July 05, 2007... Stakeholders?

The new buzzword across European Union (EU) government is Stakeholder. A United Kingdom, National Health Service (NHS) patient, for example, is no longer simply a patient, he or she is now a Stakeholder replete with Stakeholder account and the right to pick and choose when, where and how they will be treated, as if they were a customer of a private healthcare provider.

The idea of the Stakeholder has gained enormous ground in current EU political propaganda as a way to persuade the general public that there is no fundamental difference in the goods and services provided by way of public institutions, and the goods and services provided by private business coerced into funding the public institutions, whether they want to voluntarily do so, or not. This took decades to sneak in on the heels of of its precursor, socialism.

It pretty much began in 1961 when the late, and often cited economist Milton Friedman wrote an article for The New York Times Magazine, which has been republished internationally. In this article, Milton Friedman insisted that the moral responsibility of corporate managers was to strive to make the company profitable. Hardly a revelation, since up until that time, and without having to state it, it was simply accepted that this is what corporate mangers would be doing anyway. This is simply because this follows from the general assumption in economics that in the marketplace everyone embarks upon the maximization of utilities in the attempt to make a profit. However, Milton Friedman went on to claim that this is what corporate managers are morally obliged to do as per their promise to the company’s shareholders and investors. And when morality is invoked, state intervention--demoralization, in fact--swiftly follows.

In response to Milton Friedman’s article, a great many people who came from the field of philosophical ethics began to write extensively about business ethics, and insisted that what corporate managers ought to do is to mange companies so they would benefit Stakeholders. Stakeholders being anyone beyond the shareholders and investors with a claim that they should also benefit from what the company is doing. Which within the context of this Op-Ed’s opening paragraph, means: How much profit is available for the government to tax for the good of society as Stakeholders.

To that end, there are journals, magazines, conferences, and many books which serve to advance the idea that the moral responsibility of corporate managers is to benefit society, not the owners—shareholders, investors, stockholders—of the company.

To further entrench this philosophy in the general mind by way of higher education, the field of business ethics has become very popular in colleges and universities, including business schools around the world. So much so, that the science of economics in the majority of EU economics schools, is barely distinguishable from social science.

This line of thinking is a not altogether subtle attack on the nature of a capitalist economy. In a capitalist system, companies are owned by those who buy shares and invest in them and their purpose is to succeed in the market place, measured, naturally, by how profitable they are, how good a return they bring in from their owners’ investment. The details depend on the kind of firm in question,of course, but this is the general understanding of capitalist business.

From the beginning, the idea of capitalism has been criticized by many people because it treated profit making as a good thing. Going into the market place with the intention of bringing home a good return on one’s investment just appeared to be too greedy, too avaricious. Never mind that, in fact, once one makes a good return on one’s investment, it is an open question what one will do with the wealth one has accumulated. So the practical impact of rejecting the capitalist model is not so much a rejection of wealth but a rejection of the private allocation of wealth. Critics of capitalist business, in other words, do not want private individuals to be in charge of spending the profits made in business. They would like the public—that is, government—to decide what happens to the wealth.

This used to be called socialism, but now that the grand experiment in that political economic system has had innumerable setbacks across the globe, the term 'socialism' has been dropped. Instead we have Stakeholder theory, which will yield the same outcomes that socialism did: The undermining of the right of individuals to allocate their wealth, and place this choice into the hands of politicians and bureaucrats.

At this time it is imperative for the EU to realise that there should be no acceptance of the presumption that business must serve society—after all, if business does its task well, they do that anyway while they are seeking to make profits by way of employment and paying wages. How profits should be used, should be left to those who earned them.