A Free Market Manifesto That Changed the World, Reconsidered

Milton Friedman’s libertarian economics influenced presidents and inspired “greed is good.” So what did Friedman get right — and wrong? Today’s business leaders and economists weigh in.

Credit…Photo illustration by Cristiana Couceiro. Source images: Glasshouse Images/Alamy.

Introduction by Andrew Ross Sorkin

Published Sept. 11, 2020
Updated Sept. 13, 2020, 7:19 a.m. ET

Sept. 13 is the 50th anniversary of a seminal moment in the world of business: the publication of Milton Friedman’s essay in The New York Times Magazine entitled “The Social Responsibility of Business Is to Increase Its Profits.”

Friedman, who died in 2006 at the age of 94, was no mere economist; he was a kind of celebrity. He became a regular on the talk-show circuit. PBS even gave him a 10-part series. His economic theories, among the most consequential of the 20th century, still hold sway over large parts of corporate America, maybe none more so than this 1970 manifesto on corporate governance. (For more on the historical context in which Friedman’s essay landed, see this essay by Kurt Andersen.)

At DealBook, we wanted to mark the occasion by stirring a series of discussions and debates. So, in conjunction with The Times Magazine, we assembled 22 experts — including C.E.O.s, Nobel laureate economists and top think-tank leaders — and asked them to respond to Friedman’s essay. Some cited specific passages, and some took on (and took issue with) Friedman’s entire argument.

You can read the original essay in its entirety here. Below are quotations from Friedman’s landmark essay, along with the experts’ responses.

‘The Social Responsibility of Business Is to Increase Its Profits’

MARC BENIOFF, chief executive of Salesforce

I’ll never forget reading Friedman’s essay when I was in business school in the 1980s. It influenced — I’d say brainwashed — a generation of C.E.O.s who believed that the only business of business is business. The headline said it all. Our sole responsibility to society? Make money. The communities beyond the corporate campus? Not our problem.

I didn’t agree with Friedman then, and the decades since have only exposed his myopia. Just look where the obsession with maximizing profits for shareholders has brought us: terrible economic, racial and health inequalities; the catastrophe of climate change. It’s no wonder that so many young people now believe that capitalism can’t deliver the equal, inclusive, sustainable future they want. It’s time for a new kind of capitalism — stakeholder capitalism, which recognizes that our companies have a responsibility to all our stakeholders. Yes, that includes shareholders, but also our employees, customers, communities and the planet.

MARTIN LIPTON, senior partner at Wachtell, Lipton, Rosen & Katz

The most significant part of the Friedman essay was the headline. For a half-century, this phrase has been used to summarize the essay, and Friedman’s earlier economic writings, in support of “shareholder primacy” as the bedrock of American capitalism. The Friedman doctrine precipitated a new era of short-termism, hostile takeovers, junk-bond financing and the erosion of protections for employees and the environment to increase corporate profits and maximize value for shareholders. This version of capitalism was ascendant in the 1980s and continued until the 2008 financial crisis, when the perils of short-termism were vividly illustrated and the long-term economic and societal harms of shareholder primacy were becoming increasingly urgent.

Since then, the Friedman doctrine has been widely eroded, as a growing consensus of business leaders, investors, policymakers and leading members of the academic community have embraced stakeholder capitalism as the key to sustainable, broad-based, long-term American prosperity. This is illustrated by the World Economic Forum’s adoption in 2016 of The New Paradigm and, in 2020, the Davos Manifesto embracing stakeholder and E.S.G. (environment, social and governance) principles. Stakeholder governance is the bedrock of American capitalism now and in the future.

‘The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.’

DAVID R. HENDERSON, research fellow with the Hoover Institution

I first read Friedman’s essay a few months after it was published, and I basically agreed with it. On rereading it, though, I noticed that Friedman criticizes businessmen who feel responsible for “eliminating discrimination.” I found that strange. Friedman was surely familiar with his colleague Gary Becker’s work on discrimination. Becker’s bottom line is that an employer who discriminates against Black people, for example, gives up the chance to hire a productive person and, thus, gives up potential profits.

