MILTON RIEDMAN VERSUS STAKEHOLDER CAPITALISM

Milton Friedman was arguably the most influential economist of the second half of the 20th century, associated with promoting ‘neo-liberal’, free-market, shareholder capitalism.

- Jomo Kwame Sundaram

Friedman’s monetarist economics is now widely considered irrelevant, if not wrong, especially with the low inflation associated with ‘unconventional’ monetary policies following the 2008-2009 global financial crisis.

Friedman’s doctrine challenged

Nevertheless, Friedman’s ‘shareholder capitalism’ doctrine remains influential in most financial markets, especially emerging ones in the developing world.

His doctrine, prioritizing short-term profit maximization, has long dominated Anglo-American corporate governance despite chatter about ‘stakeholder capitalism’ and ‘corporate social responsibility’ (CSR).

Chicago University’s Raghuram Rajan claims that long-term share value maximization can advance almost everybody’s long-term interests.

More importantly, Zingales points out that corporations have duties as public institutions with special privileges granted by the state such as “limited liability, especially with respect to tort claims, is an extraordinary privilege granted by the state”, implying reciprocal obligations.