From Milton Friedman to Ronald Dworkin: economics for hedgehogs | #SocialEthics on Blog#42

Sometimes, a straightforward question leads one to deeper, more existential thinking… This New York Times reader posed the following questions in reply to one of my comments:

Jason H
Sydney, Australia

I’d like to see not only base rate being set by the central bank but also interest rates for other loan types like small businesses, credit cards etc so that loans are actually flowing out to productive business ideas instead of real estate Pizzi schemes.Anyone know what issues doing this might be other than limiting banks profits?

The short answer to your question, Jason, is that this particular behavior is related to the bank bailout of 2008 and the biggest blunder the Obama administration made in this area: not legally requiring banks to lend funds to small and mid-sized businesses liberally.  What ended up happening as a result of the near-failure of the banking system and its subsequent salvation by the taxpayers is that, in a near-depression, banks were rewarded by allowing far tighter credit and the raising eligibility criteria. Taxpayers got next to nothing in return for their benevolence. Banks stopped funding small projects, start-ups, and mid-sized businesses found it nearly impossible to borrow money to retool or expand. This is what spawned the crowdfunding and angel investor industry as we know it today. As good as it has been for many a startup, obtaining funding from angel investors and crowdfunding just hasn’t filled the void left by absent investment bankers.

Banks, just like their counterparts in industry and elsewhere, prefer to earn their money the fast, rather than the old fashion way, thanks to the way regulations have been made to skew in favor of that behavior by corrupting the system. The lack of regulations, together with the consolidation we’ve seen in banking since the start of the Great Recession add fuel to these behaviors.

When we look at what it is going to take to rebuild economies, the issues highlighted above with respect to banking are the same that pervade all other sectors. A shared fatal flaw in the guiding principles behind corporate citizenship, profit, and duty to nation needs to be corrected.  When you hover several thousands of feet above the narrow topic at hand, what comes into focus are the considerations that guide all of these trends and are causing a state of worldwide inequality.  The question we should be discussing, and aren’t, is how we balance capitalism with the needs of the people who live and work under it? Whether the US mainstream media likes it or not, no amount of distracting the public with the inane and absurd goings on in the Republican primary will distract the voting public for very long. After all, the backlash we are seeing on both sides of the US political divide stems from a malaise that is shared by all: an economy that just isn’t working for most people. Distractions have only gone so far and, I submit, likely are what has pushed a larger number of voters into the arms of certain candidates. Why? Look at what those candidates are talking about: the economy!

So, how did inequality become so much more pronounced? What are the political and economic ideologies that drove the fundamental changes in policy direction of the 1990’s? When one pushes aside the key actors, Bill Clinton and Stanley Greenspan, one finds Milton Friedman and those who, eventually, would become those we know as our present-day oligarchs and plutocrats. So, what is it that Friedman contributed to the social ethics component of our politic and economics?

I begin with quotes from some of Milton Friedman’s contemporaries who wrote about corporate social ethics and whose views were considered “establishment” at the time:

Archie B. Carroll’s 1999 essay in Business and Society, “Corporate Social Responsibility: Evolution of a definitional construct” chronicles the history of corporate social ethics:

“The publication by Howard R. Bowen (1953) of his landmark book Social Responsibilities of the Businessman is argued to mark the beginnings of the modern period of literature on this subject. As the title of Bowen’s book suggests, there apparently were no businesswomen during this period, or at least they were not acknowledged in formal writings.

Bowen’s (1953) work proceeded from the belief that the several hundred largest businesses were vital centers of power and decision making and that the actions of these firms touched the lives of citizens at many points. Among the many questions raised by Bowen, one is of special note here. He queried, “What responsibilities to society may businessmen reasonably be expected to assume?” (p. xi)

Bowen set forth an initial definition of the social responsibilities of businessmen: “It refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of the objectives and values of our society” (p.6). Bowen quoted Fortune magazine’s survey (1946, as cited in Bowen, 1953, p. 44), wherein the magazine’s editors thought that CSR, or the “social consciousness,” of managers meant that businessmen were responsible for the consequences of their actions in a sphere somewhat wider than that covered by their profit-and-loss statements (cited in Bowen, 1953, p. 44). It is fascinating to note that 93.5% of the businessmen responding agreed with the statement.