In economic terms, this can show up in two ways. Either overall discrimination against Black people causes their wages to be lower and so the employer who discriminates fails to hire a productive person at a discount. Or, if the employer has a wage schedule for a position, the employer who discriminates against Black candidates will give up a chance to hire a more productive Black candidate at the same wage at which he hires a less productive white candidate. So the employer who doesn’t try to reduce discrimination is actually not acting in the interest of shareholders — that employer is either paying too much or getting too little.

‘What does it mean to say that “business” has responsibilities?’

HOWARD SCHULTZ, emeritus chairman of Starbucks

I’ve asked this question since opening my first coffee shop in 1986. My answer, a rebuke of Friedman’s single-minded focus on profits, appeared in our company’s original mission statement: “We wish to be an economic, intellectual and social asset in communities where we operate.” We would do this not at the expense of profits, but to grow them.

Starbucks’s initiatives included providing part-time baristas with health care and tuition-free college education; volunteering in neighborhoods; talking openly about racism; and helping impoverished youth find first jobs. The ethos fueling such efforts — that companies have a responsibility to enhance the societies in which they flourish — was integral to Starbucks’s ability to employ great people and attract customers, which in turn drove a 21,826 percent return to shareholders between 1992 and 2018, the year I stepped down as executive chairman.

If Friedman had balked, asserting that Starbucks could have performed even better without these “socially responsible” activities, I would have told him what I told an institutional investor who wanted me to slash health care costs during the Great Recession, or what I said to a shareholder in 2013 who falsely claimed that Starbucks’s support of gay rights hurt profits: If you feel you can get a better return elsewhere, you are free to sell your shares.

In 2013, I stood in front of Starbucks shareholders and posed this question: “What is the role and responsibility of a for-profit public company?” Friedman’s flawed answer is not his legacy. His legacy is the question itself — which today’s leaders must answer with a renewed commitment to balancing moral purpose and high performance.

‘In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.’

ALEX GORSKY, chief executive of Johnson & Johnson

Friedman is owed respect for his analysis, but this highlights the ways in which investors and society have evolved over 50 years. Employees care about how companies function. Many of them are also a company’s shareholders, and they are calling on leadership to take action on societal issues.

In 1943, as Johnson & Johnson prepared for its initial public offering, Robert Wood Johnson made clear our responsibilities as a corporation: first to the patients, doctors and nurses, mothers and fathers and others who use our products and services, then to our customers and business partners, our employees and our communities. And, finally, to our shareholders. We are fortunate in having long had shareholders who have valued this balancing of interests. Now markets increasingly comprise such shareholders. Our performance over generations, when the life of an S&P 500 company now averages less than 20 years, is a testament that companies need not choose between service to a broad group of stakeholders and generating long-term financial value for shareholders. Revisiting this essay is a welcome exercise, and a reminder of the importance of self-scrutiny.

MARIANNE BERTRAND, professor of economics at the University of Chicago Booth School of Business

The shareholder-primacy view of the corporation — which gives little voice to the workers, customers and communities that are impacted by corporate decisions — has been the modus operandi of United States capitalism. Why did this view become so dominant? One rationale was a practical one. Rather than being asked to balance multiple, often conflicting, interests among stakeholders, the manager is given a simple objective function. More important, though, was the naïve belief, dominant in the Chicago school at the time, that what is good for shareholders is good for society — a belief that rested on the assumption of perfectly functioning markets. Unfortunately, such perfect markets exist only in economics textbooks.

To be fair, Friedman was most likely well aware of this shaky premise. This is probably why he writes “make as much money as possible while conforming to the basic rules of the society,” rather than “make as much money as possible, period.” The idea is that laws will be written to fix the many market imperfections, laws that would help realign profit maximization with social welfare.

