Trashing Milton Friedman

By Alyce Lomax 

Earlier this year, I took one of Milton Friedman's best-known quotes to task. I received a lot of passionate email on both sides of the argument, but now that our economy is in a tailspin, I feel as if -- sadly enough for all of us -- my point is proven. Here's the quote:

There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.

Wrong. We could, of course, argue on and on about the definition of "social responsibility," but many businesses and their managements that did, in fact, increase profits within the rules are now revealed to be guilty of antisocial irresponsibility.

Profit at all costs? 
My January article "Where Milton Friedman Was Wrong" admittedly contained a bit of an inflammatory headline. Economically, politically, and philosophically, I agree with Friedman on many, many things.

My position was that I believe the quote has been widely hijacked and misinterpreted by legions of folks looking for an excuse to indulge in a race-to-the-bottom, profit-at-all-costs mentality and cloak it in terms of standard economics or "the free market."

The filter of interpretation can be dangerous, and I believe many individuals and corporate players rationalized that particular quote to justify doing anything and everything to profit, regardless of whether the actions were sound for the long term -- or even particularly ethical.

And there's a whole lot that's unsound now.

Paybacks are hell 
Behold the dirge of disaster that has come to pass in an incredibly short period of time:

Bear Stearns was swallowed by JPMorgan Chase (NYSE: JPM) (with a government backstop); Fannie Mae and Freddie Mac are in conservatorship; Lehman Brothers has filed Chapter 11; Bank of America (NYSE: BAC) is buying Merrill Lynch. AIG (NYSE: AIG) has been rescued, with the rather mind-blowing twist that it's now 79.9% owned by the government -- in other words, nationalized. Say what?

These great "heroes" of industry -- people call them capitalists and free marketeers, but don't be fooled -- have let us down in a horrible sense. They took terrible risks and/or made stupid decisions. For many, those strategies appeared to be succeeding during a bubble period, and they profited, all right. Now that their bad decisions are coming home to roost, though, they're whining and crying for help from all of us.

Something smacks almost of blackmail and bullying, too, given the "too big to fail" mantra. Doesn't that sound like, "You'll be OK with saving us, or you and your entire family are going down"? That's how they've dragged our entire society into their mess. Like I said -- antisocial irresponsibility!

This wasn't what Milton Friedman had in mind. The people who make up corporations must have the ethics, intelligence, and backbone to behave responsibly. It's an idealism I share, what all of us free-market proponents want, including the strength to man up and pay the price if one fails.

After all, regulation most certainly seems logical and necessary when people can't keep themselves in check.


So here we are. Thanks, guys.

Greed isn't good 
It's too bad our culture seems to have been channeling the fictional Gordon Gekko instead of acting in the prudent fashion that great economic thinkers like Milton Friedman would have been proud of.

For now, at least, we can search for truly good, solid companies with great corporate leaders to invest in, and make our displeasure known to the grasping, craven, self-serving ones who are, in my opinion, endangering everything that's great about our society.

There is still hope 
There are still extremely responsible companies run by extremely responsible individuals. They are what make us great, and they promise success for long-term shareholders.