Is Harvard’s N. Gregory Mankiw the Next Milton Friedman?
Milton Friedman was an economist who won the 1976 Nobel Memorial Prize in Economic Sciences.
Last week in the New York Times Harvard economics professor N. Gregory Mankiw looked with alarm at the increasing number of corporate executives advocating for social and racial change, and at the recent Business Roundtable statement on the purpose of the corporation which advocated for a broader business responsibility to all stakeholders, not just shareholders. In doing so, Mankiw reached for the mantle long worn by the late Milton Friedman as the most prominent advocate of free market capitalism.
Mankiw is a wonderkind who received tenure in Harvard’s economics department at age 29 and has taught there for 35 years. Friedman taught for 30 years at the University of Chicago where he was one of the leading figures in the neoclassical “Chicago school of economics” and won the Nobel Memorial Prize in Economics in 1976. The following year he decamped to the Hoover Institution at Stanford and died in 2006 at age 94.
Friedman’s 1970 New York Times Magazine article, “The Social Responsibility of Business is To Increase Its Profits,” has for two generations been a core reading in business school ethics and social responsibility classes the world over, expressing as it does the dominant ideology of American business. Friedman argued that business executives have no competence to pursue social purposes and therefore should do no more than maximize shareholder wealth, which in the end would contribute more to social welfare. I have always admired Friedman’s brashness in this article, and had the chance to debate him three times, including at the 75th anniversary of the Stanford Business School where I taught business ethics and he was at the Hoover Institution.
Mankiw echoes Friedman’s core arguments faithfully in his July 24 New York Times oped. He notes that a broader responsibility “expects executives to be broadly competent social planners rather than narrowly focused profit maximizers. It is unlikely that corporate executives, with their business training and limited experience, have the skills to play this role well.” Friedman went further, citing one of the greatest and richest industrialists of the 20th century, Henry Ford. Friedman asked whether we would want Ford, who was widely considered anti-semetic, to use his and the company’s wealth to drive national social policy.
What Friedman, and now Mankiw, miss, in my view, is that business has both positive and negative social impacts, the worst of which can never be fully reined in by law and regulation. Some sense of responsibility and self-restraint by business is necessary. These two economic giants miss the reality that many social needs can only be addressed with the active participation of the private sector. Finally, they do not acknowledge that, unleashed from any ethical obligation, corporations will use their economic and lobbying power to win social policies favorable mostly to their own economic interests and not to the accomplishment of critical social goals.
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