November 2021

The new business of business is … politics

Digital platforms ǀ In today’s climate, political issues – from public health to energy supplies and road planning – have become hotly contested. Stakeholder groups are dragging business leaders into debates that have little to do with their commerce. Breweries too have entered into the fray, willingly lending their names to causes by brewing special beers and making donations. But this year’s events have shown how easily Twitter and Instagram can be turned into public pillories, destroying reputations and skewering business plans in their wake.

Once upon a time, say 30 years ago, brewery bosses and employees lived by the rule: “leave your politics and religion at the front door”. The Californian craft brewer Firestone Walker from Paso Robles reportedly still sports a sign in its taproom warning visitors: “No religion, no politics, no belching.”

Naturally, employees would have had their political party preferences, and bosses would have been pulling strings behind the scenes, secretly writing cheques to parties and charities furthering their goals. Still, they all held their tongues and studiously kept out of the broader political hurly-burly.

If such discussions were put under a taboo it was meant to maintain workplace civility so that people could work together as colleagues, rather than as rival combatants, who ever so often would slug out their political disputes in shoutfests by the water cooler.

This was not always the case. Political engagement, or indeed corporate social activism by US businesses, has swung this way and that over the past two and a half centuries. When the US was founded, companies needed a government charter to operate, which often involved greasing palms. As the Economist newspaper reminds us, “court rulings in the first half of the 19th century allowed firms to put politics at arm’s length. But in the early 20th century some bosses rediscovered politics, using their companies’ wealth to buy cronies in government.” Plenty of business leaders even styled themselves as paternalistic guardians of society, forcing a certain way of life upon their employees. Think of Henry Ford building a colony (“Fordlandia”) in the Amazon rainforest in the 1920s, or Milton “chocolate bar” Hershey erecting a model town to live in (Hershey, Pennsylvania), replete with modern houses, shops, a theatre and an amusement park.

“In the aftermath of World War II, the door between industry and political office was not so much revolving as wide open. Until the 1960s, Big Business was in a scrum with Big Government and Big Labour,” the Economist says.

By the 1970s, the tide had turned again and businesses adopted the “Friedman doctrine” (the economist Milton Friedman), coined in 1970, which argued that executives’ sole responsibility was to shareholders. In a nutshell: the business of business is profits. Mr Friedman’s reasoning went that, for as long as markets were free and competition unfettered, maximising shareholder value would profit all, by ensuring better products for customers and better conditions for workers. Firms that failed on either count would see their customers and employees defect to rivals.

The implications of this doctrine are clear and simple. But, as H L Mencken, an American wit, is supposed to have said, “for every complex problem there is an answer that is clear, simple, and wrong”.

What was wrong with the Friedman doctrine was that it only applied to an ideal world – where companies would not externalise costs (e.g. pollution) or promote junk science on health (e.g. Big Tobacco); an ideal world, where they would not lobby for tax systems that let them park vast proportions of their profits in tax havens, or neuter an effective competition policy. The list could go on.

Moreover, in an ideal world, governments would address pressing problems and solve them. Our impression is that they often fail on both accounts.

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