What are corporations for? In his 1962 book Capitalism and Freedom, Milton Friedman gave a blunt answer: profit. “Few trends could so thoroughly undermine the very foundations of our free society,” he argued, “as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.” Almost two decades earlier, Karl Polanyi had a different answer. As he wrote in his 1944 book The Great Transformation, allowing profit
to be the sole director of the fate of human beings and their natural environment would result in the demolition of society…. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized…. No society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organization was protected against the ravages of this satanic mill.
So who was right? Polanyi asked us to look all around us for the answer, at the innumerable laws, norms, and institutions that limit markets and at the destruction an economy without such limits caused in the past. His main examples were World War I, the Great Depression, and World War II, a chain of events that happened, he argued, because society had failed to contain the demons and dislocations loosed by 19th century industrialism. During American capitalism’s postwar golden age, most of the country’s elites agreed that unfettered markets were ruinous. The head of the US Chamber of Commerce in 1946 insisted that “collective bargaining is part of the democratic process. I say recognize this fact not only with our lips but with our hearts.” President Dwight Eisenhower boasted of using “every single force and influence” of government to stabilize the economy and wrote that only the “stupid” sought “to abolish social security, unemployment insurance, and eliminate labor laws and farm programs.” When Friedman started calling corporate social responsibility a cancer eating away at freedom, he sounded so off-the-wall that his remarks appeared to be little more than deliberate provocation—trolling, as the kids say now.
Then things changed. Starting in the ’70s, corporate profits began to fall. A dollar of capital that earned an average of 9 percent annually in 1966 earned 4 percent in 1977. American economic dominance began to fade. In 1971, for the first time since 1888, the United States ran a trade deficit with the rest of the world, at $1.3 billion; by 1980, it had approached $20 billion. Policy-makers decided to give laissez-faire a shot. Near the midpoint of his new book, Transaction Man: The Rise of the Deal and the Decline of the American Dream, Nicholas Lemann tells a story that helps illustrate this transformation. Robert Reich, the secretary of labor under Bill Clinton—the first Democratic president to occupy the Oval Office in more than a decade—uttered the phrase “corporate responsibility” in a speech and was summoned to the Treasury Department by Robert Rubin, the former investment banker who ruled over the administration’s economic policy, “for an in-person chastisement.” By the ’90s, Friedman had won: Corporations were assigned no responsibility other than to make as much money as possible. With the benefit of hindsight, one might add that perhaps Polanyi had won, too, for in the decades after Reich’s summoning, the economy collapsed, Donald Trump won the White House, and the kinds of calamities that Polanyi warned about began to happen as if on cue.