Because Bowen’s (1953) book was specifically concerned with the doctrine of social responsibility, it is easy to see how it marks the modern, serious discussion of the topic. Bowen argued that social responsibility is no panacea, but that it contains an important truth that must guide business in there future.”

“If there was scant evidence of CSR definitions in the literature in the 1950s and before, the decade of the 1960s marked a significant growth in attempts to formalize or, more accurately, state what CSR means. One of the first and most prominent writers in that period to define CSR was Keith Davis, who later wrote extensively about the topic in his business and society textbook, later revisions, and articles. Davis set forth his definition of social responsibility in an article by arguing that it refers to “businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest (Davis, 1960, p. 70).

Davis (1960) argued that social responsibility is a nebulous idea but should be seen in a managerial context. Furthermore, he asserted that some socially responsible business decisions can be justified by a long, complicated process of reasoning as having a good chance of bringing long-run economic gain to the firm, thus paying it back for its socially responsible outlook (p. 70). This is rather interesting inasmuch as this view became commonly accepted in the late 1970s and 1980s. Davis became well known for his views on the relation between social responsibility and business power. He set forth his now-famous “Iron Law of Responsibility,” which held that “social responsibilities of businessmen need to be commensurate with their social power” (p.71). He further took the position that if social responsibility and power were to be relatively equal, then “the avoidance of social responsibility leads to gradual erosion of social power” (p. 73) on the part of businesses.

It is against the backdrop of these prevalent views that Milton Friedman’s Capitalism and Freedom was published  in 1962. Quoting from Wikipedia:

Milton Friedman takes a shareholder approach to social responsibility. This approach views shareholders as the economic engine of the organization and the only group to which the firm must be socially responsible. As such, the goal of the firm is to maximize profits and return a portion of those profits to shareholders as a reward for the risk they took in investing in the firm. He advocates that the shareholders can then decide for themselves what social initiatives to take part in rather than having their appointed executive, whom they appointed for business reasons, decide for them.

Friedman argued that a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself and for its shareholders and that the shareholders in their private capacity are the ones with the social responsibility. He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.[1][2]

In the book, Friedman writes: “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 or fraud.”[3]

Not only has Friedman’s approach overtaken those that were prevalent at the time he wrote his book, but it now pervades every aspect of our approach to how politics govern and, therefore, affect life in America, from social welfare to education, up to and including our understanding of Liberty itself.

When spilling over into areas traditionally managed by government alone, especially in the Deep South, this Libertarian approach to responsibility supercharges the power of “States’ Rights” and affects how much we help ourselves and each other. It influences how we keep each other from harm and millions among us unfree. When extrapolated and applied to the education sector, it regulates not only how deeply we are allowed to learn, but also what we are allowed to know.

The consequences of the influence of corporate special interests, especially over the last three decades has resulted in the degradation of institutions established for the common good, and the corruption of parts of governing bodies whose function it is to regulate and safeguard public safety.

Just two years ago, we saw several industrial disasters. In West Virginia,

In July, 2014, Rachel Maddow’s segment, Koch-backed AG helps hide chemical plant dangers, includes a conversation with  Wayne Slater, senior political writer for the Dallas Morning News, about Texas Attorney General Greg Abbott allowing chemical plants to keep their contents secret, a move that benefits Koch Industries, and a campaign donor.

General Motors just made a deal with the Justice Department in which they will pay a heavy fine in the case involving faulty ignitions switches.  153 people died as a direct result of the use of defective switches in vehicles General Motors sold. In recent years, there have been many industrial accidents and incidences of gross negligence and malfeasance. But the problem not only lies with the behavior of corporations in the course of running their businesses. The lack of ethical corporate social responsibility extends to the government agencies they are able to influence through money in politics. In his op-ed in Al-Jazeera, David Cay Johnston writes:

“The savings to taxpayers from underfunding law enforcement are miniscule compared to the unnecessary illness, deaths as well as economic losses. The FDA needs about $120 million more per year to properly enforce food safety, for example, but Congress has approved only about a fifth of that.”

