When I was a law school student at the University of Chicago in the early 1970s, I had a chance to meet the University’s legendary economist Milton Friedman, future Nobel Prize winner and that era’s leading proponent of the view that capitalism works best when companies maximize profits and worry about little else.
In Friedman’s view, described so well in his so-called Friedman Doctrine, companies, and their CEOs, should not focus on anything with their resources but achieving the highest levels of profitability, consistent with existing laws. Not a dime for investments in what we today call ESG or DEI or charitable contributions. In short, give the profits to the shareholders and let them decide what to do with those funds to improve society. The presumption—gospel at that time—was that focusing resources on sustainability, a word then not in common parlance, would detract from, rather than add to profits.
That was Friedman’s view, but also the view of many capitalists in that era. CEOs tended to reflect that view, and they almost all strived to maximize profitability by avoiding practices that would be considered socially or environmentally beneficial and not clearly contributing directly and immediately to the all-important bottom line. Friedman provided these CEOs with the intellectual cover to act in that manner.
Would Milton Friedman and his many followers have a different view today, a half-century later and at a time when the buzzword of sustainability is so prevalent on the lips of virtually every CEO?
My belief is that Friedman, if he were to return today from capitalist heaven, would actually be a cheerleader for CEOs working to enhance sustainability, even if significant corporate resources would have to be devoted to that undertaking.
Why do I believe this, and more importantly, why do I believe Milton Friedman would believe this?
The traditional Friedman theory was that a focus on something that is not directly focused on generating profit, like sustainability, would take resources owned by shareholders and use them towards social causes unrelated to maximizing profits. We now know that, at least in the current zeitgeist, corporate resources devoted to sustainability can increase profits—and thus achieve Friedman’s presumed goal.
What has changed since the 1970’s (and earlier decades, if not centuries)?
