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50 Years After Milton Friedman, Where Does Capitalism Stand?

Lewis Schiff

It’s been 50 years since Milton Friedman’s famous essay, The Social Responsibility Of Business Is to Increase Its Profits, appeared in The New York Times, ushering in a phase of shareholder primacy and an emphasis on profits over all other corporate priorities. Fifty years is a reasonable amount of time to pass before we revisit Friedman’s controversial premise. In fact, The Business Roundtable got a jump on this in 2019, declaring shareholder primacy dead and “stakeholder capitalism” ascendant.

The issues at stake here are significant but if we simplify them, we can see the evolution of Friedman’s point of view over these 50 years more clearly. 

I asked entrepreneurs who have built successful businesses by serving both private industry and government clients five questions to help us understand their point of view:

QUESTION 1: Is an enterprise acting responsibly if it simply doesn’t make things worse? Or must it make things better? 

Here’s what Bob Eisiminger, founding CEO of Knight Point Systems, Reston, VA, had to say:

Simply doesn’t make things worse?  That’s like French kissing your sister.  Shouldn’t the goal always be to make it better?  To improve the environment around you?  If you’re not part of the solution; then you are probably part of the problem.

QUESTION 2: Is Greed Good?

The next challenge that comes to mind was best coined not by Friedman but by his Hollywood doppelganger, “Gordon Gekko,” in Oliver Stone’s movie, Wall Street”. Gekko says “Greed, for lack of a better word, is good.” A company that runs to maximize profits is a company that survives, can keep innovating, thereby improving the lives of their customers with better products and services, grow to employ more people, send their supply chain around the world spreading global capitalism while paying taxes right here in America, ultimately allowing the government to pave roads, build schools and defend Democracy around the world. 

Let’s try to simplify this question:

Is enlightened self-interest the most important fuel for running a company? Or is global, social and communal good the most important motivation for making decisions? In other words, if a leader has to choose: must profits come first? Or do the stakeholders dependent on that company come first? 

Here’s what Jere Simpson, CEO of KiteWire, Tyson’s Corner, VA said:

Profits are like blood cells. Without blood cells, I can’t survive to take care of my family, my personal stakeholders. A business must generate enough profit to maintain life enough to serve its stakeholders. While it’s not a moral obligation, I believe a business that centers around all of its stakeholders and not just shareholders stands a better chance at having robust profits. 

QUESTION 3: Does Stakeholder Capitalism Work?

Another aspect of Friedman’s shareholder primacy argument has been challenged by a slew of companies and entrepreneurs like Whole Foods (under John Mackey, Starbucks (under Howard Schultz), Men’s Warehouse (under George Zimmer) and many others that built businesses where stakeholder capitalism was not merely considered important but was woven into the business plan at the earliest stages. 

To simplify this question: 

Are stakeholder capitalist enterprises better capitalist enterprises than non-stakeholder companies? 

What did Roderick Duke, President of Qualis Corporation, Huntsville, AL have to say?

Just because stakeholder firms may have an underlying social or community purpose that may be shared by a majority does not, in itself, make it a better capitalist enterprise than non-stakeholder companies in my mind. There are thousands of non-stakeholder enterprises that are neutral when it comes to social or community purpose but yet still bring good value to their customers.     

QUESTION 4: What Do American Companies Owe America?

The newest argument against Milton Friedman is one that even Friedman himself may have waffled on. In an era of massive government relief—first in the global recession of 2009 and again during the Covid Pandemic—companies have been given blank checks in order to keep running while traditional economic activity is suppressed. Many companies have used these government funds in unintended ways, including initiating their own stock buyback programs which have proven to benefit companies and executives at those companies more than anyone else. To add fuel to this fire, the last 20 years have seen the largest corporations become masters of the corporate tax loopholes, paying the absolute minimum in taxes in America—and it’s entirely legal.

Let’s ask this question very simply: 

Should the American government determine how companies are taxed and regulated in a way that minimizes their burden? Or in a way that maximizes their benefit to the communities where they do business?

What do entrepreneurs have to say about this?

Roderick Duke, President, Qualis Corporation, Huntsville, AL:

I believe that small businesses and government can work together to strike a balance between the two.  American was founded on the free enterprise system, while at the same time, having agriculture, manufacturing, technology and military systems that benefits the nation, states and local municipalities.  

Jere Simpson, CEO, KiteWire, Tyson’s Corner, VA:

Maximize their benefit to the nation, states and municipalities.  Essentially if the citizens become an investor in the business, they need returns.  They should consider, however, that to overburden these businesses might cause less benefit to the nation/state/municipality. 

QUESTION 5: What Happens When Companies Behave Legally But Immorally?

Finally, there’s an often cited moral question that is best captured by using a fictional pharmaceutical company as the example. 

Should a company that spends billions of dollars inventing a new drug, say a cancer drug, be allowed to charge whatever it wants and operate in its own best interests? In other words, can free markets do whatever they want when it comes to setting prices? 

Jere Simpson, CEO, KiteWire, Tyson’s Corner, VA:

I think the markets should control the price. The government could throw its weight around as an investor or bulk purchaser if it seeks price control.

While some might suggest that stakeholder capitalism is a counterpoint to Friedman’s “profits first” point of view, my work with entrepreneurs indicates that it’s actually a natural outgrowth of Friedman’s profit-centric philosophy. For 50 years, Friedman’s beliefs have reflected what every practicing entrepreneur already knows which is that private business is most profitable when working within a well-choreographed partnership with government inside a moral and ethical framework. What’s good for business is good for America and what’s good for America is good for business. Friedman’s simple principle was never meant to survive as a one line philosophy. Like everything worthwhile, succeeding as a business is a balance of motivations, creativity, trial and error and innovation. 

Business owners mentioned in this article:

Bob Eisiminger, Founding CEO of Knight Point Systems, Herndon, VA

Roderick Duke, President of Qualis Corporation, Huntsville, AL

Jere Simpson, CEO of KiteWire, Tyson’s Corner, VA

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I run Birthing of Giants Fellowship Week on behalf of our Board of Experts which includes some of the top entrepreneurs in the world. Their one week of guided strategic planning transforms owners of the fastest-growing companies into the giants their businesses need them to be. Over the past 20 years, I’ve sold 2 cool businesses to publicly-traded media companies, written 4 books about success, including The Middle-Class Millionaire, Business Brilliant and The First Habit, interviewed the most amazing entrepreneurs on the planet, shared my data about the habits of the self-made wealthy through countless speeches and had more dead ends and failures than I can possibly remember.