Milton Friedman will be spinning in his grave at the heresy perpetrated by the US Business Roundtable. For the thick end of five decades US capitalism has been run along Friedmanite lines – namely that businesses are there to make money for their shareholders. No charitable giving, no diversity awareness. No green audits. Just making money. Period.
Now some of the highest paid on the planet have appeared to ditch the idea of shareholder primacy. Sure, they say, shareholders matter but so do a range of other stakeholders: customers, employees, suppliers and communities. Workers must be treated with dignity and respect. Businesses will be run sustainably in order to protect the environment.
If it’s for real, this represents quite a sea change. Friedman’s essay for the New York Times in 1970 was hugely influential and has governed boardroom behaviour ever since. The whole “greed is good” philosophy that flowered in the 1980s was based on the economist’s idea that the sole task of executives was to enrich shareholders provided they played by the rules.
But Friedman also said that playing by the rules meant more than obeying the law: it meant conforming to ethical custom. And in recent years there has been a shift in what the public considers to be right and wrong. The fact that CEOs have seen their pay rocket while average wages have stagnated is part of the story, but so too is the way in which profit-maximising companies have hollowed out communities by moving production offshore.
Yet capitalism adapts to changing circumstances. It can survive and thrive where regulations are lax, as they are in the US. And it can flourish where regulations are tighter, as they are in Scandinavia. That’s why it has survived for so long and seen off previous challenges. And those presiding over US boardrooms can sense that politicians such as Elizabeth Warren and Bernie Sanders have struck a chord with their calls for root-and-branch reform of business practices.
There are those who will wonder just how genuine the move to stakeholder capitalism actually is, and they are right to be suspicious. The one-page statement is pretty woolly: there is, for example, talk of paying workers fairly but no commitment to pay them more. Better, the roundtablers might think, to take baby steps towards a more inclusive approach now than have a bunch of legislators on Capitol Hill force them into more drastic changes.
That shrinking feeling
The meeting between Boris Johnson and Angela Merkel later this week is not likely to be especially fruitful but at least they will have something in common: both are presiding over shrinking economies.
If anything, the short-term problems facing Germany are even greater than those affecting the UK. Europe’s biggest economy shrank in the second quarter of 2019 and, according to the country’s central bank, is on course to do so again in the third. Two consecutive quarters of falling output constitute a recession. The Bundesbank says Brexit and the slowdown in exports caused by global trade tensions are two big contributory factors to the slowdown.
It’s a sign of how bad things are that the German finance minister, Olaf Scholz, has pledged that €55bn (£50bn) could be spent to boost growth if it proves necessary. But there’s one thing saying the purse strings could be loosened and them actually being loosened. And Germany has not secured the reputation of being the most fiscally conservative country in Europe for nothing.
In the meantime Johnson will be hoping that the travails of the German economy will make Merkel more willing to make Brexit compromises. No sign of them so far, though.