Milton Friedman believed that corporations have a social responsibility to play within the rules of the game. But corporations aren’t just players of the game, they are the ones setting the rules—bad ones.

Editor’s note: To mark the 50-year anniversary of Milton Friedman’s influential NYT piece on the social responsibility of business, we are launching a series of articles on the shareholder-stakeholder debate. Read previous installments here

I used to think Milton Friedman was right. But I have changed my mind. I also increasingly realize that I have changed my mind because I no longer believe in the contractarian view of the firm: that it is merely an aggregate of voluntary contracts which reflect the freedom of individuals to choose.

In reality, corporations are powerful entities able to exercise immense influence within society. Since corporations have been told that their only responsibility is to make profits and this has been internalized within their operations, the result is that society, including in particular its notionally democratic politics, is dominated by feral institutions. This is an important reason why the US has ended up with a president who is now running against democracy itself.

The central point I would make comes from Friedman’s view that corporations have a social responsibility to play within the rules of the game, “which is to say, engage in open and free competition without deception or fraud”. But this is vastly too narrow a perspective on the “rules of the game”.

The rules of the game have to include everything a society does to ensure that the activities of corporations, individually and collectively, are consistent with its core objectives: promoting competition and innovation, protecting public health, protecting the environment, protecting employees from abuse, raising the tax revenue needed to meet democratically-agreed objectives, and so on and so forth. The rules of the game are, in sum, everything a society does to organize itself through politics and law.

So, who makes these “rules of the game”? Well, we know quite well that a dominant influence is the power of money. In particular, the activities of companies, as lobbyists, funders of research and donors, play a decisive role in creating the rules of the political game. As Mancur Olson told us, concentrated interests, with large resources, win. There are no interests more concentrated and with more resources than corporations, individually or in associations. Corporations are not players of the game, playing according to rules set by others. They play the game according to rules they largely set themselves.

In sum, Friedman’s view is faux naif. Of course, companies should play within the rules of the game. But let us agree first on the game we are talking about. If, as I am arguing, the game is fundamentally political, then the social obligation is to use their power to create a good game, rather than a bad one.

What is a good game? Well, here are some things it most definitely is not.

It is one in which companies would not promote junk science on climate and the environment; it is one in which companies would not kill hundreds of thousands of people, by promoting addiction to opiates; it is one in which companies would not lobby for tax systems that let them park vast proportions of their profits in tax havens; it is one in which the financial sector would not lobby for the inadequate capitalization that causes huge crises; it is one in which copyright would not be extended and extended and extended; it is one in which companies would not seek to neuter an effective competition policy; it is one in which companies would not lobby hard against efforts to limit the adverse social consequences of precarious work; and so on and so forth.

This, then, is a political problem of the first order. As I have suggested above, such failures, and many more, have so weakened the democratic system that we risk ending up in dictatorships. There is a direct line from Milton Friedman to Donald Trump.

Why is this? Consider how one goes about persuading people to accept Milton Friedman’s libertarian economic ideas when, in practice, they shift economic rents upwards and desperation downwards. In a universal-suffrage democracy, it is impossible. Such libertarians are a minority. To win, they have to embrace ancillary causes such as culture wars, racism, misogyny, nativism, xenophobia, and that good old standby: nationalism. Much of this has of course been sotto voce and so plausibly deniable: “No, we are not in favor of discrimination, but your precious freedom does indeed include the right to discriminate.”

The financial crisis and bailout of those whose behavior caused it made selling the deregulated free-market even harder, as Mitt Romney’s 2012 failure showed. Afterwards, it became politically necessary for libertarians embedded within the Republican Party to double down on those ancillary causes. Trump was simply the political entrepreneur best suited to do this. A natural demagogue, he was perfectly comfortable saying out loud what his predecessors had said quietly or let others say for them. This is why his supporters claim that “he says it like it is”. Those desperately-needed voters loved him for it, because he respects their rage. Of course, his nativism, nationalism, protectionism, demagoguery, lying and now open assault on the notion of a fair election are a bit uncomfortable for corporate elites. But, if he gives them lower taxes and sweeping de-regulation, how many really care? If the result is to poison democratic politics forever, again, who cares?

So, to return to my main point: one cannot get away with stating that corporations should play by the rules, when they create the rules they play by. The system for creating the rules of the game is corrupt.

So, what should be done?

The starting point for that is to recognize that corporations are not persons, cannot be citizens and, qua corporations, have no political rights whatsoever. Corporate personality is a fiction created solely for economic reasons. Individuals associated with corporations (including shareholders) do have political rights, provided they are citizens of the country in question. But that is an entirely different matter. The question of the use of their private money in politics is also a different one.

Corporations, qua corporations, should not be permitted to make political contributions, fund political campaigns or engage in any other political activities. They may lobby on behalf of their commercial interests. But they must be forced to be completely transparent about what they are doing. Drawing these lines is, of course, difficult. But it is essential, if democracy is to survive.

Corporations must indeed play by the rules of the game. But they must be prevented by all means necessary from writing them. I do not expect them to do the right thing in the public square. But I would really like to stop them doing the wrong thing.

Doing the right thing is the job of citizens.

To follow up on the discussions on the Capitalisn’t podcast, we launched an occasional additional segment where listeners can further explore the show’s conversations in ProMarket.