Although the new Business Roundtable statement seems superficially to contradict Friedman’s dictum that the social responsibility of business is to increase its profits,” I do not think it stands in contradiction to Prof. Friedman’s broader world view.

Delivering value to customers is consistent with creating long-run value for shareholders. Friedman definitely did not approve of defrauding customers in pursuit of short-term loot.

Investing in workers is also consistent with creating long-run value. Henry Ford found that out 100 years ago when he started paying $5 a day, far above the prevailing wage, and saw profits increase.

Dealing fairly with suppliers is also consistent with long-run profits. Friedman would not have condoned Trump-like practices of taking delivery of goods from suppliers and then not paying them.

Friedman, like other classical liberals, saw pollution and other environmental harms to local and global communities as violations of property rights that should not be permitted. Not to mention their potential reputational damage to long-run profits.

Friedman thought that seeking long-run value for shareholders as opposed to gaming short-run quarterly gains to earn bigger bonuses as not just an ethical but a legal obligation of management.

In short, Friedman’s famous dictum was incomplete to the point of being recklessly open to misinterpretation. But the Roundtable policy does not make Friedman a villain.

Written by

Economist, Senior Fellow at Niskanen Center, Yale Ph.D. Interests include environment, health care policy, social safety net, economic freedom.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store