So in a reductionist view: greed.
The dominant business philosophy from the late 40s to the 70s was stakeholder capitalism, then this asshat came along and said quite specifically: greed is not just a force we'll co-opt for pro-social purposes, it is not a mitigable downside of economic growth, it is actually the entire purpose of any commercial enterprise. https://en.wikipedia.org/wiki/Friedman_doctrine
It is shamefully antisocial and un-American. Today it's so baked-in that many young entrepreneurs don't even realize it's a goofy ass meme that only a moron could expect to yield good outcomes.
>Friedman argued that the shareholders can then decide for themselves what social initiatives to take part in rather than have an executive whom the shareholders appointed explicitly for business purposes decide such matters for them
That seems... fine? Is letting Ford shareholders decide what political causes to fund really that much worse than delegating that to Henry Ford, which subsequently decided to support nazi-adjacent groups?
Prior to this, corporations explicitly sought to generate value for shareholders, employees, managers, customers, and their communities. Since shareholders were always one of the stakeholders, the only delta – Milton's breakthrough – was to assert that a corporation need not even consider the other stakeholders. So yes, going from "corporations should aim to be a positive force on everyone they affect" to "corporations need only aim to generate returns for their owners" is a significant downgrade.
With regard to your specific set-up, even there yes it's actually worse. It's better that the shareholders (who ultimately control the company's allocation of capital) feel an obligation to benefit all stakeholders than just giving as much money to themselves and Henry personally so they can all pursue their own pet projects which would themselves be operated under the same self-enriching philosophy.
Just to clarify since people can be confused by the excerpt you've pulled: the prior state of affairs wasn't that shareholders named someone to allocate corporations' money into various political projects. It was that shareholders (and society writ large) expected executives to be a positive impact on all relevant stakeholders. Dumping toxic material into the river is bad even if it improves margins, not because it's illegal, but because it's damaging to the other stakeholders you are supposed to benefit. Milton came along and said no actually that's fine. Don't do illegal things to the extent it harms shareholder returns, but in general you need to do whatever it takes to generate shareholder returns.
This seems like you're viewing the past with rose tinted glasses. The whole point of the passage of the clean air act (1963) and the EPA was that companies were dumping toxic materials into rivers, even under "stakeholder capitalism" (your article says that the Friendman doctrine was introduced in 1970). Same goes with all the other example of corporate malfeasance, such as The Jungle (published 1906), or Unsafe at Any Speed (1965).
Prior to stakeholder capitalism, industrialization was downright inhumane. After stakeholder capitalism, it's trending toward social and political instability.
During stakeholder capitalism: considered the glory days of American civilization (despite its serious flaws, which we need not ignore).
Could be a coincidence! But I actually think people's beliefs shape their actions, and "my god-given duty is to generate shareholder returns, all else be damned" looks like a prime candidate for all sorts of post-1970 corporate misbehavior.
(The Jungle predates stakeholder capitalism. The Jungle, Silent Spring and Unsafe At Any Speed were forces within that philosophical movement)
When did stakeholder capitalism magically pop up and made industrialization not "downright inhumane"? The end of stakeholder capitalism can be traced to Milton Friendman's works, what evidence is there of stakeholder emerging after the "downright inhumane" period before?
> After stakeholder capitalism, it's trending toward social and political instability.
>During stakeholder capitalism: considered the glory days of the American society.
Again, rose tinted glasses: the same period had Cuban Missile crisis, Vietnam war drafts, and the Kent State shootings. Granted, most of them probably didn't have anything to do with stakeholder capitalism, but it's laughable to call it "the glory days of the American society". Moreover have things really fared better in places with "stakeholder capitalism"? For all the talk of "common prosperity", China isn't doing too hot either, with its cratered housing market, high youth unemployment, and low consumer confidence.
Sorry are you asking me to prove that stakeholder capitalism existed from the ~1940s to the ~1970s? I'm not going to give a 200 level Business History course in a Hacker News comment thread. You can use Google.
> Again, rose tinted glasses...
I don't know what point you think you're arguing against, but it ain't one of mine!
China doesn't have stakeholder capitalism.
Given that the wikipedia article says that a 1984 book was "widely cited in the field as being the foundation of stakeholder theory", that the first mention was in 1912, and there's nothing about the post-war period or communism, I'm very skeptical that your "~1940s to the ~1970s" window for stakeholder capitalism was defined in a rigorous way. It seems far more likely you're committing the texas sharpshooter's fallacy by finding a period of american prosperity (ie. "~1940s to the ~1970s"), defining that to be "stakeholder capitalism", and concluding that it was a great success.
https://en.wikipedia.org/wiki/Stakeholder_theory
>China doesn't have stakeholder capitalism.
You're not really refuting the point. "Common prosperity" sounds a lot like stakeholder capitalism, specifically improving the lives of other citizens/the country as a whole, rather than the company.
When socialism and communism were perceived as legitimate ideological threats/alternatives to democracy and capitalism.
While we know now that communism as an ideology (at least as it was practiced in the mid-20th century at the nation-state level) is not long-term viable, this was not considered a certainty at that time.
So many of the updated social contracts (both explicit and implicit) that were put into place in the mid-20th century were done in an attempt to avoid/prevent a worker revolution.
Imho, another wave of mass discontent is brewing — the elites in the US are very much out of touch with or ambivalent to the needs of the rest of the country.
