A talk with a Nobel Laureate Prof. Oliver Hart on “Voice vs. Exit”
Webinars Brief 41:2021
Publication Year : 2021

Overview of the Debate The debate commenced with a question which has recently become a hot topic in the U.S and Europe; what could be the suitable objective of a public company. In this regard, almost half a century ago, one of the most famous economists, Milton Friedman, asserted in the New York Times that corporations have just one social responsibility that is to make money for their owners. However, many people do not agree with this point of view of Milton Friedman. As in 2019, the business roundtable which consists of many leading CEOs in the U.S made a statement that companies have a responsibility to stakeholders as well as shareholders. To be noted, Luigi Zingales and Oliver Hart (2017) agreed with Milton Friedman that most of the companies are set up to act on the behalf of the shareholders in the U.S and UK; it means the shareholders are allocated the votes to elect the board of directors. Furthermore, Zingales and Hart (2017) being taken a middle-ground position also stated that some companies are not erected that way; they are worker-owned instead. On this point, they slightly disagree with Friedman and stated that the objective of the companies should not solely be the money-making because shareholders of companies are ordinary people with social and monetary goals and they want companies to pursue these goals on their behalf. Moreover, people are socially conscious, if we take climate change as an example, in an ideal world national governments would agree on the worldwide carbon tax and then everyone could go and pursue their interests. However, we do not live in a world; there are political failures at both the national and international levels. Consequently, individual and corporate actions matter.

Edited by Hafsa Hina, Design by Afzal Balti.