Finance

The Origins of the Profit Constraint

Fifty years ago, Milton Friedman published his landmark work The Social Responsibility Of Business Is to Increase Its Profits in The New York Times Magazine. [0] A reaction against the surging support for social justice in 1970, the essay would go on to influence the course of economics and corporate governance for the next half century.

Friedman’s argument is rather simple. In a business, decisions are made by managers employed by the owners of the business. Managers thus have a contract to run the business consistent with the objectives of its owners. In some cases, a business may be established by its owners for social, environmental, or other charitable purposes. For non-charitable businesses, according to Friedman, the owners want the business to make as much money as possible. The power of Friedman’s argument is it gives managers a simple model for decisions: maximize profit.

This optimization model lies at the heart of the modern corporation. It is the pacemaker of shareholder capitalism. New insights from the science of complexity, however, are showing this pacemaker has a flaw.

Read the full article on Manifold

About the Speaker

Kellen Betts is a Course Lead in the MITx MicroMasters Program in Supply Chain Management and Project Manager supporting sustainability-related research at the MIT Center for Transportation & Logistics including the State of Supply Chain Sustainability, carbon insetting with sustainable aviation fuels, and the circular supply chain initiative. Kellen has over fifteen years of experience in supply chain and analytics working for small businesses and Fortune 500 corporations. He writes the blog/newsletter Sustainable Supply Chains, exploring the sustainability of global supply chains, and organizes Supply Chain Connect, an annual conference on supply chain management and technology. Prior to joining MIT, Kellen helped launch a supply chain technology startup for port trucking and logistics, and worked in supply chain, analytics, and engineering at REI, Zulily, PACCAR, JBE Inc., and Vigor Industrial. He received an M.S. degree in Global Supply Chain Management from Portland State University and an M.S. degree in Applied Mathematics from the University of Washington.

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