Re-Center the Stakeholder: For a New Capitalism

In the 70s, Milton Friedman wrote a famous essay that argued against the prevailing mode of social organization in corporations. At the time, the prevailing mode was one of stakeholder capitalism. Everyone who had a part in the corporation were important in how it ran, and the managers of the corporation were meant to balance the needs of everyone involved in the running of the operation. This meant that the workers, and the customers, and the managers, and the local community all were important. The owners were also important.

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 What Friedman argued was that everything except for the maximization of shareholder value was what mattered. As long as the corporation was making money for the shareholders, everything else was secondary. This was a popular view amongst those running corporations, but the new ideology took a while to trickle down to everyone. 

People had been used to the idea of a corporation that did a lot of things for its workers. Kodak, in Rochester, NY, built dance halls and movie theaters for the people who worked for them. When they polluted, they were anticipated to clean up the pollution. They sponsored little league teams. Alas, the forces that Friedman was writing for took over the view of what a corporation was supposed to do. Though the example of Kodak might be the high point of what corporations did, a lot of what they did for their workers specifically was to stave off the threat of unionization. As long as there were countervailing powers against corporations, they would then work towards making life better for everyone involved. Unions and government bureaucracy could make their lives worse and harder, so the incentives were shaped to make it work for everyone. 

Friedman was influential in changing this, but it was not just the one economist. There were a lot of social forces pushing for a rethinking of how the economic system was shaped. Thatcher came to power in the late 70s and Reagan came in not much later, and combined they created the world of big hair and big shoulder pads and Gordon Gekko saying, “Greed is Good”. The expansion in the 80s was the antidote for the stagflation of the 70s, and it justified for a time the ethos of doing everything for shareholders.

Though there was a crash in 1987, there was not much pushback against this idea as time moved into the 90s. Bill Clinton came into office and the internet boom happened, justifying not just a corporate turning away from social responsibilities, but also a turning away from the social responsibilities of the state. Clinton signed legislation to change welfare to become much less supportive of needy populations and signed bills to allow financial institutions to do what they pleased. His government ran a surplus on the back of the stock market boom that he enjoyed, and he enjoyed high approval ratings in spite of his personal discretion. 

The next decade passed to George W. Bush, who continued the move towards a social ethos of everything for profit and then let the rest of the chips fall where they may. He signed two bills cutting taxes on rich people even though he was also starting wars in the shadow of 9/11. 

Everything was working fine, until the crash in 2008. What happened was that people had been buying houses and those prices were going up and the financial system was taking the money generated and then speculating with it. This was all fine until prices stopped increasing, and people couldn’t afford payments anymore and the punch bowl was taken away. The financial crisis exposed the fact that people had not been taken care of during the long boom of corporate favoritism. Median incomes had been stagnant. Households were supported by more people entering the labor force, or through borrowing. The minimum wage had not been increased reliably, and it kept losing buying power. For most people, houses had been the majority of their wealth, and it was just wiped out. This led to a reevaluation of how corporations and the state needed to act towards the people who worked for them. Obama was elected with the idea of hope and change away from the scary downturn that at the time most people couldn’t tell you why it was happening but only that it was scary.

Alas, the promise of hope may not have been realized. The Obama agenda was stymie by the Republicans and then in 2010, seats started slipping away from the Democrats. This led in part to protests like Occupy Wallstreet, where the voices were loud in arguing for a more inclusive society, and a rethinking of the corporate form. We’re still far away from that, as the election of 2016 brought in Donald Trump, a personification of all that was bad about the 80s, as president. A new reevaluation will come, I only hope it is not with the next crash.