Economists as Influencers
Economists whose theories become accepted as correct wield incredible influence over the actions of governments and corporations. Milton Friedman, a member of the Chicago school of economics, is a prime example of the influence an economist can have on the world. In a New York Times article from 1970, he stated that it is the responsibility of the corporation to maximize profits for shareholders. Read Edward Posner’s article in the Atlantic for more about Friedman’s ideas.
The economist John Maynard Keynes, famous for his theories published in his book The General Theory of Employment, Interest and Money (1936) was the foremost economic influencer before Friedman. Written during the Great Depression, this book laid the groundwork for government responses in times of economic disaster. The basics of his approach called for His ideas dominated the economic field until the early 1970s.
In 1930, Keynes predicted his grandchildren would be working only 15 hours a week! Technological advances, improved processes, and new ideas were expected to allow the production of goods in far less time resulting in increased leisure time for all. Obviously, like many predictions about the future, this turned out to be wrong. For more about Keynes prediction check out the story “Why Was He So Wrong?” from NPR.
Read more about Keynesian Economics.
Friedman’s Ideas Quickly Adopted
Corporations were quick to adopt Friedman’s philosophy or rule. It is only now, almost 50 years after the Times article, that business leaders are questioning the validity of this approach and recognizing the need to include the community, customer, and employee when making decisions. The Business Roundtable, an organization that represents the CEO’s of America’s most successful companies, recently released a new statement on the Purpose of a Corporation that represents a change in course from Friedman’s ideas. The new statement recognizes the importance of the community, customer, and employee to the success of the company. 181 CEO’s signed the new statement.
Bill McNabb, the former CEO of Vanguard, had this to say about the new statement:
“I welcome this thoughtful statement by Business Roundtable CEOs on the Purpose of a Corporation. By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone – investors, employees, communities, suppliers and customers,” said Bill McNabb, former CEO of Vanguard.
We can only hope that these words are followed by action.
JUST Capital is an organization that is attempting to rank companies based on several factors including:
- Paying a Living Wage
- Community Relations
The organization looks at how the company treats workers and customers, cares for the environment, supports the communities, and how company leadership performs in relation to laws and regulations. In addition, they try to determine if the company is paying their fair share of taxes. Using this data, JUST Capital released a report titled “Top 100 U.S. Companies Supporting Healthy Communities and Families.”
The Top 10
The top 10 companies identified by JUST Capital include many that are household names:
- Abbott Laboratories
- Texas Instruments
None of these companies are perfect and do have areas that need improvement, but the rankings help establish benchmarks for companies to strive for and a means of comparison. Many large corporations treat their employees well but rely on an army of independent contractors who do not fare as well. Some companies do their best to avoid paying taxes and harm the community in the process. While others fail to take responsibility for damage to the environment.
In any case, I hope that this new purpose statement by the Business Roundtable group is a signal that the tide is turning and corporations will take a more balanced approach and consider the needs fo all stakeholders.