Yet we clearly don’t have these “correcting” laws. Weak antitrust enforcement has led to monopsonistic power in the labor market, squeezing workers’ wages; polluting activities remain broadly untaxed, ravaging our planet. The government should be passing laws to discipline profit-maximization behavior, but too many lawmakers have themselves become the employees of the shareholders — their electoral success tied to campaign contributions and other forms of deep-pocketed support.

DANIEL S. LOEB, chief executive of Third Point

Friedman’s timeless essay resonates today as corporate America embraces “stakeholder capitalism,” a popular concept that is inconsistent with the law. Stakeholder capitalism distorts the incentive that prompts investors to risk their capital: the promise of a profit on their investment. So, I share Friedman’s concern that a movement toward prioritizing ill-defined “stakeholders” might allow some executives to pursue personal agendas — or simply camouflage their own incompetence (until it is starkly revealed by poor shareholder returns).

This is not to say that the principles of E.S.G. (environment, social and governance) have no place in corporate culture or strategy. In my experience, high standards in these areas are almost always found in great companies. Most of the top chief executives we invest in and interact with are driven by a mission to deliver great products or services for their customers — making money is a byproduct of that desire. Fortunately, in the United States we operate in a codified system of law and governance that enshrines our rights as owners to challenge or replace boards whose members stray from their fiduciary duty to prevent the sort of mission creep that Friedman describes.

‘In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.’

OREN CASS, executive director of American Compass

Friedman’s logical suppositions build carefully atop one another, but at their base lies a sloppily unsupported claim: that what business owners generally want is to make as much money as possible. If this were true, the rest might well follow. But it is empirically false. Sole proprietors and closely held firms often operate in ways considerate of their workers, communities and customers that are far from profit-maximizing.

What of the dispersed and anonymous shareholders to whom Friedman is so attentive? Their preferences are notoriously difficult to discern. That does not argue for “make as much money as possible” as the default instruction to managers. Why not “operate as you believe a responsible member of the community would”? We could at least as easily say that is what owners generally want.

The best defense of Friedman’s profits-über-alles default is that shareholders of a widely held, publicly traded company are not like personally engaged business owners. Distant, diffuse and often hidden behind layers of legal fiction, they are not accountable, or even known, to the communities in which their companies operate. They often do not know, or care to know, how those companies operate.

If that is Friedman’s argument, it is less celebration of the free market’s power than brutal indictment. Logic does not lead from there toward his doctrine of shareholder primacy. Rather, if such ownership is prevalent, the conclusion should be that stronger legal constraints may be necessary to channel the pursuit of profit toward delivering widespread prosperity.

‘The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct “social responsibility,” rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it.’

OLIVER HART, professor of economics at Harvard University, was awarded a Nobel Prize in 2016

Friedman argued that companies should focus on making money and leave ethical issues to individuals and government. One good example is charity: Rather than making a charitable contribution, wouldn’t it be better for a company to increase its dividend and let shareholders give to their own favorite charities?

The charity logic is compelling but not universally applicable. Consider a retailer that profitably sells military-style rifles in its stores. Suppose you are a shareholder and you favor fewer guns. Would you support the current business strategy on the grounds that you can use your increased dividend to promote gun safety? Most likely not: You might instead prefer the company not to sell military-style rifles at all and use your influence as a shareholder to advocate in favor of this policy shift.

The difference between the charity example and the rifle one is that companies do not have a comparative advantage in giving to charity, whereas a retailer may have a comparative advantage in reducing gun availability. The Friedman doctrine therefore needs modification. Instead of assuming that shareholders always want more money, companies should ask them if they are willing to sacrifice some profit in exchange for the pursuit of environmental and social goals. Incorporating their wishes in decision-making could increase shareholder welfare — not just wealth — and also improve the world.

‘This process raises political questions on two levels: principle and consequences.’

