I’ve missed this article by Martin Wolf, hosted by Pro Market in the context of the debate over the 50th anniversary of Milton Friedman’s New York Times piece on corporate social responsibility. Wolf starts by saying that he “used to think Milton Friedman was right. But I have changed my mind.” That he changed his mind is no big surprise, as he moved from being a free trader in the early 2000s to being a staunch proponent of whatever kind of government interventionism in recent years.
What is interesting, however, is Wolf’s argument. He changed his mind, he writes, because he doesn’t “believe in the contractarian view of the firm” any more. Corporations, writes Wolf, “are powerful entities able to exercise immense influence within society. Since corporations have been told that their only responsibility is to make profits and this has been internalized within their operations, the result is that society, including in particular its notionally democratic politics, is dominated by feral institutions.”
For the British journalist, Friedman’s point that corporations should play within the rules of the game is naive, as they contribute to writing the rules of the game and they do so by lobbying governments and their regulators so that they act in their interest. This is why, Wolf maintains, “there is a direct line from Milton Friedman to Donald Trump.”
Here comes this astonishing way of reasoning:
Why is this? Consider how one goes about persuading people to accept Milton Friedman’s libertarian economic ideas when, in practice, they shift economic rents upwards and desperation downwards. In a universal-suffrage democracy, it is impossible. Such libertarians are a minority. To win, they have to embrace ancillary causes such as culture wars, racism, misogyny, nativism, xenophobia, and that good old standby: nationalism. Much of this has of course been sotto voce and so plausibly deniable: “No, we are not in favor of discrimination, but your precious freedom does indeed include the right to discriminate.”
The financial crisis and bailout of those whose behavior caused it made selling the deregulated free-market even harder, as Mitt Romney’s 2012 failure showed. Afterward, it became politically necessary for libertarians embedded within the Republican Party to double down on those ancillary causes. Trump was simply the political entrepreneur best suited to do this. A natural demagogue, he was perfectly comfortable saying out loud what his predecessors had said quietly or let others say for them. This is why his supporters claim that “he says it like it is.” Those desperately-needed voters loved him for it because he respects their rage. Of course, his nativism, nationalism, protectionism, demagoguery, lying and now open assault on the notion of a fair election is a bit uncomfortable for corporate elites. But, if he gives them lower taxes and sweeping de-regulation, how many really care? If the result is to poison democratic politics forever, again, who cares?
So, to return to my main point: one cannot get away with stating that corporations should play by the rules when they create the rules they play by. The system for creating the rules of the game is corrupt.
When Friedman was referring to the “rules of the game,” he was likely thinking of the broader and more general principles of a liberal polity and of free competition: don’t hurt people and don’t steal their stuff, to quote the effective title of a book by Matt Kibbe. He was certainly not thinking of legislation à la cart and special privileges, that Friedman vehemently opposed. Moreover, in Capitalism and Freedom, where Friedman further elaborates his argument against the notion that corporations ought to have any “social responsibility” duty, he argues clearly that “if economic power is joined to political power, concentration seems almost inevitable. On the other hand, if economic power is kept in separate hands from political power, it can serve as a check and a counter to political power.”
Friedman, and libertarians at large, argue for a separation of government and business as clear as the separation between the church and the state. I’d like to have the reaction of some American friends, but I find the description of libertarians jumping on the Trump bandwagon quite laughable. If anything, perhaps the opposite has happened: that libertarians have emphasized their differences with the current US administration, focusing on matters that alienated them Republican support. Think about Cato’s top-notch work on immigration. Protectionism is a red flag for libertarians and that brought them to strongly distance themselves from the Trump camp. If you google Donald Trump and Milton Friedman, other than Wolf’s piece you’ll see things like this popping up.
In short, Wolf accuses Friedman of being blind to the issue of crony capitalism and to have a following which includes people eager to compromise for the sake of immediate political goals. The second claim would be an interesting matter of investigation. The first is plainly wrong.
