The Davos Set’s Most Dangerous Delusion

Few thinkers are more deserving of criticism than Milton Friedman. Not only was he the late 20th century’s leading proponent of unfettered capitalism, he served as one of the intellectual fathers of the neoliberal ideology that has been so dominant (and destructive) over the past 50 years. It is no exaggeration to say that the Chicago School economist was one of the most—if not the most—influential ideologists of the past half-century, shaping economic policy in Washington and beyond while providing an effective intellectual apologia for capitalists, who seldom fail to put profit over people.

All of this makes it hard to defend Friedman in any way, and I have little desire to do so. The neoliberal prophet’s ideas and theories played an essential role in the right-wing economic project that took off during the Reagan and Thatcher era of the 1980s; today’s conservative and libertarian ideologues continue to cloak their pro-corporate agenda (deregulation, tax cuts, and so forth.) in the Friedmanite language of liberty. All this being said, however, it has been amusing in recent months to see the dead economist become something of a scapegoat for the very type of people who once used his work to defend their bad behavior from critics.

This phenomenon was evident last week at the World Economic Forum summit in Davos, Switzerland, where the world’s political and economic elite come together every year to pretend that they care more about the world than they care about making money. The theme of this year’s event was “stakeholder capitalism” and the role of business in society—or, officially, “Stakeholders for a Cohesive and Sustainable World.” Five months after the Business Roundtable released a memo on the “purpose of a corporation,” in which the group of America’s top CEOs advocated a form of stakeholder capitalism (as opposed to shareholder capitalism), much of the world’s economic elite are now ostensibly getting on board with this “new” model of capitalism.

“I feel that everyone is conscious that the old idea of … maximizing profits, maximizing shareholder value, the old Milton Friedman concept, is now part of the past,” declared Maurice Levy, chair of ad agency conglomerate Publicis Groupe, at the forum. During that discussion, other top capitalists likewise rejected old Milton’s theory of shareholder primacy. “Capitalism as we have known it is dead,” pronounced Marc Benioff, billionaire founder of the Silicon Valley company Salesforce. “This obsession that we have with maximizing profits for shareholders alone has led to incredible inequality and a planetary emergency,” he continued, insisting that stakeholder capitalism has finally hit a “tipping point.”

So, 50 years after writing his article on the social responsibility (or lack thereof) of corporate America, Milton Friedman has become the whipping boy for wealthy billionaires and elite Davos regulars hoping to improve their image. It is certainly entertaining to watch Friedman get some of the ridicule he so richly deserves, of course, and it’s long overdue that his free-market fundamentalism be tossed into the dustbin of history. Yet at the same time, it is a stretch to say that the rise of “shareholder capitalism” over the past 50 years is the fault of some dead economist, no matter how influential.

The fact is that Friedman’s work—and that of other right-wing economists, such as F.A. Hayek—was a great apologia for corporate America, providing a moral defense of its unscrupulous and greedy behavior. Friedman’s justification of unfettered capitalism was based on his narrow (and entirely negative) definition of freedom, which was incredibly useful in the hands of such billionaire businessmen as the Koch brothers, who fought all forms of state economic intervention in the name of freedom. For all his ideological writings, however, much of what Friedman wrote was simply descriptive. For example, when he said that the role of the corporation is to make money for its shareholders, he was simply describing what capitalists have always done. Friedman’s essay on the corporate executive’s function didn’t really posit anything new; he was merely describing the logic of capitalism. The corporate executive, Friedman wrote, has “direct responsibility to his employers,” and his or her 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 their basic rules of the society.”

One of the attendees of this year’s Davos conference, McKinsey & Company partner Kevin Sneader (who was in the news last year for falsely denying the firm’s role in advising U.S. Immigrations and Customs Enforcement on its inhumane immigration policies), maintained that the founder of modern economics, Adam Smith, “was very clear in saying that the responsibility of the businessperson was to give to the community and enrich everyone.”

While it’s true that Smith wasn’t a free-market fundamentalist, as portrayed by libertarian ideologues, there’s a difference between saying how things ought to be and how things are, and Smith was not naive about the businessperson’s motivations. In his own words, the author of “The Wealth of Nations” said that the “consideration of his own private profit is the sole motive which determines the owner of any capital to employ it either in agriculture, in manufacturers, or in some particular branch of the wholesale or retail trade.” The most useful employment of capital, Smith wrote, is the one that yields the capitalist the most profit, and this employment is “not always the most useful for society.”

We can find similar accounts of the capitalist in the writings of Karl Marx, who pointed to what he called the “coercive laws of competition,” which force capitalists to adopt the same methods and tactics as their competitors (or cease to be capitalists and go out of business). Profit is the single motivation for capitalists, and it is naive to think that they will put the interests of the community, their employees, their customers or the environment before their short-term profit (at least without being forced to do so).

The latest public embrace of “stakeholder capitalism” by America’s corporate elite is more of a PR stunt than anything else, and the co-opting of “progressive values” by Wall Street elites and corporate executives is little more than a desperate attempt to placate the growing anger and opposition to capitalism and the billionaire class (not just in the United States, but internationally). This cynical strategy was on full display when the CEO of Goldman Sachs, David Solomon, issued a statement from his Davos resort Thursday stating that the Wall Street firm—the biggest underwriter of initial public offerings in America—will no longer take public any companies with all-white and all-male boards of directors. “Starting on July 1st in the U.S. and Europe, we’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women,” he declared.

There is perhaps no better example than the above of what the great political theorist Nancy Fraser has termed “progressive neoliberalism”—which she defines as a strategic alliance between such emancipatory social movements as feminism, anti-racism and LGBTQ rights—with neoliberal forces that use “the charisma of their progressive allies to spread a veneer of emancipation over their own regressive project of massive upward redistribution.” The aim of progressive neoliberalism, Fraser remarks, is not to “abolish social hierarchy but to ‘diversify’ it, ‘empowering’ ‘talented’ women, people of color, and sexual minorities to rise to the top.”

An inherently class-specific ideal, this is designed to ensure that the so-called “deserving” individuals from underrepresented groups can attain “positions and pay on a par with straight White men of their own class.” This model of meritocratic neoliberalism is the opposite of radical, as it ultimately helps sustain the unjust system that keeps the great majority of people from all groups exploited and powerless.

In the end, individual capitalists may genuinely care about the environment, global poverty and inequality, or any of the other noble causes discussed at Davos, but they operate within an impersonal and amoral system that does not care about their personal conscience. (Plus, to succeed in this type of environment, the less empathy one has the better; a recent study found that as many as one in five business leaders may have psychopathic tendencies, compared with around 1% to 2% in the general population).

Milton Friedman was at least honest about the ruthless and cutthroat nature of capitalism, unlike Davos elites and a growing number of corporate leaders who promote the contradictory idea of a kind of compassionate capitalism. In truth, the only way to meet the enormous challenges and threats we face today is to look critically at the very system that engendered these problems in the first place. Not surprisingly, those who benefit most from this system are not prepared to do this.

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