Is Greed Good?

Sixty years ago, Milton Friedman suggested that companies have no social obligations except the pursuit of profit. Whether this position is ethical or not governments should assume that this is how firms will behave, especially when it comes to climate change.

In 1962 the economist Milton Friedman wrote that “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, which is to say engages in open and free competition without deception or fraud.”?Writing in the New York Times eight years later Friedman specifically referred to efforts to protect the environment by stating that corporate executives are acting against the interests of their employers, the shareholders, if they, “…make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment.”?

The philosophy that the sole objective of a company is to increase profits became known as the “Friedman Doctrine”. It was prominent in business schools during the 1980s and 90s, and Gordon Gecko’s declaration in the 1987 film Wall Street that “Greed, for want of a better word, is good” was undoubtedly influenced by it. The view, also called shareholder theory, has become less fashionable since the turn of the millennium and has been replaced by ideas like “stakeholder capitalism” and “corporate social responsibility”.

Social goals are the responsibility of governments with democratic mandates.

Friedman is often interpreted as advocating unbridled capitalism, but he did make it clear that business should seek to maximize profits within the constraints of the law. He rejected the idea that companies should pursue social agendas but instead thought social goals are the responsibility of governments with democratic mandates. Rather than being a manifesto for unconstrained market competition, the Friedman Doctrine implies that we should not expect companies to constrain themselves and that constraints need to come from the government.

There are three questions we can ask about the Friedman Doctrine: “Should companies pursue the Doctrine?”, “Do companies pursue the Doctrine?”, and “Should governments assume companies pursue the Doctrine?” These questions can be summed up as: “Is greed good?”, “Are people greedy?”, and “Should the government assume people are greedy?” The first question is normative – it concerns how people should behave, the second is about how people do behave but the third is the one with the most practical significance.

From a practical standpoint the answer to the first question is irrelevant, the answer to the second question is that some companies certainly follow the Friedman Doctrine and, because this is true, the answer to the third question is that the government should assume firms pursue the Friedman Doctrine. Governments that want to rely on the private sector to self-regulate or show voluntary restraint to protect the environment are abrogating their responsibility.?

Law is not made for the righteous but for lawbreakers.

We must not depend on corporate social responsibility, voluntary action, and self-regulation to mitigate climate change. As the Bible puts it, "...law is not made for the righteous but for lawbreakers and rebels." Most people don't go around assaulting people but we have laws against it because there is a minority who do, or at least would do in the absence of a deterrent. Protecting the environment is no different.