Corporate influence over Congress, especially now, is such that the underfunding of regulators is widespread. Congress was in the process of allocating funds in a budget bill when the most recent Amtrak accident happened in Philadelphia. Neither death nor destruction compelled members of Congress to increase funding in the wake of that accident. Instead, the budget was reduced, as planned.

The situation is no better in states where there have been accidents with a sizable impact on the local population. In West Virginia, weeks after a chemical spill, authorities were claiming the water was safe. In a report from January 2014, Rachel Maddow reports on Speaker John Boehner’s lack of concern as the spill from West Virginia heads down toward his district.

A totally separate area in which the breakdown in ethics has reached grotesque levels is our system of law enforcement and criminal justice as a whole. We have criminalized everything from mental health, poverty, drug addiction, and even childhood, with a school-to-prison pipeline in existence in practically every state. We have privatized policing and prisons. Corporate contracts to administer this or that aspect of our justice system is having horrific consequences with the mistreatment of prisoners through starvation in many areas of the nation, to the existence of a facility that is off the books in Chicago, the funding of incarceration of residents of entire city blocks by taxpayers, and in Angola Prison in Louisiana, the perpetuation of slavery, in the nation’s last remaining working plantation.

What these “accidents” and other types of lapses all have in common are a complete breakdown in social ethics in the reasons for their occurrence, and the way accidents are dealt with and corporations not held to account. Friedman’s doctrine has been the subject of much criticism by Liberal and Progressive thinkers and activists such as Naomi Klein who criticizes Friedman’s doctrine in her book, The Shock Doctrine.

Legal philosopher Ronald Dworkin’s last book, Justice for Hedgehogs, while making no mention of Milton Friedman, does provides a counter to the Libertarian view, thirty or more years into the transformation of America into a Libertarian society. In a talk where he presents his theory of equality, Ronald Dworkin said the following:

“I want to start with a general account of political obligation, of what a state, in particular, owes to its citizens, and see what conception of equality follows from understanding politics at that deep level.

Coercive government—and that means all government of anything larger than the Carnegie Council—needs a justification that explains why it isn’t a terminal insult to human dignity to force somebody to do what he thinks wrong, as of course government must do.

I argue that government lacks moral title to coerce unless it respects the dignity of its subjects. I argue for a theory of dignity that comes to this: There is a basic condition of political legitimacy. No government is legitimate unless it meets that condition. Government must treat each and every person over whom it claims dominion with an equal concern and an equal respect.

An equal concern means, I argue, that social policy must take the fate of each individual to be equally important with the fate of any other. So when deciding on a political policy, it can’t discount the effect on some citizens. Obviously it can’t do that because of their race, but it can’t do that because of their economic class either.

Equal respect is a rather different requirement. Equal respect means that government must respect the dignity of each individual by allowing each individual to determine for himself or herself what would count as a good life, what counts as a successful life. That doesn’t mean that we should be skeptical about that fundamental ethical question. It means that our idea of the good life includes as a cardinal condition that a good life means facing this question for yourself and arriving with conviction and living a life according to that conviction.”

Do these principles, as laid out by Dworkin, in any way resemble the way we think today? Do they reflect our attitudes in politics? Are these views the basis for legal opinions to be rendered? Do our laws reflect these principles? If they used to reflect a modicum of these fundamental concepts, did those not undergo significant alteration over the last three decades, culminating in Citizens United? Did those fundamental concepts of responsibility get completely turned around not only in what we now accept in our politics, but how our governments operate? When due to the influence and power of a relative moneyed few, our government relaxes regulations meant to keep us safe, is that relaxation moral? When due to fraud and negligence, people die and our Department of Justice offers a financial settlement in lieu of prosecuting the perpetrator of a crime, is that not a problem of compromised ethics?

When we parcel out to barely private concerns a public education system that was established as a means to maintain an equal society, is that not a contravention of equal concern as defined by Dworkin?

