Stakeholder capitalism and Henry Ford meets Milton Friedman: profit is all versus stakeholder considerations. Who is right?

Stakeholder capitalism under threat— Henry Ford versus Milton Friedman

The Milton Friedman doctrine says: “the social responsibility of business is to increase its profits.” Friedman was a clever fellow, and there was nuance. In his doctrine, there is vision. Companies that follow the markets are not overly focused on the short term because markets discount the long-term implications of short-term policy. With the Friedman doctrine, the free markets are cleverer than you and me at deciding what is best, and we should therefore let them decide. 

The alternative point of view says that to be anti-Friedman is not to be anti-capitalism but it is to be anti-unbridled capitalism. 

In the UK, Kemi Badenoch, who stood for leadership of the British Conservative Party and, by default, Prime Minister, said: “Our ability to defend the free market as a well to help people prosper has been undermined… it has been undermined by retreating in the face of Ben and Jerry tendency — those who say a businesses main priority is social justice, not productivity and profit.”

She was repeating the Friedman doctrine. Is she right?

The clash

Make no mistake; a clash is afoot; we have not seen such an ideological battle in the West since Thatcher and Reagan. They won the battle, the doctrine of the free markets came to dominance, it was the era that saw minimal regulation, and in the UK, the City saw a big bang.

Did it work? We could argue that point until Christmas. We can say, without doubt, that the  25 years from around 1948 to 1973, which applied a more regulated or Keynesian form of economics, saw higher growth in the US and UK, less inequality and much higher growth in real wages. But correlation does not necessarily mean causation, and there are many possible explanations for the divergence in economic performance pre and post-the neoliberal era.

Stakeholder capitalism

Some would argue that the phrase stake holder-capitalism is an oxymoron. If you worry about factors beyond profits, then by definition, you are not applying the principles of capitalism.

But there is nuance. Others might argue that in the longer term, the quest for profits is best served by focusing on the bigger picture: on all the stakeholders because stakeholders are your future market, workforce, suppliers and regulators. They say that to worry about stakeholders is good business. 

Friedman would say that what is good business happens anyway. 

This is where investors and shareholders enter the story. Markets may or may not be perfect, but no individual investor ever is. So investors need tools to help them make decisions. A tool kit that helps investors factor in the long-term implications of business activities on stakeholders might be helpful. That is why ESG was invented. 

The Henry Ford philosophy  

One man who focused on stakeholders beyond profits and consequently made more profits was Henry Ford. As is well known, he paid workers at his factory more in the hope of driving up wages at other companies in the hope more people could afford to buy his cars.

The capitalist Henry Ford proved the benefit of stakeholder capitalism — in doing so, he applied a degree of vision that is unusual; Friedman might have argued that Ford’s approach was not contradictory to his ideology, but in spirit, it was. The Ford approach was, in spirit, precisely the approach ESG critics abhor.

Theory might suggest the markets have 20/20 vision, but practice does not support this, and in any case, markets may be more influenced by groupthink, sentiment, irrational fear and irrational greed than hard cold logic.

Markets can sometimes be wise, but they often aren’t — otherwise, all investors would ever do is track indexes. And just as investors need tool kits to help them achieve superior returns, businesses need tool kits to overcome market failure, and ESG is such a tool kit.


It’s all just shorthand. We are all in a hurry. We use metaphors and shortcuts to explain concepts. 

Evolution decided that animals with long necks were a good idea. Truth is, evolution didn’t decide anything because it has no consciousness but it is complicated to explain the workings of evolution every time you mention it, so instead, we say it “decided,” even though it didn’t.  

Instead of talking about ESG, we could talk about thinking long term by creating an ecosystem that creates resilience and makes a company more robust, more likely to survive future waves of disruption, more likely to make a profit in the long term, and not many people would have a problem with that. And to those who do, we can cite Henry Ford.

But instead, we say ESG because life is short and reality demands shortcuts. And that is where the criticism begins. 


There is a debate over whether Henry Ford really increased wages to create demand for his cars.

One school of thought was that the Ford wage hike was implemented out of necessity to incentivise staff and attract labour. This is the explanation Friedman favoured:  

When asked why Ford increased wages, Friedman said: “He did that because he could make more money that way. In that way, he got more efficient, more productive workers. He was trying to attract people to Detroit where he was building cars—particularly people from the South. At that time, Ford announced the $5 daily wage, twice the going wage. But he didn’t do it to discharge social responsibility. As Adam Smith said, ‘You do not owe your daily bread to the beneficence of the baker, but to his desire to pursue his own interest.’” 

But then Ford himself once said: “The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise, it limits the number of its customers. One’s own employees ought to be one’s own best customers.” 

So who do you think was right about Henry Ford’s motivation in increasing wages, Milton Friedman or Henry Ford?