ERIKA KARP, chief executive of Cornerstone Capital Group

Friedman makes the mistake of not including two words: “long term.” Had he talked about “long-term principle and long-term consequences,” businesses might be more thoughtful about deploying financial capital, natural capital and human capital. Respect for the value of each form reinforces the long-term value of the other. Friedman also talks about “the rules of the game” — and in 50 years, the rules have changed. The emerging discipline of analyzing Environmental, Social and Governance (E.S.G.) factors in evaluating the prospects for corporate success is essential to profitability — in the long term. E.S.G. analysis is not an investment style or strategy or asset class: It is a tool for predictive insight. Friedman once said: “Governments never learn. Only people learn.” And so, investors and corporations have learned a better and more holistic way to serve our shareholders for the long term. That is free-market economics for the 21st century.

‘This is the basic reason why the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.’

JOSEPH STIGLITZ, professor of economics at Columbia University, was awarded a Nobel Prize in 2001

Friedman’s essay and his other writings on this subject were, unfortunately, enormously influential. They helped change not only the mind-set of the business community but also laws and norms on corporate governance. Courts have ruled that firms are obligated to maximize profits and shareholder value, to the exclusion of other objectives. In short, Friedman, through his various writings, promoted the idea of “shareholder capitalism,” in which the sole objective of corporations is to maximize the welfare of their shareholders. He didn’t originate the idea, of course, and if it hadn’t reflected the zeitgeist of the time, his arguments would have fallen on deaf ears.

By the time he wrote this essay, Friedman, who had done distinguished analytic and empirical work in economics, had become largely a conservative ideologue. I gave a talk at the University of Chicago around this time, presenting an early version of my research establishing that in the presence of imperfect risk markets and incomplete information — that is, always — firms pursuing profit maximization did not lead to the maximization of societal welfare. I explained what was wrong with Adam Smith’s invisible-hand conjecture, which said that the pursuit of self-interest would lead, as if by an invisible hand, to the well-being of society. During the seminar, and in extensive conversations afterward, Friedman simply couldn’t or wouldn’t accept the result; but neither, of course, could he refute the analysis — it has been a half-century, and my analysis has stood the test of time. His conclusion, as influential as it was, has not.

The absurdity of his analysis is seen most clearly by an example. Assume, in our imperfect democracy, that coal-mining companies use campaign contributions to block laws restricting pollution. Assume you’re a manager of one of the host of other companies that could spend a little bit of money to reduce pollution. You care about your children, your family, your community, but also about your business. Would you be irresponsible, as Friedman suggests, to curb your company’s pollution, because in doing so you reduce its profits? Would it be irresponsible for you to persuade others in your industry to do the same, even if you weren’t able to persuade Congress to pass a bill to compel you to do so? I think not. If you and others like you acted in this manner, societal welfare would be increased.

Friedman’s position is based on a misconception of both economics and the democratic political process. Yes, in an ideal world, Congress would pass legislation to ensure that one way or another private returns and social returns to any corporate activity were perfectly aligned. But in a democracy where money matters — clearly true in this country — it is in the private interest of corporations to do what they can to make sure that the rules of the game serve their interests and not the interests of the public at large. And they often succeed.

Today the downside of Friedman’s perspective is even darker: Is it Mark Zuckerberg’s social responsibility to allow wanton disinformation to roam over his social media platform? Is it Zuckerberg’s responsibility to lobby to get rid of a pesky foreign competitor while fighting for his company to be free from anti-competitive restraints and any accountability, so long as it increases his bottom line? Friedman would say yes. Economic theory, common sense and historical experience suggest otherwise. It is good that the business community has awaked. Now let’s see whether they practice what they preach.

‘This facet of “social responsibility” doctrine is brought into sharp relief when the doctrine is used to justify wage restraint by trade unions. The conflict of interest is naked and clear when union officials are asked to subordinate the interest of their members to some more general social purpose.’

LEO E. STRINE JR., former chief justice of Delaware, and JOEY ZWILLINGER, founder and chief executive of Allbirds

Friedman wrote at a time when the New Deal’s principles produced widespread prosperity, reduced poverty and helped Black Americans take their first real strides toward economic inclusion. Since then, the United States has gone backward in economic equality and security — a situation that the Covid pandemic has exposed for all to see.

