Sunday, November 19, 2006


Milton Friedman, Free Markets and Ethics in Business



While November 16, 2006 marks the passing of famed economist, Dr. Milton Friedman, his ideas will no doubt live on for years to come. Economists in the U.S. and abroad embrace his work for its clarity, originality and impact. Recipient of the 1976 Nobel Prize for Economic Science, Friedman was a staunch advocate of free markets, something that put him at odds with the big government crowd. Author of Capitalism and Freedom and co-author (with his wife Rose) of Free to Choose (book and television show), Friedman wrote about the "tyranny of controls" in 1979, adding that "restrictions on economic freedom inevitably affect freedom in general, even such areas as freedom of speech and press." Taking a page from Adam Smith's Wealth of Nations, this well-respected Ph.D. wrote that "it is in the self-interest of the businessman to serve the consumer" and by doing so, everyone wins.

Post-mortem tributes that review Friedman's work as part of a general discussion about free markets versus regulation come at a time when laws such as the Sarbanes-Oxley Act of 2002 are being critically examined. In early September of this year, the Committee on Capital Markets Regulation, "a newly formed independent group of U.S. business, financial, investor and corporate governance, legal, accounting and academic leaders" announced its intent to study ways to "improve the competitiveness of the U.S. public capital markets."

A critical question? How much regulation is enough?

In "Businesses Seek New Protection on Legal Front," journalist Stephen Labaton (New York Times, October 29, 2006) writes that the Committee on Capital Markets Regulation and a parallel group "aim to limit the liability of accounting firms for the work they do on behalf of clients, to force prosecutors to target individual wrongdoers rather than entire companies, and to scale back shareholder lawsuits."

Dr. Friedman was not only prescient but correct to observe that "there is no such thing as a free lunch." Someone, somewhere, somehow pays.

What is an appropriate cost to pay for a relaxation of current rules? More self-policing at the industry level? At the individual company level? At the shareholder level?

With regard to pension funds, should we abandon ERISA and ask company sponsors to provide more transparency and financial backing on their own? How do we reward companies that do that already and without prodding from government watchdogs? Will the aftermath of the Pension Protection Act of 2006 reflect the law of unintended consequences, i.e. outcomes that are antithetical to the original intent of legislators?

Only time will tell but, until then, thank you Dr. Friedman. Your legacy of thought-provoking ideas is a rich one indeed.
posted by Susan Mangiero at 11/19/2006 12:02:00 AM