7 min read
Sep 2020

The Friedman Doctrine 50 Years on: Why It’s Time for a Change


After half a century dominated by the financial capitalism orthodoxy, based on ‘winners take all’ dysfunctions, the whole creation groans and suffers, and wisdom shouts in the streets denouncing the growing inequity in society. Companies and financial institutions must now venture out onto the shifting sands of unfulfilled promises and reform their models to remain relevant and sustain performance.

Published October 2020

Fifty years ago the New York Times published an essay by Economist Milton Friedman which set out what became known as the Friedman Doctrine.

The article set out the ideas that have been the basis of business practice, leadership, policy, and education ever since. It stated:

“There is one and only one social purpose of business… to increase its profits so long as it stays within the rules of the game”.

But it has also been the cause of growing environmental degradation, inequality, social exclusion, and mistrust. Why? Because it implies that companies should increase profits by cutting costs and reducing investment even if that involves employing people in precarious jobs, paying below the living wage, polluting the environment, and avoiding tax payments. Because the only limitations are that companies do not violate laws and regulations or incur reputational costs that exceed profits generated.

Before the Covid crisis, most companies were happy to work within this outdated and dysfunctional system. They could maintain the tension of maximising profit and maintaining corporate reputation through corporate social responsibility (CSR) and environmental, social and governance (ESG) reporting.

However, one cannot serve two masters indefinitely. The global pandemic has revealed beyond doubt that it is people, their communities, and the environment that have lost out.

So the conversation should no longer be about why the system needs transforming – but how we can deliver the necessary transition.

Challenging the status quo

We contend that a new breed of courageous business leaders must arise to embrace the duty and opportunity presented by today’s global challenges. Companies must reposition themselves to thrive by meeting the needs of the world.

The good news is that we are not starting from scratch. Since the 2008 global financial crisis, many organisations (more than 180 by our count) have emerged to challenge the status quo. Numerous movements, conferences, and publications have striven earnestly to catalyse the necessary transformation.

Yet a superior alternative to profit-maximization has yet to take root because this is a systems issue. The business community has to move beyond piecemeal reform and pursue fundamental systemic change.

If we are to witness a Great Transition away from Friedman’s destructive doctrine to a new system of purpose-centric and holistic value creation, we propose that the firm must:

  • Recognise that the true purpose of business is not to create profit, but to create profitable solutions to the problems of people and planet – not to profit from creating problems.
  • Intentionally map and identify all the key stakeholders that are material to the fulfilment of its purpose.
  • Clarify how it is going to measure the performance of these strategies and how they will impact overall performance, both financial and non-financial.
  • Adjust its management account, profit measurement, and employee incentives to ensure they are aligned with its purpose.
  • Change the way it educates its leaders by placing corporate purpose at the heart of business school courses.

Economics of Mutuality

We need a new school of thought which demonstrates that financial capitalism is a sub-optimum model for all parties because it extracts value for a few and is, in fact, less efficient than a model that creates value for many. We need a management innovation that reveals the “winner takes all” approach, which disproportionately favours those with power, to be less efficient than an approach based on mutual relationships.

This is the heart of what we call the Economics of Mutuality, which empowers companies to adopt a more responsible, more complete form of capitalism that performs better than the purely financial version operating today.

As the ancient wisdom of Ecclesiastes put it, there is a season and a time for everything, “a time to plant and a time to uproot” and now, 50 years on from the Friedman doctrine, we are at such a point in time. We  need a systems change, a reform, a Great Transition.

Bruno Roche is the Founder and Executive Director of the Economics of Mutuality and the former Chief Economist at Mars, Incorporated.

Colin Mayer is the Peter Moores Professor of Management Studies at Saïd Business School, University of Oxford and the Academic Lead of the Future of the Corporation programme at the British Academy.

This article was published in October 2020 following the fifth annual Oxford Economics of Mutuality Forum. Visit the Forum website to find out more and watch session recordings.

It has also been published on Saïd Business School’s Oxford Answers website.


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