Business Roundtable suffers from economic illiteracy

opinion

Last week, the Business Roundtable launched a major attack on property rights, the bedrock of capitalism.

In a stunning new mission statement, the Roundtable, which represents nearly 200 of America’s blue-chip companies, downgraded shareholders. According to the Roundtable, the purpose of a corporation will no longer be to conduct business with the sole objective of generating profits for shareholders. Owners of corporations (read: shareholders) will now just be one of five “stakeholders”— alongside customers, workers, suppliers and communities — that will call the tune for corporations.

The Roundtable’s new anti-capitalist mission statement promises to dilute and muffle shareholders’ voices and further politicize corporate governance. In 1848, John Stuart Mill clearly saw where the Roundtable’s road map would lead. In his classic “Principles of Political Economy,” Mill wrote: “Laissez-faire, in short, should be the general practice; every departure from it, unless required by some great good, is certain evil.”

When it comes to economics, businessmen are notorious for talking nonsense. The Roundtable’s statement is a case in point. Any business that isn’t focused on its customers, employees, suppliers and communities does not have its eye on the ball. And that “ball” is profits for shareholders.

OUR VIEW: Business Roundtable’s new commitment to more than shareholders is right on the money

When it comes to the Business Roundtable’s recent manifesto, it appears that the authors simply suffer from a logical lapse and case of economic illiteracy.

The great Austrian economist Joseph Schumpeter concluded in his 1942 classic “Capitalism, Socialism and Democracy” that businessmen would “never put up a fight under the flag of their own ideals and interest.” Indeed, he foresaw that, rather than educating capitalism’s enemies, businessmen would allow themselves to be educated by them. Schumpeter concluded that businessmen, through their ignorance and cowardice, would assist those who wished to destroy capitalism.

Steve H. Hanke is a professor of applied economics at The Johns Hopkins University.

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