In the past 50 years, instead of gains for stockholders and top management tracking gains for workers — as characterized by the period when Friedman wrote — the returns of our capitalist system became skewed toward the haves. From 1948 to 1979, worker productivity grew by 108.1 percent and wages grew by 93.2 percent, with the stock market growing by 603 percent. By contrast, from 1979 to 2018, worker productivity rose by 69.6 percent, but the wealth created by these productivity gains went predominately to executives and stockholders, with worker pay rising by only 11.6 percent during this period, while C.E.O. compensation grew by an enormous 940 percent and the stock market grew by 2,200 percent. To reverse the Friedman paradigm, companies should embrace an affirmative duty to stakeholders and society. But that’s only half the battle. Business leaders must support the restoration of fair rules of the game by government; respect the need for strong and resilient public institutions to govern a complex society; pay their fair share of taxes; and stop using corporate funds to distort our nation’s political process.

‘We thus have the ironic phenomenon that union leaders — at least in the U.S. — have objected to government interference with the market far more consistently and courageously than have business leaders.’

SARA NELSON, international president of the Association of Flight Attendants-C.W.A., A.F.L.-C.I.O.

Currently, at least 46 percent of nonunion American workers say they would join a union, and unions have a 64 percent approval rating. But only about 10 percent of workers belong to unions. That 36 percent gap — over 56 million workers — shows the impact of corporate spending in the past 50 years.

‘They can do good — but only at their own expense.’

DAMBISA MOYO, global economist and the author, most recently, of “Edge of Chaos.”

The heart of what Friedman was saying remains largely true, but I have a fundamental problem with this sentence: “They can do good — but only at their own expense.” For most corporations today, the question of “doing good” has become an existential question. Companies operate as going concerns — they want to survive. They face technological changes, changes in consumer preferences, changes in regulation, and these changes are forcing companies not to fight against the changes but to adapt. Take the example of a pharmaceutical company searching for a solution for cancer. The goal is a social good. From the companies’ perspective, they’re on the same page as society. The pursuit of profit does not need to run counter to what will benefit society. In some cases the interest of the corporation is absolutely married to the social good.

‘Many a reader who has followed the argument this far may be tempted to remonstrate that it is all well and good to speak of government’s having the responsibility to impose taxes and determine expenditures for such “social” purposes as controlling pollution or training the hard-core unemployed, but that the problems are too urgent to wait on the slow course of political processes, that the exercise of social responsibility by businessmen is a quicker and surer way to solve pressing current problems.’

ROBERT REICH, professor of public policy at Berkeley and a former secretary of labor

At the time this was written, Friedman’s argument seemed unassailable. But there was a flaw in it that he couldn’t have anticipated. In the last half-century, big corporations have gained so much influence over government that they’ve overwhelmed our democracy.

According to a 2014 study by the Princeton professor Martin Gilens and the Northwestern professor Benjamin Page, the preferences of the typical American have little or no influence at all on government policymaking. The study analyzed 1,779 policy issues in detail, determining the relative influence of economic elites, business-oriented and mass-based interest groups and average citizens. Their conclusion: “The preferences of the average American appear to have only a minuscule, near-zero, statistically nonsignificant impact upon public policy.” Lawmakers listen to the demands of big businesses, which have the most lobbying prowess. Note that Gilens and Page’s data come from the period 1981 to 2002 — before the Supreme Court opened the floodgates to big money in the Citizens United case.

Largely because of this surge of corporate money into politics, taxes on corporations have been slashed, safety nets for the poor have begun to unravel and public investments in education and infrastructure have waned. The “free market” has been taken over by corporate bailouts and corporate welfare. Shareholders and top executives have done extremely well, but almost no one else has.

If today’s C.E.O.s were serious about social responsibility, they’d use their formidable political clout to push for public financing of campaigns and would seek a constitutional amendment limiting corporate lobbying and campaign spending, so big corporations could never again become so politically powerful. Presumably Friedman would approve of this because it follows logically from his argument. But don’t hold your breath.

