Adopting The Milei Doctrine May Revive Argentina

On September 13, 1970, the New York Times published an article by Milton Friedman that would become one of the most famous—and controversial—articles in all of economics. The piece was titled, “A Friedman doctrine— The Social Responsibility of Business Is to Increase Its Profits.”

According to the now-famous Friedman doctrine, the sole job of a business is to make profits for its shareholders. It has no other “social responsibilities,” such as caring for the poor or protecting the environment. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades,” Friedman wrote.

The Friedman Doctrine

The crux of Friedman’s argument is that he who pays the piper ought to pick the tune. If the shareholders own the company, then they should get to decide how it operates, and if they are solely interested in profit (either out of avarice or because they want to spend the money on causes they personally care about), then everything the company does should be oriented toward making as much profit as possible. In short, shareholder primacy should be the rule.

“In a free‐enterprise, private‐property system, a corporate executive is an employe of the owners of the business,” Friedman wrote. “He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

“In either case,” he continues, “the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation…and his primary responsibility is to them.”

To be sure, Friedman is not saying we shouldn’t care about the poor or the environment—a common misinterpretation of the Friedman doctrine. Rather, he’s making the subtler point that it is not the place of a business executive to be spending what is effectively someone else’s money on causes he personally thinks are important. “The stockholders or the customers or the employes could separately spend their own money on the particular action if they wished to do so,” Friedman notes.

Friedman concludes the article with a quote from his book Capitalism and Freedom. “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

The Alternative: Stakeholder Capitalism

Over 50 years later, the Friedman doctrine is still a guiding principle for many in the business community. But not everyone is on board with the idea.

The proponents of Corporate Social Responsibility (CSR), now known as Environmental, Social, and Governance (ESG) policies have long pushed back on shareholder primacy, arguing that other parties such as workers, customers, and the government should also have a seat at the table in determining how businesses are run and what they invest in. The insistence on considering these and other “stakeholders” has given rise to the name stakeholder capitalism to describe this perspective.

“In the 1950s and 1960s, it was quite natural for a company and its CEO to consider not just shareholders, but everyone who has a ‘stake’ in the success of a firm,” wrote Klaus Schwab and Peter Vanham in a 2021 article for the World Economic Forum (WEF). “That is the core of stakeholder capitalism: it is a form of capitalism in which companies do not only optimize short-term profits for shareholders, but seek long term value creation, by taking into account the needs of all their stakeholders, and society at large.”

They go on to explicitly contrast stakeholder capitalism with the Friedman doctrine.

“As a global organizing principle for business, the stakeholder concept competed head-on with Chicago University economist Milton Friedman’s notion of ‘shareholder primacy’...Shareholder capitalism became the norm across the West as companies globalized, loosening their ties with local communities and national governments, and focusing instead on maximizing short-term profits for shareholders in competitive global markets…

…The [stakeholder] model is simple, but it immediately reveals why shareholder primacy and state capitalism lead to suboptimal outcomes: They focus on the more granular and exclusive objectives of profits or prosperity in a particular company or country rather than the well-being of all people and the planet as a whole.”

Space does not allow a full discussion of the errors and misrepresentations involved with this “people over profit” view. Suffice it to say, free-market capitalists flatly reject the accusation of “granular” “short-term” thinking, and we would argue that the “well-being of all people and the planet as a whole” is in fact best achieved with a laissez-faire, shareholder-primacy approach.

These then represent the traditional battle lines, the free-market capitalists on the one side championing the Friedman doctrine of shareholder primacy as the key to freedom and prosperity, and the stakeholder capitalist WEF types on the other side who maintain that prosperity (freedom conspicuously absent) is best achieved with a stakeholder approach.

Javier Milei’s Addendum

In his recent interview with Tucker Carlson, the Argentinian presidential candidate Javier Milei referenced Milton Friedman and added his own spin to Friedman’s ideas.

Carlson: Argentina’s now a poor country because of those [socialist] policies. What advice would you give to Americans having lived it?

Milei: Never embrace the ideals of socialism. Never allow yourselves to be seduced by the siren song of social justice…At the same time, we have to raise awareness among the business sector, that the masses are necessary—Milton Friedman used to say that the social role of an entrepreneur is to make money. But that’s not enough. Part of their investment must include investing in those who defend the ideals of freedom, so the socialists can make no further advances. And if they don’t do it, they [the socialists] will get into the State, and use the State to impose a long term agenda that will destroy everything it touches. So we need a commitment from all of those who create wealth, to fight against socialism, to fight against statism, and to understand that if they fail to do so, the socialists will keep coming.

The idea that business owners have a duty, not just to make profits, but to invest in the individuals and organizations that are promoting liberty makes a lot of sense. This “Milei doctrine” as we might call it highlights the reality that persuading the masses to believe in liberty is a crucial part of making everyone better off. The entrepreneur who merely pursues profits but does not take care to safeguard the profit and loss system itself will soon find himself surrounded by socialists and statists. And when that day comes, all the profits in the world will not be able to save him from the tyranny of the majority.

Does the Milei doctrine conflict with the Friedman doctrine? I don’t think so. Rather, it is best viewed as an addendum to the Friedman doctrine. Here’s why.

The “Friedman doctrine” label is sometimes used a bit loosely, so it’s important to clarify exactly what’s being said. In his 1970 article, Friedman argued that businesses should be run to satisfy the wishes of shareholders above all else. I think of this as the Friedman doctrine proper.

Friedman is also known for the idea that entrepreneurs should pursue profits above all else, but this is technically a separate point. And it’s this point that Milei is pushing back on.

Milei isn’t saying rogue agents should use business funds against the wishes of their principal. Rather, he’s saying that the principals, the shareholders, should not solely focus on making profits, as beneficial as that is. They also need to be investing some of their money in individuals and organizations that defend the cause of freedom.

Milei is effectively saying, “yes, businesses should be run under a shareholder primacy model. But also, business owners should use some of their profits to fund free-market advocacy.”

The idea that capitalists should invest in free-market advocacy is perfectly compatible with the Friedman doctrine proper as outlined in the 1970 article. What Milei is pushing back on in Friedman is the related but distinct discussion of what it is that entrepreneurs and shareholders should be valuing if they want to help society—solely profits, as Friedman is often interpreted as saying, or profits plus free-market advocacy, as Milei argues.

A Call to Entrepreneurs

The only thing I would add to Milei’s point is that, even if an entrepreneur does not want to devote any resources to the cause of liberty, they should at minimum lend their voice to this cause. It would be incredibly powerful if the majority of business people in the country boldly defended free-market capitalism as the key to freedom and prosperity.

But most of them don’t, and this is a serious problem. Indeed, free marketers have long lamented that their would-be allies, the businessmen and entrepreneurs, are conspicuously silent on economics, or worse, actively join the clamor for government favors and protections.

It’s time for that to end. Entrepreneurs know first-hand how restrictive state intervention can be. They live in a world of red tape, of licenses, permits, codes, regulations, and statutes. As such, they are perfectly situated to teach their friends, family, and the population at large just how much the state stifles innovation and progress.

So it’s time for them to stand up for the free enterprise system, with their voices and preferably with their finances. It is time for the leaders of the business world to candidly and consistently champion the principles of a free society. It is time to adopt the Milei doctrine.

Patrick Carroll is the Managing Editor at the Foundation for Economic Education.