READER COMMENTS
Jon Murphy
Oct 13 2020 at 9:59am
Depends on what you mean by “Trump bandwagon.” A lot of libertarians voted for Trump for a single reason: Justice Neil Gorsuch.
Trump has done some good things. We’ve gotten some deregulation, his judicial picks have been strong, he’s kept the US mostly out of foreign wars.
So, for many libertarians and classical liberals like myself, support for Trump has been extremely situational.
Some libertarians, mainly of the Hans-Hoppe line, have embraced Trump wholeheartedly. But they are decidedly a minority.
Jon Murphy
Oct 13 2020 at 12:34pm
Let me amend one of my statements above:
I should have written “A lot of libertarians who votes for Trump…”
I didn’t mean to imply many libertarians voted for Trump
Philo
Oct 13 2020 at 12:26pm
In spite of presenting himself as a champion of democracy, Wolf is quite skeptical about its workability. In a democracy, “a dominant [political] influence is the power of money.” Though ultimately political decisions rest in the hands of the voters, money can be spent in ways that prevent the voters from exercising this power virtuously. (Details not supplied.)
As a source of such money, Wolf focuses on for-profit corporations—presumably, the big, wealthy ones; he ignores other influential organizations (labor unions, churches, charities, AARP, etc.—above all, political parties and movements). His recommendation: “Corporations, qua corporations, should not be permitted to make political contributions, fund political campaigns or engage in any other political activities.” (But: “They may lobby on behalf of their commercial interests.”) Other organizations, as well as very wealthy individuals and families, go unmentioned. Also unmentioned is the fact that the interests of one corporation will inevitably conflict with those of other corporations.
I comfort myself with the hope that democratic decision-making processes are not so thoroughly corrupted by cash as Wolf claims, and, in particular, that the influence of big corporations—even if they are allowed to make political contributions—is much less than he says. (The evidence he presents to undermine this hope is very thin.)
Mark Z
Oct 13 2020 at 1:36pm
There seem to be a few glaring errors in Wolf’s thinking. First of all, corporate money doesn’t dominate politics: the last few years have if anything been demonstrating that it’s dominated by other things. Romney was clearly the more ‘Friedmanite’ candidate and yet Obama out-raises him by nearly $300 million (probably among corporate donors too). The ‘line to Trump’ argument is particularly odd since Trump won in 2016 despite being massively out-raised by Clinton, who was also far more supported by big business. Finally, Trump lost support from big libertarian donors like the Koch brothers (who I’d guess Wolf had in mind when writing this).
Presidential elections aren’t determined by corporate money, corporations don’t consistently self-interestedly donate to the most corporate-friendly candidates, and the GOP has lost support among libertarians largely because Trump is a lurch away from free market thinking, as indicated by the libertarian party’s performance in 2016. Every chain in his argument seems broken to me. It just seems like tenuous effort to justify a change of opinion based on mood affiliation.
Ted D
Oct 14 2020 at 10:46am
This is true, and the reason is simple. The real work of corporate representatives in government is in writing the rules, and that work is done on the Hill and in the bureaucratic machinery well down from the Oval Office. My experience with trying to represent the interests of a corporation (and an industry association) in DC over the course of three administrations is the party that occupies the White House doesn’t matter much. People, particularly on the American left, ascribe way too much power to the office of the President, which the Founders deliberately designed to be very limited.
nobody.really
Oct 14 2020 at 7:02am
“At all times sincere friends of freedom have been rare, and its triumphs have been due to minorities, that have prevailed by associating themselves with auxiliaries whose objects differed from their own; and this association, which is always dangerous, has been sometimes disastrous, by giving to opponents just grounds of opposition.”
John Emerich Edward Dalberg, Lord Acton, The History of Freedom in Antiquity (1877)
“[T]he proper strategy of libertarians and paleos is a strategy of ‘right-wing populism’….
[A]ll real-world politics is coalition politics, and there are … areas where libertarians might well compromise with their paleo or traditionalist or other partners in a populist coalition.”
