Ideas of Milton Friedman

Position Statement on Friedman's Assertion

The statement by Milton Friedman that the "only responsibility for a manager is to the board of directors and the shareholders" is ridiculous, by most modern standards. Unless, of course, that statement, like so many pronouncements by Friedman, is meant as a challenging premise for debate (Friedman, 1970, 24). Assuming, however, that this senior economist has put aside his socialist days, his pro-Keynesian and his anti-Keynesian days, and actually believes in that statement, then the management student faces a myriad of philosophical problems.

For instance, it goes against almost all of the current management theory that suggests that the old ideas of command and control are outdated. As Humble suggests "With the demise of command and control, old-fashioned bureaucracies cease to be important. Therefore, it follows that people will be better informed: sharing rather than using information as a power tool will be the norm. Empowerment will not be an option, but a necessity in this world of rapid change, decentralization and flexibility" (Humble, 1995, 71).

These ideas of flexibility and empowerment suggest a way of corporate life that would be patently offensive to Friedman, if he indeed believes in that quote. However, since he has so often been on record as an avowed libertarian and an unwavering proponent of a free market economy, it is assumed that this statement is meant more to shock than to serve as a position s

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conscience. However, the shareholders do not directly affect the day-to-day operation of the corporation. In theory, that challenge falls to the Board of Directors, a group designed to have an impact on the corporation through its ability to hire and fire top senior management. It is at this level that Friedman's statement is the most accurate, since to save and preserve his job, the top executive at a corporation must follow the dictates of the board. In the capitalism novels of Ayn Rand, like Fountainhead and Atlas Shrugged, there is usually a scene or two where an idealistic executive stands up against a rapacious board. The situation usually involves a corporate decision that is deemed to be heaven for the stockholders and hell for society in general. These novels make for fun reading and boring movies, but it should hardly come as a surprise to authors like Rand (and often Friedman) that in a market economy, executives are concerned with making a profit. Given this truism, it is also obvious that there is usually a tradeoff of sorts between profit and social responsibility (Williamson, 1964, 31). To be completely fair, these issues of ethics are not explicitly stated in the Friedman quote, simply implied in the wo

Category: Economics - I