Angry Little Tree

Reason Online has posted a fascinating dialogue between a few noted free-market types. John Mackey, the CEO of Whole Foods, argues that corporate responsibility must include more than simple monetary profit. Milton Friedman, the god of free markets, responds as does another CEO.

I’m a businessman and a free market libertarian, but I believe that the enlightened corporation should try to create value for all of its constituencies. From an investor’s perspective, the purpose of the business is to maximize profits. But that’s not the purpose for other stakeholders—for customers, employees, suppliers, and the community. Each of those groups will define the purpose of the business in terms of its own needs and desires, and each perspective is valid and legitimate.

Mackey’s point is an interesting one, and I have to admit that I’d never considered that someone from a libertarian perspective would articulate it in such a way. The idea of focusing not just on shareholders but on stakeholders in the company is a fascinating one. Another angle of discussion the nature of the investor relationship.

I believe {corporate charity programs} would be completely justifiable even if they produced no profits and no P.R. This is because I believe the entrepreneurs, not the current investors in a company’s stock, have the right and responsibility to define the purpose of the company.... It is the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders—including the investors.

Friedman responds, getting in jabs at the nature of charity, but essentially spends his column-inches trying to explain Mackey’s views as enlightened self-intrest disguised as altruism. In that sense, says Friedman, their differences are largely rhetorical.

It’s TJ Rogers, CEO of Cypress Semiconductor, whose response borders on charicature.

I balk at the proposition that a company’s “stakeholders” (a term often used by collectivists to justify unreasonable demands) should be allowed to control the property of the shareholders. It seems Mackey’s philosophy is more accurately described by Karl Marx.

Shouting ‘Marx!’ feels like the economic equivalent of Godwinizing a discussion like this. I’m reminded of how barren our collective vocabulary is when we talk about issues like this. We’ve taken Adam Smith and turned his observations about markets into a moral force – but who says that all of society must operate like a market at all times? As reasoning creatures, we’re perfectly capable of shaping new norms. Self-interest is a powerful motivator, but it has never been and never will be the only motivator.

Rogers also asks, rhetorically, why Mackey feels giving to charity is better than giving to investors. Investors, after all, are individuals too – they’ll donate profits to charity, use them to put children through college, use them to fund a retirement… And Mackey is stealing from them to fund his philanthropy! Scandalous! Rogers sets the trap, then walks into it. Having spent his five paragraphs saying that profit is a corporation’s sole purpose and responsibility, he sugar-coats his statement by implying that investors are themselves a sort of charity. As Machey notes in his rebuttal, investors can choose to put their money in a corporation whose goal is pure profit, or to put their money in one whose goals are broader.

Mackey’s writing comes across as mature and thoughtful, framing the debate in terms of human issues. Friedman, for all his influence, seems genuinely blind to the idea that there is a world beyond the spreadsheet. And Rogers just looks like a Wall Street cartoon – the “Greed Is Good” rationalizer. He’s not a bad person from the sound of it, but I’ve always been baffled by the genuine anger and venom that many free-market types seem to reserve for people who act on moral principles inside the market system.