To Get Politics Out of Business, Get Business Out of Politics

Saieh Hall for Economics at the University of Chicago.
Saieh Hall for Economics at the University of Chicago.


  • A stint as a journalist in residence at the University of Chicago taught me about Milton Friedman’s legacy and today’s debate about ‘woke’ business

Ahead of three months studying in Chicago, the home of Milton Friedman, I expected to be surrounded by anti-ESG, pro-capitalist supporters of the status quo in American finance. The University of Chicago has such a reputation as the bastion of free markets that the pure capitalism it espoused was dubbed “freshwater economics" for the lakeside location.

The reality of being a journalist in residence at Chicago’s Booth School of Business in what it calls the “spring quarter"—much of which has weather I’d call winter—was very different. Even as ESG, or investing based on environmental, social and governance factors, has moved from finance to politics, Chicago now seems to be a school that is as interested in where Friedman was wrong as where he was right. Sure, free markets work—but only when a bunch of vital assumptions hold. And they don’t.

These aren’t abstruse academic arguments. Friedman today is perhaps most widely known outside academia for his claim—in a New York Times article—that the social responsibility of business is to chase profits. Whether you agree or disagree is the latest dividing line between anti-ESG Republicans and an independent candidate for president on one side, and pro-ESG Democrats and European governments on the other. Even big business in the U.S. claims it now cares about stakeholders such as workers and society, though this is flimflam to cover up that profits are still what matters.

Friedman features prominently in Chicago, both physically—there is a Friedman Hall and an institute—and in many syllabuses. But my impression was that today’s professors emphasize the drawbacks of markets at least as much as their benefits. Sure, it is true that free markets are the best way to run an economy that is fully competitive, has no unpriced side effects, or “externalities," such as carbon emissions, and where contracts cover every eventuality. Unfortunately, these conditions aren’t met.

Since the “Friedman doctrine" on corporate responsibility was set out in 1970, companies have become big political players, making it even harder to put in place rules on antitrust, externalities and unfair contracts. It is no wonder there was a backlash against big business, opening the door to ESG activism.

As Luigi Zingales, a Chicago finance professor, puts it, we now have the politicization of the corporate world because we have corporatization of the political world. Corporate money and influence have invaded politics since the 1970s and even Friedman, a big supporter of liberty, might not like it. He did, after all, insist that companies had to stick to the “basic rules of society" when chasing profits, including rules embodied in what he called “ethical custom," good practice not enforced by law.

There is a big focus in Booth’s popular Perspectives on Capitalism and Crony Capitalism courses on regulatory capture, political economy theory based on work by Friedman’s close friend and fellow economics Nobel winner George Stigler. If companies are purely about maximizing shareholder value, and that can best be done by (legally) bribing politicians to write the law in a way that benefits them, should they do so? For anyone who believes in democracy, it is a horrible descent into a plutocracy, at best. For companies, it has become standard practice.

Many of today’s ESG activists point to the importance of corporate money in politics as a reason for activism. If you want to get anything done on climate or social or worker rights, forget about trying to get the government to act. Companies have the power, so become a shareholder activist and influence the companies.

The Republican response has been to dub such activism “woke" and push back hard, with some GOP-run states boycotting firms deemed to do too much ESG and Florida Gov. RonDeSantis directly taking on Disney. The problem with activists taking political demands to companies is that the other side will do so, too. Better to get companies out of politics and do politics by persuading people to vote for policies and politicians—but that is hard.

Many academic economists would love to move to a world where Friedman’s views on companies hold. Antitrust action would break up or restrict the monopolies, particularly Big Tech, and the government would tax carbon emissions and other externalities. The market could then be left to get on with the business of making money, as Friedman wanted. In the real world we have little of that, and instead have to deal with pro-ESG advocates spouting nonsense aboutESG making money while doing good and criticizing CEOs for greenwashing, even as anti-ESG politicians claim that those same“woke corporate elites" push a radical agenda on consumers.

It takes time for academic work to filter into politics; Friedman’s pro-business radicalism had to wait a decade for Ronald Reagan as the 1970s saw government regulation of evermore areas of the economy. The critiques of capitalism I heard echoing around Booth’s Frank Lloyd Wright-inspired halls ring true: Politicians all-too-frequently boost big business and get a small slice of oligopolistic profits back as donations.

If those critiques are one day adopted, politicians will try to make the markets work better for everyone. I’m not holding my breath.

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