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A Stake Through the Heart of the Market System

Summary:
Here’s a letter to a college student who e-mailed to wonder at my opposition to so-called “stakeholder capitalism.” Ms. Baio: Thanks for e-mailing. I urge skepticism of calls for government to compel corporations to attend to the welfare of so-called “stakeholders” at the expense of the welfare of shareholders. The quotation at my blog from Deirdre McCloskey and Alberto Mingardi nicely summarizes many reasons for such skepticism. I stand by that quotation and encourage you to consider it more carefully. But I here add one more reason – one built on the truth of your wise recognition that “corporate decisions impact communities and families outside of ownership.” Given this truth, should government, then, compel individuals and households to attend to the welfare of “stakeholders” at

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Here’s a letter to a college student who e-mailed to wonder at my opposition to so-called “stakeholder capitalism.”

Ms. Baio:

Thanks for e-mailing.

I urge skepticism of calls for government to compel corporations to attend to the welfare of so-called “stakeholders” at the expense of the welfare of shareholders. The quotation at my blog from Deirdre McCloskey and Alberto Mingardi nicely summarizes many reasons for such skepticism. I stand by that quotation and encourage you to consider it more carefully. But I here add one more reason – one built on the truth of your wise recognition that “corporate decisions impact communities and families outside of ownership.”

Given this truth, should government, then, compel individuals and households to attend to the welfare of “stakeholders” at the expense of the welfare of the individual and members of the household? After all, if you choose to shop at Safeway rather than at Kroger, your decision contributes to possible job losses at Kroger. In light of this fact, would it be wise to enable government to compel you to shop at Kroger despite that store’s higher prices or greater inconvenience?

Or if your parents are considering moving to another town, should government be able to override their decision – forcing them to remain where they are – because the sale of their current home will depress property values in their town and, thus, negatively affect their neighbors?

My point is that every economic decision has impacts far beyond the individual decision-maker. This reality isn’t confined to corporations; it’s true of each and every economic decision that you personally make, that each household makes, that each small business makes. And it’s fundamental to an economy built on specialization and trade. To ensure that as many as possible of these impacts are positive rather than negative, market economies rely upon private property and contract rights as well upon economic competition and market prices. (To better understand how these institutions promote positive impacts and lessen negative ones, I recommend a well-taught course in principles of economics.)

And so – “Stakeholder capitalism” is not, contrary to Elizabeth Warren’s claim, a means of saving or improving the market economy. It’s a frontal assault on it. By allowing government to suppress private property and contract rights, we’d move, not in the direction of what you call “a more humane capitalism” but, instead, in the direction of a more arbitrary and, hence, authoritarian means of dictating the use of resources, including labor. The end result would not be what you expect and hope.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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