The Business Community's Suicidal Impulse
by Milton Friedman
Thereâs a common misconception that people who are in favor of a free market are also in favor of everything that big business does. Nothing could be further from the truth.
Milton Friedman: âI have gradually come to the conclusion that antitrust laws do far more harm than good.â
As a believer in the pursuit of self-interest in a competitive capitalist system, I canât blame a businessman who goes to Washington and tries to get special privileges for his company. He has been hired by the stockholders to make as much money for them as he can within the rules of the game. And if the rules of the game are that you go to Washington to get a special privilege, I canât blame him for doing that. Blame the rest of us for being so foolish as to let him get away with it.
I do blame businessmen when, in their political activities, individual businessmen and their organizations take positions that are not in their own self-interest and that have the effect of undermining support for free private enterprise. In that respect, businessmen tend to be schizophrenic. When it comes to their own businesses, they look a long time ahead, thinking of what the business is going to be like 5 to 10 years from now. But when they get into the public sphere and start going into the problems of politics, they tend to be very shortsighted.
The most obvious example is protectionism. Can you name any major American industry that has really benefited from tariffs and protection? Alexander Hamilton, in his famous report on manufactures, praised Adam Smith to the sky while at the same time arguing that the United States was a special case in that it had infant industries that needed to be protected, including steel. Steel is still being protected 200 years later.
Commercial banking is another example. At the end of World War II commercial banking accounted for roughly half of the capital market. Today it accounts for about one-fifth. Why has it deteriorated? Why is the international financial market in London, not in New York?
The answer is the long-term effect of the of the banking industryâs insistence on special government favors. In the early days, under what was known as Regulation Q, the government set a limit on the interest rates that banks could pay, including a rate of zero on demand deposits. The government-imposed interest rate of zero on demand deposits encouraged the emergence of money market funds and the growth of substitutes for and alternatives to banks. The banking industry consistently supported fixed exchange rates. When the dollar got into trouble, President Johnson introduced restrictions on foreign lending and an interest-equalization tax. The result was to drive the commercial banking industry to London. Both of those measures reduced the commercial banking industry from the predominant supplier of credit to a minor player. Again, a policy that was very shortsighted.
The easiest shot of all is the way in which corporations make contributions. The oil industry contributes to conservation organizations that are trying to sharply reduce the use of oil. The nuclear industry contributes to organizations that support nonnuclear energy. Recently, Capital Research Center analyzed grants from major corporations to public policy organizations and found that the major corporations made $3 in grants to the nonprofit left for every dollar they gave to the nonprofit right.
Why hasnât the corporate world followed the excellent example that was set by Warren Buffett? From his earliest days, in sending a dividend check to his stockholders, he said, âWe are prepared to distribute X dollars on your behalf for each share of stock to charity, to some organization. Let us know to whom you would like it sent, and we will send it on your behalf.â
Why should corporations decide the charitable purposes that should be supported by the income of their stockholders? Why shouldnât each stockholder decide that? And why is the business community in general so insistent on supporting its own enemies?
by Milton Friedman
Thereâs a common misconception that people who are in favor of a free market are also in favor of everything that big business does. Nothing could be further from the truth.
Milton Friedman: âI have gradually come to the conclusion that antitrust laws do far more harm than good.â
As a believer in the pursuit of self-interest in a competitive capitalist system, I canât blame a businessman who goes to Washington and tries to get special privileges for his company. He has been hired by the stockholders to make as much money for them as he can within the rules of the game. And if the rules of the game are that you go to Washington to get a special privilege, I canât blame him for doing that. Blame the rest of us for being so foolish as to let him get away with it.
I do blame businessmen when, in their political activities, individual businessmen and their organizations take positions that are not in their own self-interest and that have the effect of undermining support for free private enterprise. In that respect, businessmen tend to be schizophrenic. When it comes to their own businesses, they look a long time ahead, thinking of what the business is going to be like 5 to 10 years from now. But when they get into the public sphere and start going into the problems of politics, they tend to be very shortsighted.
The most obvious example is protectionism. Can you name any major American industry that has really benefited from tariffs and protection? Alexander Hamilton, in his famous report on manufactures, praised Adam Smith to the sky while at the same time arguing that the United States was a special case in that it had infant industries that needed to be protected, including steel. Steel is still being protected 200 years later.
Commercial banking is another example. At the end of World War II commercial banking accounted for roughly half of the capital market. Today it accounts for about one-fifth. Why has it deteriorated? Why is the international financial market in London, not in New York?
The answer is the long-term effect of the of the banking industryâs insistence on special government favors. In the early days, under what was known as Regulation Q, the government set a limit on the interest rates that banks could pay, including a rate of zero on demand deposits. The government-imposed interest rate of zero on demand deposits encouraged the emergence of money market funds and the growth of substitutes for and alternatives to banks. The banking industry consistently supported fixed exchange rates. When the dollar got into trouble, President Johnson introduced restrictions on foreign lending and an interest-equalization tax. The result was to drive the commercial banking industry to London. Both of those measures reduced the commercial banking industry from the predominant supplier of credit to a minor player. Again, a policy that was very shortsighted.
The easiest shot of all is the way in which corporations make contributions. The oil industry contributes to conservation organizations that are trying to sharply reduce the use of oil. The nuclear industry contributes to organizations that support nonnuclear energy. Recently, Capital Research Center analyzed grants from major corporations to public policy organizations and found that the major corporations made $3 in grants to the nonprofit left for every dollar they gave to the nonprofit right.
Why hasnât the corporate world followed the excellent example that was set by Warren Buffett? From his earliest days, in sending a dividend check to his stockholders, he said, âWe are prepared to distribute X dollars on your behalf for each share of stock to charity, to some organization. Let us know to whom you would like it sent, and we will send it on your behalf.â
Why should corporations decide the charitable purposes that should be supported by the income of their stockholders? Why shouldnât each stockholder decide that? And why is the business community in general so insistent on supporting its own enemies?
