It appears that the Occupy Wall Streeters have a new spokesperson: Starbucks CEO Howard Schultz. According to a Wall Street Journal article published this morning, Mr. Schultz implied in a blog post that Nobel Prize-winning economist Milton Friedman was “old-school” for his view that “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.”
The article states that the occupiers’ chief complaint is “that business is falling short of its social responsibility.” To summarize the current drumbeat (pun intended), capitalism no longer works.
So, is capitalism dead and Mr. Friedman just an interesting guy from a previous generation? Only if you believe that principles become outdated!
In his hugely successful book The 7 Habits of Highly Effective People, Stephen Covey describes principles as “natural laws in the human dimension that are just as real, just as unchanging and unarguably ‘there’ as laws such as gravity are in the physical dimension.” He goes on to say that “principles are deep fundamental truths that have universal application.” Thus, if you can change them, then they weren’t principles to begin with. If they are principles, then they have been proven useful in many applications. For example, every major world religion has its own version of the Golden Rule.
Schultz’s reference to Milton Friedman expresses one of the principles outlined in Adam Smith’s magnum opus, The Wealth of Nations. Basically, Mr. Friedman was saying that, if corporations indulge in supporting social causes, it will lead to inefficient markets. For an example of this, we need look no further than the recent mortgage market meltdown.
The capitalism that made the U.S. economy the envy of the world is based on The Wealth of Nations, which was written in 1776. It is certainly old, but the principles described in its pages were not invented by Adam Smith; he simply codified them so that others could understand. It is interesting that Smith doesn’t use the term capitalism in his book. He talks about a “system of natural liberty.” In the past 235 years, many have understood this system and, if they followed it, they were rewarded with usefulness.
I realize that it is difficult to understand the everlasting nature of a principle. Principles don’t lend themselves well to sound bites suitable for newspaper articles. Typically, the importance of a principle is better understood through examples. Here are a few that I believe will sound familiar: “We hold these truths to be self-evident”; “I have a dream”; “Slow and steady wins the race;” and, in my industry, “Don’t put all of your eggs in one basket”—a.k.a. diversification.
Can you imagine any of these principles being described as “old-school”? Go ahead and try to argue against any one of them. You will feel silly within a couple of sentences.
Now argue against free-market capitalism, but try it without the ad hominem attacks or the marketing spin. First, you would have to overcome another statement typically attributed to Milton Friedman. I will respectfully paraphrase his statement as follows: Throughout history, the only time a large percentage of a population has been lifted up economically, it has been under a form of free-market capitalism. Thus, begin your argument against capitalism by citing a historical case in which a socialist, Marxist, progressive system has economically lifted up a middle class. Just one example.
You see, stating that capitalism is not perfect or fair or socially responsible is an ad hominem attack. It is a rant against capitalism without addressing the real question. What has proven more useful than capitalism?
Above, I used one of Aesop’s fables, “The Tortoise and the Hare,” as an example of the timelessness of a principle. Before destroying capitalism, I suggest the Occupy Wall Street group—and their sympathizers—review another 2,500-year-old fable by the blind Greek slave, “The Goose That Laid the Golden Eggs.”