Murray N. Rothbard, “Right-Wing Populism” (January 1992)
“I thought they were voting for libertarian Republicans. But after some soul-searching, I realized when they voted for Rand and Ron [Paul] and me in these primaries, they weren’t voting for libertarian ideas. They were voting for the craziest son of a bitch in the race. And Donald Trump won best in class.”
Rep. Thomas Massie (R-KY)
nobody.really
Oct 14 2020 at 7:53am
<blockquote> For the British journalist, Friedman’s point that corporations should play within the rules of the game is naive, as they contribute to writing the rules of the game and they do so by lobbying governments and their regulators so that they act in their interest….
When Friedman was referring to the “rules of the game,” he was likely thinking of the broader and more general principles of a liberal polity and of free competition: don’t hurt people and don’t steal their stuff, to quote the effective title of a book by Matt Kibbe. He was certainly not thinking of legislation à la cart and special privileges, that Friedman vehemently opposed. Moreover, in Capitalism and Freedom, where Friedman further elaborates his argument against the notion that corporations ought to have any “social responsibility” duty, he argues clearly that “if economic power is joined to political power, concentration seems almost inevitable. On the other hand, if economic power is kept in separate hands from political power, it can serve as a check and a counter to political power.”
Friedman, and libertarians at large, argue for a separation of government and business as clear as the separation between the church and the state.</blockquote>
Yup. And what mechanism did Friedman propose for maintaining this separation of government and business?
Karl Marx would be appalled at many of the things done in his name—especially the corruption. Yet many people—libertarians most prominently—argue that his views, even if noble, were naïve: The concentration of power in the state that would be required to overcome the self-interested tendencies of citizens would inevitably create circumstances that facilitate corruption.
I sense Wolf makes the analogous argument about Friedman: Whatever you may think about the purity of Friedman’s opposition to crony capitalism, it exists. Historically, crony capitalism was partially constrained by some public and private sense of noblesse oblige. Friedman argued for removing noblesse oblige—while proposing no substitute force to constrain crony capitalism.
In Republican politics, this has been manifest most clearly by the most regular achievement of Republican administrations: Massive deficits created by tax cuts for the wealthy that bear no relationship to government’s need for revenues. While Republicans used to profess a concern about deficits, that concern became transparently pretextual after the rise of Ronald Reagan—which, curiously, coincided with the timing of Friedman’s essay. The new Republican view also manifest in Republican opposition to laws designed to manage externalities.
Friedman and his apologists can argue that he never argued for tearing down the house; he merely argued for removing part of the foundation. Who could have guessed the result?
Mark Z
Oct 14 2020 at 4:11pm
Noblesse oblige – in the sense of ‘social responsibility’ – is perfectly consistent with being a greedy, rent-seeking monopolist; conversely, it is perfectly consistent for a CEO to believe his responsibility is seek profit for shareholders while also believing he should keep his business out of politics.
Just look at most of the most hated and maligned companies in America today, and how far they go to demonstrate their social responsibility. It’s popular to point out how hypocritical Nike or whoever is for using cheap African labor while donating to racial justice causes or what have you, but that just shows, imo, that Wolf’s argument is a non-starter: the companies that are supposedly savaging our democracy are clearly not Friedmanite companies; they wholly embrace the concept of corporate social responsibility. ‘Corporate America’ has largely disavowed Friedman’s conception of corporate responsibility, so if it’s as terrible as it is despite its embrace of social responsibility, it seems hard to attribute to Friedman, or that social responsibility is an innoculation against ostensible corporate malfeasance.
It’s also worth noting that we were at our most fiscally responsible state 20 years ago, when Friedman’s worldview was likely at its most popular. With respect to Trump’s tax cuts and deficits in particular, what’s ironic is no Republican presidential candidate has been less beholden to big corporations than him for some time. His normalized fundraising in 2016 were less than the last three GOP candidates (including both terms for Bush). He is a populist through and through. Tax cuts are popular with voters, spending cuts aren’t. I don’t think one can lay his deficits at the door of corporate donors, for better or worse.
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