Milton Friedman, the University of Chicago free-market economist, is often credited with first articulating the idea in a 1970 New York Times Magazine essay in which he argued that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Anything else, he argues, is “unadulterated socialism.”
A decade later, Friedman’s was still a minority view among corporate leaders. In 1981, as Ralph Gomory and Richard Sylla recount in a recent article in Daedalus, the Business Roundtable, representing the nation’s largest firms, issued a statement recognizing a broader purpose of the corporation: “Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs and build the economy.”
By 1997, however, the Business Roundtable was striking a tone that sounded a whole lot more like Professor Friedman than CEO Wilson. “The principal objective of a business enterprise is to generate economic returns to its owners,” it declared in its statement on corporate responsibility. “If the CEO and the directors are not focused on shareholder value, it may be less likely the corporation will realize that value.”
The most likely explanation for this transformation involves three broad structural changes that were going on in the U.S. economy—globalization, deregulation, and rapid technological change.
When Shareholder Capitalism Came to Town