Ethics and the global financial crisis: why incompetence is worse than greed

Abstract

On 13 September 1970, New York Times Magazine published an op-ed article provocatively entitled 'The social responsibility of business is to increase its profits'. It would turn its author into the most prominent colour guard of shareholder wealth maximization. 1 In this piece, Milton Friedman, six years later awarded the Nobel Prize in economics, inveighed against what he called 'unadulterated socialism'. 2 He believed that 'socialist' tendencies were present among many businesspeople of his time, claiming as they did that business is not only about making profit but also about achieving certain social ends. Friedman provided the 'socialist' businesspeople with an alternative as simple as it was powerful. Business, he said, is about maximizing shareholder wealth, and nothing else.Simple or simplistic? In the writings of Friedman's opponents and many of his followers surely this view has often been reduced to the idea that in business 'anything goes'. Nor has Friedman done too much to allay potential misgivings on this point, as he and his followers have been quite proud to accept being turned into relentless laissez-fairists. The view is much more subtle, though; it is in any case subtle enough to use as a plausible default position about the responsibilities of corporations. To begin with, Friedman does not mean to say that shareholder interests trump everything. Law is a restrictive factor, which has lexicographic priority over the shareholders; no business strategy should be adopted if it clashes with the law, whatever pain the shareholders suffer as a result of opportunity lost. Tax evasion and illegal pollution are prohibited, for instance, despite the obvious negative effects on profit generation. This is true of ethics as well. Even though ethics is mentioned only twice, Friedman is clear enough to stipulate that ethics too has lexicographic priority over the interests of the shareholders. Now Friedman was acutely aware of the fact that ethics and law may differ