BlackRock CEO Larry Fink’s letter to CEOs demanding that their companies “serve a social purpose” is the latest example of what economist Milton Friedman dubbed a “muddle-headed” approach to economic activity.
The approach is muddle-headed because businesses already serve a social purpose simply by doing business. McDonald’s provides the most nutrition at the lowest price the world has ever seen. Google exists “to organize the world’s information and make it universally accessible and useful.” Even your local hairdresser helps people feel good about themselves — surely a social service in these troubled times.
There are even more obvious ways businesses serve a social purpose. They employ people, providing needed income at the right time and often fostering career opportunities. They bring people together, bolstering communities. They allow for the development of transferable skills, thereby providing real world learning too often overlooked in schools.
Above all, businesses create wealth, which is distributed among owners, workers and indeed customers. Lowering prices after you make good profits is an example of wealth sharing with customers.
We also know that wealth and health go together. Generating wealth doesn’t just mean people can afford more stuff but that they can live longer, healthier and happier lives.
If businesses already serve these important social purposes, what is Fink getting at? He talks about “governments failing to prepare for the future” and how companies leave themselves vulnerable to activist campaigns.
So he doesn’t like the results of the political process and wants to see special interests force businesses to provide results he favors. If not, he would presumably argue that businesses should stand up to special interest bullies and respect our political system.
That’s why Friedman also called corporate social responsibility “subversive.” He was right.