Milton Friedman is out of time

miltonfriedmanThe current economic and social system in which we live, at least here in the anglo-american parts of the globe, is coming to an end. News of its demise may be a little premature yet I can hear its rattle. It is simply unsustainable. Inequality in wealth is growing both in absolute and relative terms. The rich get richer while the poor get poorer. There are foodbanks in all of the major cities across the UK and there has been a rise of the so-called working poor, people in jobs that cannot afford the cost of living.

Yet what is the alternative? We have grown up to believe that greed is good, that unfettered business is the only way to create prosperity and that the only measure of success is financial. The ideas of Milton Friedman have run their course. It is time for a new paradigm.

It is not just me who is saying this. I had the pleasure of hearing Charles Wookey speak at this month’s event put on by the North East Initiative on Business Ethics. Charles is the CEO of A Blueprint for Better Business, an independent charity that acts as a catalyst for change in business.

He talked to us about the purpose business, the current dominant view of the way that business should be conducted, the limitations of this approach and an alternative way of thinking about commercial ventures.

People come together to do things that they cannot do on their own and this is the real purpose for companies. Clearly they need to make money, the alternative is to go bust, yet there is a myth that the law requires businesses to do everything in their power to make money, even if this included taking advantage of their customers or avoiding paying taxes. Charles squashed this myth. It is not true on either side of the Atlantic.

The relevant UK law is the Companies Act 2006, which says:

A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

I am really glad that I went along to the NIBE event and I will come back to it in future blogs but this point is so important it merits a discussion on its own.

Profit should be the means by which a company delivers its aims rather than its purpose.

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