‘To illustrate, it may well be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community … ’

GLENN HUBBARD, professor of economics at Columbia Business School

Friedman’s argument was controversial 50 years ago, and it’s controversial again today. But it’s still more or less correct. Somewhat unfairly, Friedman’s focus has been taken to mean “short-term value,” generating gains to benefit current shareholders at the expense of other stakeholders. But Friedman is best read as embracing maximizing shareholder value over the long run. Toward that end, short-term gains at the expense of stakeholders — who might decide not to work for, supply to or buy from the firm — make little sense. There is another rub, and Friedman anticipated it: Even long-term shareholder-value maximization can’t address all problems faced by a firm. Some problems — climate change, for example — are arguably more complex than Friedman envisioned. In these cases, public policy changes are required.

‘In the present climate of opinion, with its widespread aversion to ‘‘capitalism,’’ ‘‘profits,’’ the ‘‘soulless corporation’’ and so on, this is one way for a corporation to generate good will as a byproduct of expenditures that are entirely justified in its own self-interest.’

KEN LANGONE, a founder of Home Depot and the author of “I Love Capitalism!”

Here’s the most misunderstood among Friedman’s many deep insights — a company can make good-will expenditures “that are entirely justified in its own self-interest.” I see that as an extension of the most fundamental truth in capitalism, that in any voluntary exchange both parties benefit.

At Home Depot, the company that I co-founded in 1978, we pay starting permanent workers much more than federal minimum wage, with top-notch benefits and advancement. That’s good for employees, and it’s good for the company. Suppliers of ours should finish a sale feeling they got just as uplifting a deal out of it as we did. Every customer should leave our store confident he or she was served the product needed at the optimal price.

That’s also why, when there is consensus at Home Depot to lend a hand with our expertise, we say yes. We do outreach with returning military veterans, and our thousands of ex-military employees know how to forge those bonds, and it strengthens our culture. Immediately after the Sept. 11 attacks, we brought generators, wiring, lighting and loads of other essential supplies to help rescue workers at ground zero. We do the same after hurricanes and floods. Our employees take heartfelt pride that we use our Home Depot know-how and apply it when our country is in need.

What do these widely varied practices have in common? They each enhance the company’s profitability in their own way. Employees are more productive when they are treated generously and their work has meaning. Customers and suppliers build stronger relationships with us because they know it’s based on trust. Helping out after disasters shows the whole community that Home Depot knows how to solve repair problems quickly.

But if we ignore Friedman’s crystalline perception — that profits are the driving focus — then the entire mission, good will included, falls apart. When we turn the idea of profit into a callous slur, as Friedman’s laziest critics often do, we are demeaning the essential propelling force that enables all these interconnected good works to occur.

After more than 50 years of investing, I have seen the business roadside littered with the wrecks of companies that lost sight of their core purpose, even as they held pure altruism as a goal for its own sake. Eastman Kodak was once a sparkling business success story, a homegrown company listed in the Dow 30 with enormous market capitalization. It also poured money by the bucketful on a laundry list of charitable works, much of it in upstate New York, where Eastman Kodak was known as a “sugar daddy” firm.

Eventually, the company lost focus, and a number of factors converged to bring about its downfall. When competitors began innovating, Kodak lacked the dexterity and the strategic initiative to keep up. It was delisted from the Dow in 2004 and went bankrupt in 2012. The charitable giving has dried up. Thousands of workers lost their jobs. Investors’ money evaporated. And upstate New York is now one of the most economically distressed regions in our country.

All our investors, employees, partners and customers also deserve the freedom and security to do good will in their own individual ways, too. But they cannot spread those wings unless the company delivers the profits to lift them.

Are those ordinary people so bereft of charity and common sense that they must grant some newspaper pontificator or a special-interest group with a bullhorn the imaginary right to dictate how their company channels the money they rightfully earned and counted on?

As Friedman warned us, to argue yes does worse than belittle every American. It turns the whole of our lives into politics. It means that every jockeying constituency that marauds our government also gets to compete and finagle over how your savings and investment are spent. Worse yet, they don’t even need to gather votes or heed the checks and balances that safeguard our public democracy. They only need to threaten, cajole and castigate the supposedly greedy companies that dare to object or hesitate.

