So my column about John Mackey, Kip Tindell, and their ideas about what Mackey calls “conscious capitalism” turns out to have been moderately timely after all. Yesterday Michael Kinsley and Conor Clarke threw open the doors to a group blog that they and a few economists and journalists have been filling with posts for the past week. The subject: “Creative Capitalism”–the not-entirely-profit-motivated approach that Bill Gates outlined in a speech at Davos in January. Or, as Clive Crook sardonically puts it in a post on the blog, “Do as I say, not as I did.”
Milton Friedman’s famous essay, “The Social Responsibility of Business is to Increase Its Profits,” is a big part of the discussion. I’ve long been fascinated by this piece, originally published in the New York Times Magazine in 1970, and its impact. My very first post after moving this blog to Time.com was on the topic, and it plays a significant role in my not-so-soon-to-be-published book. Any discussion of “creative capitalism” has to confront Friedman’s argument.
So far the most interesting attempt to do so on the Creative Capitalism site has been made by Edward Glaeser, a youngish Harvard economist very much in the Friedman tradition:
Anyone who manages in a university or foundation or hospital knows that one of the comparative advantages of the non-profit sector is that our co-workers believe that we are doing good in the world. Cash can certainly motivate people, but so can other ideals. Just as armies moved from being purely mercenary affairs to being forces dedicated to honor and patriotism, I expect to see more and more companies embrace complex objectives that go beyond making money.
None of this negates Friedman’s essential point that under current contract law, for-profit firms have a fiduciary duty to their shareholders that creates an overwhelming legal and moral obligation. If more corporations are going to be creative capitalists, then we surely need to consider new contractual forms that reflect the fact that firms may want to do other things as well as making money for their shareholders. For example, firms can certainly have two types of voting shares, one of which goes to investors and the other of which goes to workers. The legal obligation of the firm under this structure would be to return a decent profit to shareholders and to cater to their empowered workers’ desire to do something good. This dual responsibility is certainly messier than pure profit maximization, but if the legal form clearly empowered voters who didn’t get dividends, then many of Friedman’s objections would disappear. After all, shareholders always knew that they weren’t going to get aboard with only money on its mind.
This sounds a little bit like German companies with their worker representatives on the board of directors. This practice seemed terribly retro a decade ago, when shareholder value was conquering the world. But now here we’ve got an American economist of generally conservative leanings proposing a variant of it as the next big thing. Times would seem to be changing. (And then, in a few decades, they’ll change back again, right?)