Paul Andersen: Fair Game
September 29, 2008
During a seminar at the Aspen Institute a few years ago I read a Milton Friedman essay, “The Social Responsibility of Business is to Increase its Profits.” Written in 1970, the essay makes sense out of the Wall Street fiasco. Friedman wrote that a corporate CEO’s primary responsibility is increasing profits for their company. Business, he said, is about making money for shareholders. Those who work for a business should further that goal.
In 1970, when the essay was written, there was a movement to assign social responsibility to business. Friedman warned that such reform smacked of socialism. “Businessmen who talk this way,” wrote Friedman, “are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”
Those “intellectual forces” strove to imbue business with a conscience. The so-called “free society” of business prevailed, however, as demonstrated by the whiz kids on Wall Street whose labyrinthine debt instruments will now cost us a trillion dollars.
The whiz kids went overboard for profits, ala Milton Friedman, and destroyed their companies, ruined shareholders and gutted the economy. That’s not what Friedman foresaw, but through a radical implementation of his philosophy, that’s what happened.
Discussing Milton Friedman in the rarified air of Aspen, where idealism is given equal weight with expediency, participants are invited to judge one philosophy over another. Those distinctions are fascinating, if sometimes disquieting, given the Institute’s grounding in values.
One of the chief philosophical architects of the Aspen Institute, Mortimer Adler, once remarked that the Aspen Idea “uniquely demonstrates that in the scale of values the Platonic triad of the true, the good and the beautiful takes precedence over the Machiavellian triad of money, fame and power.”
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Friedman’s profit-driven mandate leans toward the Machiavellian triad, which is deeply ingrained in Wall Street. The question today is: Should a moral society be socially responsible in every sector, or should business leaders remain exempt to pursue profits?
Walter Paepcke founded the Aspen Institute on the idea that it should provide “an opportunity to stimulate thinking and discussion about the ideas at the roots of what the philosophers call ‘the good life’; ideas that are infinitely more important to the preservation of our society and our liberties than the pursuit of material gains.”
Material gains are directly related to profits, but Paepcke posited that there are more lasting, more lofty aspects of the “good life.” Friedman contended that if businessmen want to be other than profiteers, let them do it on their own time. Amid the current turmoil on Wall Street, it’s time to compare these two ideas.
A social benefit must promote the public good, which ought to be a driving force in business ethics. We’re learning that the hard way with Chinese baby formula, and we’re learning it on Wall Street. The whiz kids who invented a raft of specious securities were not motivated by social responsibility. Neither were company executives, securities analysts and regulators who looked the other way. The age-old formula was to privatize profits and socialize risk.
It is no wonder the Wall Street whiz kids were compelled to create unsustainable yields for short-term gains. They were inspired to do so by rich rewards. Their devil’s bargain to betray the public good and crash the economy was collateral damage.
Now the American middle class is expected to bail out the economy, to correct with their labor and earnings what the whiz kids have wrought. There is some justice here because millions of middle class Americans took liberties with their inflated home equity to consume beyond their means. Their good life became rooted in acquisitive materialism.
Amid the ruins of the old system, we awake to a new world. The free society championed by Friedman is no longer free. Free-market capitalism is dead. The big question is whether we insist on moral and ethical progress, or simply return to the same old paradigm after the dust settles.