That’s the essential argument of Friedman’s adversaries: Do as we prefer, or else. But Americans have long stood up to that strong-arm cynicism. The best way to understand Friedman and the enduring strength of his ideas is to realize that he is eloquently articulating what Americans have always known in our hearts and what made our country so resplendent.

‘It would be inconsistent of me to call on corporate executives to refrain from this hypocritical window-dressing because it harms the foundations of a free society.’

ANAND GIRIDHARADAS, author of “Winners Take All: The Elite Charade of Changing the World”

Today in America someone will be laid off right after his or her company announced record earnings. Someone’s hours will be cut without notice. Someone’s water will be poisoned by fracking. And among the pantheon of villains they can thank is Milton Friedman.

In this essay, Friedman criticizes businesspeople for straying from their lane — making money — and worrying about the social good, the so-called “window-dressing.” Businesspeople should not assume “governmental functions” of tending to the public welfare. And on that point, actually, I agree.

But here’s the thing. Friedman militantly condemns the businessperson who enters the public realm to be charitable, to be kind to employees, to invest in the commons because he wants all of these functions to be left to government. Tragically, Friedman neglects to condemn the other, more significant way in which businesspeople enter into the public sphere: not in the spirit of charity, but in the spirit of rigging through lobbying, campaign contributions, thought-leader patronage, philanthropic reputational laundering and penance by naming rights. In fact, he endorses this intrusion. He speaks of how a company can “generate good will as a byproduct of expenditures that are entirely justified in its own self-interest” — a.k.a. neoliberal do-gooding — and says it would “be inconsistent of me to call on corporate executives to refrain.”

Friedman’s vision could have worked if companies actually stayed in their lanes, leaving robust public and civic sectors free to create rules that harness the energies of private enterprise to the maximum good of all. Instead he gave companies moral cover to be ruthless and not worry about the public good — while leaving them scot-free to meddle in the public sphere for the sake of rewriting the rules.

‘There is nothing that could do more in a brief period to destroy a market system and replace it by a centrally controlled system than effective governmental control of prices and wages.’

LARRY FINK, chief executive of BlackRock

Some historical context is critical to understanding Friedman’s opinions. This was a world that was significantly less transparent, across a wide range of business practices, and one that was profoundly U.S.-centric. His essay was penned in an atmosphere where potential constraints on free markets were very real. The year after the essay’s publication, Nixon implemented the kind of wage-and-price controls that Friedman feared. That was a very different world from the one we live in today, in which free markets, technology and globalization have lifted hundreds of millions out of poverty — but have also significantly increased inequality.

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With that in mind, and in a context where developed-market governments are far less interventionist, I think that companies can and must do more to contribute and serve all of their stakeholders. Companies need to earn their social license to operate every day — and multinational corporations need to be increasingly local and participate in the communities where they operate. In today’s world, a greater sense of responsibility from business is not going to undermine free markets, as Friedman suggests, but is actually essential to preserving and strengthening them.

I don’t mean that companies should do this at the risk of their bottom line. If a company goes out of business, it can’t help anyone. But companies can and should find ways to align their own success with that of the communities where they operate. That’s not just my personal view; it’s what BlackRock’s clients are telling us. And they are the stockholders — the true owners of these companies — whose interests inspired Friedman’s essay.

‘In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate.’

THEA LEE and JOSH BIVENS, president and director of research at the Economic Policy Institute

This is the foundation of Friedman’s worldview: that the ability to coerce — power — is not exercised in free markets. But Friedman’s clean division between power-free markets and power-laden politics is a fiction. Every market is a social and political construct, shaped by lobbying, political influence and the spending of business associations. Does the fact that power is exercised in key markets mean that social goals should be pursued by pleading with corporate executives to do good? Not really — on this we agree with Friedman. Instead, we should use politics and policy, not appeals to C.E.O.s’ consciences, to counterbalance power and achieve a decent society.