But, as Dworkin explains in “Is Democracy At-Risk:”

The result of the effectiveness of manipulation in a democracy like ours dominated by media and inattention is confusion. I want to give you examples of mistakes. They’re patently mistakes which, nevertheless, enjoy great currency throughout the popular press and throughout politics as a whole.

The first of these confusions has to do with liberty. People now have come, in the United States particularly, to embrace two propositions: the first is that liberty is a matter of transcendent value. Above all, we must be free people. We must enjoy liberty. The second proposition is a certain definition of what liberty is. It’s the definition presented by famous philosophers John Stuart Mill, Isaiah Berlin, John Rawls. This holds that people’s liberty is a matter of people’s freedom to do what they want, without constraint by government. Now, these two propositions, put together, are poisonous. They give us the anthem of the libertarian movement. They give us the song of an apparently influential political movement in the United States, called the Tea Party. The idea is that whenever government takes over some area, for example to provide public services or to run some essential area or to run some essential utility, like railroads, that whenever that happens, people are, of course, to be given less power to do what they want, and that is a diminution of their liberty.

Now, that’s a deep confusion. If we want liberty to be a value, then we can’t define liberty in that mechanical way. We have to pick out the liberties that really matter and say government does wrong when it invades those values.

In the 1990’s, under the guise of “Liberty” and freedom of choice, we were promised better education for our children, with the establishment of the charter school movement championed by the Clintons to this day. The quality of education has declined as a result, with significant resources having been removed from the public school systems and allocated to these charters, and the focus of improving education placed on the new industry of standardized testing. We are remedying the ensuing failures by focusing education reforms on further narrowing the scope of education to a higher degree of specialization that coincides with certain special interests, rather than shoring up the general fount of knowledge and providing a more rounded foundation.  The result of these approaches has been detrimental to the common good and resulted in a general educational and cultural impoverishment, with consequences on the future workforce.

What has also declined, in direct proportion to the quality of our education, is the level of political discernment, engagement, and discourse. Dworkin addresses this as well:

One of the problems in our intellectual world today is that we’re reluctant to speak of political ideas as true or false. But these ideas are false in the sense, direct sense, that they cannot bear sustained reflection. I, therefore, propose – I must do so very quickly now – that the only remedy for these ills of Democracy, of course we have no option but Democracy, the only possible remedy is education that will introduce complexity.

We – must – we have, for many decades, thought automatically that politics must be kept out of the school. I think that is a maligned additional mistake. I think we must find a way to introduce the complexity of politics into secondary schools, in all our countries, in ways that show that these are not simple crude ideas, captured in slogans – well-captured in slogans – but are ideas that require sustained attention and further thought.

This is a monumental undertaking. It needs pilot studies to see if this can be done. I’ve mentioned this in various places, always with a very enthusiastic reaction. But, so far, nothing was attempted. In any case, and I suggest to you, if we want to save liberal Democracy, the key is through a more enlightened electorate.

Our collective ability to think, deeply and critically, affects our ability to function as a society. It also affects our ability to detect and then defend ourselves against elements from among us who would subvert all of the institutions that make up our Democracy for their own gain.


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  • Art Salmons

    Uncreative, unoriginal non-solutions from an unoriginal uncreatively-named blog. But hey! The New York Times likes you! Your politically correct intolerance matches theirs.

    • If only, Art! If they liked me, they’d hire me. But, alas…

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  • Eric Margolis

    I would have added that it was Friedman’s attack on the legitimacy of public schools back in 1962 (in the midst of white fright over desegregation) that let to charted schools. Charter school are simply the camel’s nose under the tent for school vouchers. This might be compared with John Dewey’s analysis of public schools as the engines of democracy.

    • That book of his was the start of a lot of truly horrendous trends. I had to keep the focus on answering the original question I posted, but I am working on a long-read on education and Friedman and Dworkin both get a mention. Dworkin was concerned with education in the last years of his life, especially in the context of the influence of the Tea Party. I have a clip of that here on the blog.

      There is no fixing what ails us until we do two things: 1) reform education and 2) remove education from the clutches of “States’ Rights.”

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