American capitalism’s focus on workers, not shareholders, is returning | In Focus

It’s time to bury the “Shareholder Theory”.

A scientist I know works for a company that for several years allowed a lot of freedom of thought and team camaraderie among its employees. Employees felt that “someone had their back”.

That company was bought out by a major corporation that changed that camaraderie into rigid rules of conduct. The bottom line for the big corporation was profit for the shareholder above all other considerations.

This philosophy was developed and expounded by the American economist, Milton Friedman, in a New York Times article in 1970.

It can be summed up with his quote: “An entity’s greatest responsibility lies in the satisfaction of the shareholders”. This is known as the “Shareholder Theory”, or the Friedman Doctrine.

President Ronald Reagan is famous for firing 11,359 air traffic controllers in August 1981, even though they supported him in his election in 1980. As president, he followed and supported Friedman’s philosophy. This signaled the weakening of union power and strengthening of the hand of shareholders and corporations.

In all organizations, there are different stakeholders. In a corporation, there are the executives, rank-and-file employees, customers, and stock shareholders. In Friedman’s essay, “The economist explained that an entity does not have any social responsibility to the society around it whatsoever.”

How does one define social responsibility? “The Friedman Doctrine holds that decisions concerning social responsibility rest on the shoulders of the shareholders, not the executives of the company.” (CFI). There is no social responsibility unless the stockholders decide that is a priority.

In this brave new world, stockholders are interested in profits. CEOs are rewarded with high salaries as long as the price of the stock keeps going up every quarter. Executive salaries rise higher and higher. Employee satisfaction decreases proportionately.

The emphasis in Friedman’s Doctrine is upon individualism over the needs and good of society as a whole. Paradoxically, the community is important to the shareholders because consumers buy the products of the corporation. It actually benefits corporations to pay their workers well so they can purchase the products produced by the businesses. But that reflects long-term thinking—the antithesis of the Friedman Doctrine.

Unions have had a good year. Consider the recent Kaiser-Permanente strike. Kaiser is one the major healthcare organizations in the United States because of its high value to those who receive their services. Yet, 75,000 employees went on strike in October because they felt devalued by their bosses.

They won a 21% wage increase over four years. The agreement ended the biggest healthcare labor dispute in American history. One reason for the leverage that unions have is the shortage of healthcare workers. This shortage has come as a result of burnouts caused by the COVID pandemic between 2020 and 2023. The minimum wage for healthcare workers is $25/hour in California and $23/hour in the rest of the nation.

The deal with Kaiser Permanente also requires that the company hand out referral bonuses, job training programs, and other promotions to increase employment.

A second reason for the resurgence of unions and the diminishment of the Friedman Doctrine is that Democratic President Biden strongly advocated for workers’ rights, even joining the United Autoworkers picket line. The strike just ended successfully against the big three automakers with 25% wage increases. Non-union companies like Toyota, Honda, and Hyundai also raised their workers’ wages after seeing the handwriting on the wall.

A third reason for the rise of unions is the aging of the Baby Boomer Generation. These workers, born between 1946-1964, have now reached retirement age. Their retirements have created labor shortages that increase union bargaining power.

Biden’s support of the rebuilding of labor unions has three considerations: 1) Biden has a goal of bringing about an increase in the numbers of middle-class workers. 2) The middle class supports democracy over the current autocratic tendencies of the Republicans. 3) The greater the number of the middle class, the less support there will be for Republicans in the upcoming 2024 presidential election.

What we are seeing is a historic shift from Milton Friedman and Ronald Reagan’s libertarian views to Joe Biden’s reemphasis on workers over shareholders. It has been a long time coming. If you work for a corporation where shareholders hold more sway than the concerns of its employees, you will be seeing increased benefits in the upcoming years.

Until the imbalances created by Friedman’s ideas are remedied, we will continue to have strife and polarization in the nation. It’s time to bury greed and a lack of social responsibility. Doing so will benefit all of us in the long run.