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The EconomistSeptember 21st 2019 21

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Letters

Repairing capitalism

Your leader and briefing on

“What companies are for”

(August 24th) were among the

most important I have read in

The Economist. We live in

strange times, when

innovations are expanding

potential gdphugely, and, at

the same time, fuelling

conflict, disenchantment and

the marginalisation of many.

We saw similar changes during

the Industrial Revolution. We

came out of that era just fine,

not just because of reformers

like Robert Peel and Robert

Owen, but also because of

original thinkers who changed

our very understanding of

capitalism. The Industrial

Revolution coincided with the

biggest breakthroughs in

economics, from Adam Smith’s

seminal book in 1776, through

the works of Augustin Cournot,

Karl Marx and John Stuart Mill,

to Léon Walras.

The complexity of your

cover story’s prescriptions is a

reminder that we are at a

turning point in history, where

we need novel reforms. The

solution is not going to be easy.

Economics needs creativity of

the kind seen 200 years ago.

professor kaushik basu

Former chief economist at the

World Bank

Ithaca, New York

The stirring among some

billionaire chief executives at

the Business Roundtable who

want to redefine the purpose of

a company beyond maximis-

ing shareholder value is not

unprecedented. In the

mid-19th century it was a given

that employers operated with a

legal if not moral obligation to

consider the well-being of

their employees as well as their

neighbours and customers.

That idea faded almost entirely

in America by the early 20th

century, but was revived a bit

in the 1960s. So the current

thinking is rather a sad repeat

of the attention given in the

1970s in the media and some

business schools and think-

tanks to what companies owe

to the rest of American society

beside their own profitability.

Milton Friedman was inspired

to protest against that think-

ing, arguing that companies

have only one priority, namely

to maximise the earnings of

shareholders. The business-

responsibility idea soon faded

after it became amply clear that

the whole thing was little more

than a public-relations gesture

at a time of considerable social

and economic agitation.

The real problem is that so

many public goods, such as

education, the arts and philan-

thropy, are already dependent

on private billionaires and

their sometimes benign but

sometimes sleazy foundations.

But why should we invite

corporate billionaires to con-

trol which social and economic

problems deserve attention, to

say nothing about how those

problems might be treated? In

fact, corporate boards and ceos

already exercise outsize influ-

ence on the political process,

policymaking and government

administration at every level.

Maybe Friedman was right:

companies have only one

legitimate priority. Maybe it is

time to let others have a fair

chance to influence policy.

richard abrams

Emeritus professor of history

University of California,

Berkeley

John Maynard Keynes wrestled

with these questions in the

“The End of Laissez-Faire”,

published in 1926. He conclud-

ed then that: “Our problem is to

work out a social organisation

which shall be as efficient as

possible without offending our

notions of a satisfactory life.”

robert ober

Litchfield, Connecticut

The Business Roundtable’s

commitment to other stake-

holders as well as shareholders

has long been fundamental to

its policy. Its new statement is

an affirmation of this de facto

record rather than a response

to an environmental and social

governance fad. My own expe-

rience involved a bold initia-

tive by the Roundtable with

civil-rights and women’s-

rights leaders on some major

legislation. The rationale for

breaking away from the rest of

the business community was

both that its member compa-

nies were already committed

to responsible policies on race

and gender and that this was

where the entire business

community needed to be.

katherine hagen

Former vice-president for

government affairs at at&t

Grasse, France

The dilemma for some compa-

nies about whether to pursue

shareholder value alone is

illustrated by Cathay Pacific.

Should it kowtow to the

demands of the Chinese

government and sack staff who

participate in the protests in

Hong Kong, or should it meet

its responsibilities to its em-

ployees and society? Cathay is

in a tricky situation but ulti-

mately must respect the rights

of its workers. Companies do

not need to become vanguards

of democracy and do-goodery,

but they should ensure that

staff, communities and cus-

tomers are not harmed as a

result of their pursuit of profit.

katryn wright

London

A crucial argument against

corporate do-gooding is con-

flict of interest. Should we

allow companies, rather than

governments, to set corporate

behavioural norms? Firms

have a strong incentive to

avoid rules that go against the

interests of shareholders or

managers. For example, would

a company benefiting from a

monopoly promote strong

competition? Democratic

governments are accountable

to their citizens and suffer no

such conflict of interest. They

are better placed to set rules on

their people’s behalf.

richard williamson

Ely, Cambridgeshire

You ignored the law. A

company’s directors and

officers have a fiduciary duty to

look out for the best interests

of the corporation and its

shareholders. Often, this fidu-

ciary obligation is compatible

with respecting other stake-

holders’ interests, because

looking out for all stakeholders

helps move everyone towards

long-term business success.

But if there ever is a conflict the

interests of the company and

its shareholders will override

the interests of others.

dana shultz

Piedmont, California

The clearest arguments in

support of shareholders’

interests were handed down by

the Michigan Supreme Court

100 years ago in Dodge v Ford

Motor Company. In that case

Henry Ford (who could hardly

be accused of an agency

problem) claimed that his

company was organised “to do

as much good as we can,

everywhere, for everybody

concerned” and only

“incidentally to make money”.

The court disagreed. Citing

Ford’s testimony, it ruled the

corporation could make “an

incidental humanitarian

expenditure of corporate

funds”, but it could not commit

to “a general purpose and plan

to benefit mankind at the

expense” of shareholders.

a.s. ilkson

Woodstock, New York

Shareholder primacy is anti-

scientific, wrong, immoral

(not just amoral) and very

damaging. Oh, and really bad

business. Those who repro-

duce the propaganda of this

parasitic variety of capitalism

that has been dominant for the

past 30 years are part of the

problem, not the solution.

joren de wachter

Brussels

The question of what the

proper purpose of a company

should be has bedevilled think-

ers ever since its modern in-

ception. Edward Thurlow, a

British lord chancellor in the

late 18th century, observed

that: “Corporations have nei-

ther bodies to be punished, nor

souls to be condemned; they

therefore do as they like.”

christine sayers

Rome