Comparing Freeman And Milton Friedman

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R. Edward Freeman and Milton Friedman have two contrasting views on the purpose of businesses. Freeman is an advocate of the stakeholder theory of the firm. The stakeholder theory of the firm claims that businesses must serve the interest of all that have a stake, or claim, on the firm, such as management, employees, and customers. Friedman believes in the ownership theory of the firm. In his article, Freeman argues that every stakeholder, not only stockholders, should have a say in the firm they have a stake in. Stockholders own shares in the firm, and are a type of stakeholder, but stakeholders also include management, employees, customers, suppliers, and the local community. He wishes to revise the preexisting theory of the firm and allow each stakeholder to take part in determining the future of the firm they have stake in.…show more content…
A corporation is seen as a legal person and managers must follow laws. The legal force behind corporations does not give a clear answer to whose interests modern business should be run. However, because stockholders invest directly in the firm, corporations usually follow their interests. Freeman argues that changes in laws, such as the Labor Relations Act and The Equal Pay Act of 1963, have changed the way corporations interact with employees and customers, and that these changes give rights to all stakeholders, not only the stockholders. Managerial capitalism comes across the problem of how to keep up public goods, such as clean air and water. The cost is supplemented by taxes and environmental regulations. Corporations sometimes begin to avoid competition and monopoly power arises, which also leads to more government control on managerial

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