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52 Years Ago Today Milton Friedman Wrote Against Stakeholder Capitalism

Here’s a letter to National Review:


Marc Sidwell eloquently explains that Milton Friedman’s case against “stakeholder capitalism,” or “ESG investing,” is today more relevant than ever (“Milton Friedman and the Back Road to Socialism,” September 13). Mr. Sidwell is also correct to describe as a “fatal conceit” stakeholder-capitalisms’ attempt, in Friedman’s words, “to achieve collectivist ends without collectivist means.”

But it’s worth emphasizing what I take to be the most fundamental of the conceits that Friedman identified as infecting stakeholder capitalism – namely, the conceit that each corporate manager can foresee in detail the full consequences across vast expanses of space and time of his or her actions.

If such near-omniscience were possible, then of course anyone who acted in ignorance of any of these countless consequences would be irresponsible and blameworthy. Yet contrary to the presumption of so many people who fail to grasp the lessons of Adam Smith and F.A. Hayek, no one – no consumer, no worker, no government official, no Nobel-laureate economist, not even a corporate manager – can hope to foresee any but the immediate consequences of each economic decision. And so pretending that a corporate manager today can intentionally act to successfully promote the well-being of multitudes of people distant in space and time from him or her is, to use another phrase from Hayek, “the pretense of knowledge.”

Stakeholder capitalism, therefore, is not only the misappropriation by corporate managers of shareholders’ funds; it’s not merely the substitution of collectivists’ goals for those of individualists; it’s not just a means of shifting responsibility for collective action from government to corporations; it’s not simply the politicization of corporate decision-making. No, it’s much worse. Stakeholder capitalism is the displacement of a doable task (that is, maximize shareholder value) by one that is literally impossible.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030