Reconsidered

I’ll never forget reading Friedman’s essay when I was in business school in the 1980s. It influenced — I’d say brainwashed — a generation of C.E.O.s who believed that the only business of business is business. The headline said it all. Our sole responsibility to society? Make money. The communities beyond the corporate campus? Not our problem.

I didn’t agree with Friedman then, and the decades since have only exposed his myopia. Just look where the obsession with maximizing profits for shareholders has brought us: terrible economic, racial and health inequalities; the catastrophe of climate change. It’s no wonder that so many young people now believe that capitalism can’t deliver the equal, inclusive, sustainable future they want. It’s time for a new kind of capitalism — stakeholder capitalism, which recognizes that our companies have a responsibility to all our stakeholders. Yes, that includes shareholders, but also our employees, customers, communities and the planet.

The most significant part of the Friedman essay was the headline. For a half-century, this phrase has been used to summarize the essay, and Friedman’s earlier economic writings, in support of “shareholder primacy” as the bedrock of American capitalism. The Friedman doctrine precipitated a new era of short-termism, hostile takeovers, junk-bond financing and the erosion of protections for employees and the environment to increase corporate profits and maximize value for shareholders. This version of capitalism was ascendant in the 1980s and continued until the 2008 financial crisis, when the perils of short-termism were vividly illustrated and the long-term economic and societal harms of shareholder primacy were becoming increasingly urgent.

Since then, the Friedman doctrine has been widely eroded, as a growing consensus of business leaders, investors, policymakers and leading members of the academic community have embraced stakeholder capitalism as the key to sustainable, broad-based, long-term American prosperity. This is illustrated by the World Economic Forum’s adoption in 2016 of The New Paradigm and, in 2020, the Davos Manifesto embracing stakeholder and E.S.G. (environment, social and governance) principles. Stakeholder governance is the bedrock of American capitalism now and in the future.