Alan Kohler: An idea Milton Friedman could never, ever grasp – ‘social licence’

Social media fell from grace. AI outfits should be careful they don't go the same way.

Social media fell from grace. AI outfits should be careful they don't go the same way. Photo: TND

When Brad Banducci quit as CEO of Woolworths last week and a couple of days later Nvidia reached a value of $3 trillion, I was taken back to 1970.

I was just starting out as a finance journalist. Poseidon Nickel hit $280 a share and Milton Friedman published his essay in The New York Times headed ‘The Friedman doctrine: The Social Responsibility of Business is to Increase Its Profits’.

After Poseidon crashed, I learnt that money was not easy to come by, and if it seems easy, that’s when you come unstuck.

And I never believed in the Friedman doctrine. Even as an 18-year-old cadet it seemed to me that companies were nothing more than the people in them, indistinguishable from them, and those people have social responsibilities, and reputations to protect.

Fifty four years later those truths are more evident than ever.

Nvidia’s share price hasn’t gone up 350-fold in six months like Poseidon’s did between August 1969 and February 1970, but the sensation it has caused in the investment world is similar.

But unlike Poseidon, Nvidia is a hard-grinding 30-year-old business that last week announced quarterly revenue of $US22.1 billion up 265 per cent, net profit of $US12.3 billion, up 769 per cent, and a gross profit margin of 76 per cent!

Poseidon had only found some nickel near Laverton in WA, and revenue and profits were the last thing on anyone’s mind. It was like that again in the internet bubble of the 1990s: As with nickel in the 1960s, punters could see the internet was going to be a good business, but actual profits were non-existent, and nobody cared.

Then isn’t now

This time is different. The potential for artificial intelligence is exciting for punters but it’s already producing plenty of cash. Nvidia’s share price isn’t even all that silly given its 80 per cent share of the business of producing the chips needed for training AI. Yes, other competitors will soon muscle in, but Nvidia’s addition of software to its hardware will make its dominance difficult to dislodge.

As for Mr Friedman, he decreed in 1970 that “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”.

That set the tone for how most executives and boards behaved for the next 38 years, and it was the forerunner of the political and economic neoliberalism that kicked off with Thatcher and Reagan 10 years later and then ruled the world.

The warnings of Karl Polanyi were ignored. He argued that economies (and businesses, by implication) are embedded in society and can’t be separated. Moreover, he felt that free-market liberalism makes demands on people that are not sustainable and won’t be tolerated for long.

Tolerance ended in 2008 with the GFC, caused as it was by bankers engaging in activities designed purely to increase their profits, pre-approved by Friedman.

Their humiliation at having to be bailed out by taxpayers, plus the pressure from shareholders about climate change, meant that the budding trend towards ESG (environment, social, governance) took off.

It had a minor crescendo in Australia last week with the resignation of Brad Banducci amid of an outcry over the ruthless Friedmanite pursuit of profits by the two big supermarkets and it came two days after his unhappy experience in front of a Four Corners camera.

It was a big week for ESG.

Star Entertainment copped a second inquiry into its culture from the casino regulator. Qantas reported a 13 per cent decline in profit, which was regarded as a good thing given its need to win back customers after last year’s outrages. And Rio Tinto CEO Jakob Stausholm emerged on Wednesday from three years of apologising for Rio’s sins, declaring that the company has finally turned the ESG corner.

It’s pretty clear that companies now have to earn the right to make big profits, to increase margins and to make large returns on capital. It’s not enough merely to follow the Friedman Doctrine: You need a social licence as well.

A sobering precedent

So what about Nvidia, and the rest of the galloping AI brigade? What is their social responsibility?

Well, they need to watch what’s happening next door in social media land to see what could be coming their way.

We used to think social media was fine, a boon for staying in touch with friends, family and colleagues and improving productivity through better communication and knowledge of the world.

We now know better. At a recent Congressional hearing, Republican Senator Lindsey Graham told the CEO of Meta (Facebook): “Mr Zuckerberg, you and the companies before us – I know you don’t mean it to be so – but you have blood on your hands. You have a product that’s killing people.”

As I wrote in this piece three weeks ago, quoting an academic at MIT named Sinan Aral, “social media is rewiring the central nervous system of humanity”.

Money isn’t everything

After that was published I was contacted by Selena Bartlett, Professor of Neuroscience at Queensland University of Technology, who has written a book titled Being SeenMastering Parenting in the Digital Age. She also has a website about keeping kids safe online, and directed me to an article in The Guardian quoting some people calling for a ban on mobile phones for children under 16 after a girl was murdered.

Professor Bartlett wrote to me: “We need to do something as an urgent response for the current generation of children being exploited online. I know we need to stop it for all people, but children currently in 2024 have few people keeping them safe, as parents are on their phones. Government or tech companies and schools are safeguarding themselves against being sued as the mental health of a generation fails our children.

“I have studied the brain for 30 years and this is abuse to children and we need an urgent response to wake the parent network and keep kids safe from social media and exploitation.”

She is part of a growing movement of people alarmed by the effect of social media, especially on children.

The growing backlash against social media will morph into something similar against AI, partly because AI is making social media more effective, and therefore more harmful, but also because the E-word (extinction) is still sitting there over AI’s head, after this statement from the Center for AI Safety last May, now signed by 670 people working in AI, and the more detailed concerns raised by others.

Normally you’d conclude that money wins, especially the amount that AI is generating already, except that Woolworths, Qantas, Star Entertainment and Rio Tinto, to name just last week’s ESG casualties, also have plenty of money, and that didn’t help.

Alan Kohler writes twice a week for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor

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