Shareholder Capitalism v. Stakeholder Capitalism
For centuries, the chief objective of public corporations in the United States has been to maximize shareholder profits. Although this may seem rapacious, it is not.
As Milton Friedman said nearly 50 years ago, “there is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception fraud.”
In Friedman’s view, corporations should be focused on maximizing profits by providing goods and services to customers based on market demand. He also emphasizes that this model functions best in a free and fair market.
This is commonly called “shareholder capitalism,” and it is one of the primary reasons that the United States has become the most prosperous nation in world history.
Despite the fact that America’s embrace of shareholder capitalism since its inception has led to it becoming the most dynamic and innovative economy ever, many elites believe it is time to replace shareholder capitalism with what they deem “stakeholder capitalism.”
Believe it or not, the notion of stakeholder capitalism is not a novel concept. Many scholars trace its origins to the Progressive era heyday of the early twentieth century, when so-called experts sought to re-engineer society based on their assumptions of how things should be.
For whatever reason, shareholder capitalism was not replaced with stakeholder capitalism during the twentieth century. However, vast inroads were definitely made.
Fast-forward to 2022. Stakeholder capitalism is being resurrected by a new group of global elites who wish to use it for their gain.
Unlike during the Progressive era, when corporations were wary of stakeholder capitalism, they are now embracing it fully. Why? In short, stakeholder capitalism allows corporations to “game” the market in their favor.
If shareholder capitalism is predicated on companies meeting the desires of individuals in the open market, stakeholder capitalism is predicated on elites determining what is best for individuals, market be damned.
Of course, this closed loop system is a boon for CEOs, elites, and those with access to the levers of power. However, it also undermines the will of the vast majority of Americans.
Perhaps this is why the American people overwhelmingly do not support stakeholder capitalism.
According to a new poll conducted by Rasmussen Reports and the Heartland Institute, 45 percent of likely voters -- a solid plurality -- believe “the highest priority for businesses in the United States” should be “providing individual consumers with high quality products and services at the lowest prices.”
On the same token, 14 percent said, “earning a profit to benefit shareholders or owners.”
On the other hand, only 1 percent of likely voters said “using business resources to pursue social justice causes,” which is the embodiment of stakeholder capitalism.
This should alarm global elites, who are going full throttle with their plans to remake the world economy via stakeholder capitalism.
Over the past few years, global institutions such as the World Economic Forum and International Monetary Fund have put all of their eggs in the stakeholder capitalism basket. Despite their claims that stakeholder capitalism will produce a “more inclusive, sustainable, and resilient global economy,” the opposite is true.
What these elites fail to mention, but the American people apparently understand, is that concentrating economic and social power in the hands of a small group of elites is a very bad idea.
For elites, CEOs, central bankers, institutional investors, and other power brokers, stakeholder capitalism offers them a two for one deal. First, they exert greater control over the global market, which vastly increases their power and wealth. Second, they get to virtue signal to their heart’s content, because they can claim they are doing this for the noble cause of social justice.
Although many of these CEOs and the like might believe that stakeholder capitalism is in the best interest of the masses, they are mistaken.
Actually, the power-hungry people who yearn to remake the world economy with stakeholder capitalism, like almost all utopian visions that have been tried, are destined to fail because it is impossible for a small group of know-it-alls to determine what is best for the rest of us.
The one and only way to ensure that humans can thrive to their best of their ability is to create a free and fair market, in which the “invisible hand” guides the direction of the economy.
After hundreds of years of astonishing success, we should be celebrating shareholder capitalism for all of the remarkable achievements it has helped usher into our lives. More importantly, we should oppose all of those who long to upend shareholder capitalism and replace it with a scheme that centralizes decision making while enhancing their power, prestige, and prosperity.
Chris Talgo (email@example.com) is senior editor at The Heartland Institute.