‘But the doctrine of ‘‘social responsibility’’ taken seriously would extend the scope of the political mechanism to every human activity.’

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FELICIA WONG, chief executive of the Roosevelt Institute

Friedman ends with a warning: The doctrine of “social responsibility” would invade “every human activity.” But he got it backward. Today it’s the mind-set of the shareholder — short-termism, “greed is good” — that invades all.

In Friedman’s view, the world is tidy. Business efficiency will solve social problems, just as long as we slash taxes and offer more school choice. He’d been making these kinds of arguments since the mid-1940s, but they became viable only in the 1970s, when the promise of orderly “free” markets promised an escape from political chaos. Consider America’s (overwhelmingly white) fears at the time that Friedman wrote this essay. Watts. Detroit. Vietnam. Kent State. Jackson State. The assassinations of the Rev. Dr. Martin Luther King Jr. and Senator Robert Kennedy. Sex ed in schools. Boys growing long hair. Just beneath Friedman’s prose was a promise: Business(men) would restore prosperity and order, saving the American family, white-faced and picket-fenced. Friedman’s ideas were championed and carried to power — all the way to the White House — by social conservatives, from Orange County evangelicals to Ronald Reagan, who did indeed apply his doctrine to “every human activity.” This has led to a relentless focus on profit, even in the public sector — and to a president who praises the art of the deal while presiding over an incompetent response to multiple national crises and an economy in which 30 million Americans don’t have enough to eat.

‘That is why, in my book ‘‘Capitalism and Freedom,’’ I have called it a ‘‘fundamentally subversive doctrine’’ in a free society, and have said that in such a society, ‘‘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.’’’

RUSS ROBERTS, research fellow at Stanford’s Hoover Institution

The word “competition” appears only once in Friedman’s essay and only in the last sentence. Yet Friedman’s view of competition underlies much of his argument. Because he believed that businesses should pursue profit rather than something loftier, people often assume Friedman was “pro-business.” He adamantly rejected that notion. Friedman was pro-market: Businesses should be subject to competition. Businesses that treated their workers and customers well would survive the competitive process. Poor performers would lose customers and workers and eventually go out of business.

Friedman would often point out the oddity that so-called capitalists — business leaders — were often anticapitalist: They much preferred to be insulated from the competition of free markets. They would lobby for tariffs and quotas to keep out international competitors and argue that their industry required special treatment such as subsidies — policies that Friedman relentlessly criticized.

But doesn’t encouraging the pursuit of profit give businesses a moral license to exploit workers and customers? Friedman feared the opposite: that softening the pursuit of profit would take away the power of competition to push business to improve their performance as employers and as innovators.

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America’s relatively eager embrace of markets and competition creates prosperity. Like many observers today, Friedman wanted prosperity to be even more widespread. But as his essay argues, he didn’t think businesses should pay higher wages as a social imperative. Instead, he argued for educational reform that would give children raised in poverty the skills to be more productive in a market system.

DARREN WALKER, chief executive of the Ford Foundation

In propaganda, an accusation often betrays an admission. The most “subversive doctrine” was — and remains — Friedman’s own. His doctrine absolved the firm of its responsibility to serve as a force for racial integration and inclusion. It produced generations of corporate leaders dedicated to the sacred primacy of shareholder value. In that way, Friedman’s thinking became theology — the intellectual scaffolding that allowed its disciples to justify decades of greed-is-good excess. Gone were the days when someone like my semiliterate grandfather, with only a third-grade education, could work as a porter and benefit from a profit-sharing plan provided by a company that dignified his work. In their place were new conditions in which our social contract frayed and our economy tilted out of balance — fomenting the unsustainable inequalities that plague America today.

I am a proud capitalist. I believe in the market’s unique power to lift lives and livelihoods, especially when it’s fair and inclusive. After all, Adam Smith himself admonished that “no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” But ultimately Friedman ignored that in a democratic-capitalist society, democracy must come first. “We, the people” grant businesses their license to operate — which they, in turn, must earn and renew.