Can you cite specific polices or reforms? What makes you think they "were done in an attempt to avoid/prevent a worker revolution", as opposed to normal reform? What does it say that landmark legislation was passed at the tail end of that period, such as the clean air act? If stakeholder capitalism's "social contracts" were really keeping things together, why was legislation needed?
> Can you cite specific polices or reforms?
New Deal writ large, specifically social security, development and empowerment of labor unions (Wagner Act), public works projects (WPA and CCC). Also the GI Bill. These are some major examples.
> What makes you think they "were done in an attempt to avoid/prevent a worker revolution", as opposed to normal reform?
Because I’ve read history, including original sources. There was quite a bit of serious rhetoric around the potential for socialism in the US.
> What does it say that landmark legislation was passed at the tail end of that period, such as the clean air act?
I don’t really understand your question, and I have no idea where you’re going with this. I’m almost certain that any question you have on this matter has been answered online in vivid detail.
> If stakeholder capitalism's "social contracts" were really keeping things together, why was legislation needed?
Legislation was the “explicit” part that I mentioned. Better wording probably would have been “laws, policies, and social contracts”, but I’m just writing informal replies on the internet.
The 20th century was a heady time. I’m not sure how old you are or how much history you’ve studied, but there is a lot of really good content out there. I encourage you to engage with it.
>Legislation was the “explicit” part that I mentioned. Better wording probably would have been “laws, policies, and social contracts”, but I’m just writing informal replies on the internet.
How are any of those examples of "stakeholder capitalism"? I can see they were pro worker and "an attempt to avoid/prevent a worker revolution", but that's not the same as companies caring about all stakeholders because they had some sense of responsibility. Recall the contention is that after Milton Friedman published his paper in 1970, companies suddenly started becoming greedy and started oppressing consumers/workers or whatever, whereas before it was "stakeholder capitalism" and they weren't doing that.
> How are any of those examples of "stakeholder capitalism"?
First, you are correct (in another post) that “stakeholder theory” as a titled concept was introduced in the 1980s. I was in university a few years after it was introduced, and there were many discussions had about the role, validity, etc. of stakeholder theory (ST). The case for ST was basically “make a bigger pie”. The case against ST was “grab what you can, because the pie might not last, and it might get bigger anyway”. Imho, they were both kind of right, but I leaned then and still lean now towards the pro-ST stance — I think it’s more sustainable long term.
All that said, the concepts of stakeholder theory existed long before the labeled version was published.
A simple example of stakeholder theory is Henry Ford and some of his concepts towards his workers. There are many, many more.
> I can see they were pro worker and "an attempt to avoid/prevent a worker revolution", but that's not the same as companies caring about all stakeholders because they had some sense of responsibility.
Yep. So there’s an obvious limit to ST — you can care your way out of business if you’re not smart about it.
The type of implementation that seemed acceptable to a wide range of people when I was in school was something along the lines of when offered a choice to squeeze an every possible marginal economic unit from a stakeholder or do something that is demonstrably positive for that stakeholder (group), do the positive thing. Simple examples are things like creating a healthy work environment (workload, management culture, economic stability, etc.), be a positive influence on the local community, etc. These types of values still exist in privately held companies that I am very familiar with (both small and large).
Positive stakeholder engagement has been written about extensively. It’s easy to find.
> Recall the contention is that after Milton Friedman published his paper in 1970,
Now the juicy stuff.
MF and others (iirc, the “Chicago school” as a whole) was the ideological beginnings of a change of attitude — specifically, deregulation, more competition, and shareholder first.
> companies suddenly started becoming greedy and started oppressing consumers/workers or whatever, whereas before it was "stakeholder capitalism" and they weren't doing that.
Hmmm… yes, but the reasons are more complicated than merely greed. Massive deregulation and changes in law (or interpretation thereof) related to fiduciary responsibility in public companies were probably the main drivers.
Financial, communications, and transportation deregulation happened in the 70s and early 80s. The results were very mixed. Some things improved (e.g., flight prices decreased), but some got worse (e.g., less stability in the labor force, oligopolies that still fix prices in things like cable and phone service, etc.).
With Reagan, labor, environmental, and consumer protections were substantially reduced.
Additionally, “trickle down economics” (total BS imho) came into vogue, so tax regulations were changed in ways that were very favorable for capital (as opposed to labor).
Lastly, laws were shaped and interpreted so that the folks who had fiduciary responsibility for public companies were basically systematically sued into taking a shareholder first approach to running their companies. “Stakeholder value” is often very hard to quantify with any level of precision (although it may pass the sniff test), so the shareholders basically said “give me my money or else” and got their way.
As I mentioned before, there are many private companies that still hold stakeholder values dear and make truckloads of money. These companies and these values are not dead, they just don’t exist widely in publicly owned companies any more.
Something I see that’s sad is that PE is buying up these private companies and extracting stakeholder value to line their pockets. Sometimes some streamlining is called for, but sometimes the actions are just anti-human and long-term unsustainable by design.
It’s back to having a smaller percentage of a bigger pie or a larger percentage of a small pie. The MF “shareholder first” folks are choosing the latter.
The claim was explicitly not that companies weren't greedy before and then greedy after Friedman. It was that Friedman (and shareholder supremacy, trickle down economics, etc) "put [greed] on overdrive in 1970." Which is true.
Now, you can be greedy over and over again at every decision point and it's probably fine. See: the short-term thinking of most US companies.