- FEDERATION FOR ECONOMIC RESEARCH - MAY 21, 2021 - Brad Polumbo -
It seems like every day a new viral story crops up featuring a major company’s latest woke initiative or a major executive’s latest politically charged stance. But in a refreshing twist, a top tech CEO just stood up for old-fashioned, profit-focused business—and spoke out against woke capitalism.
Business Insider reports that the CEO of the e-commerce platform Shopify, Tobi Lütke, recently sent a letter to the entire staff reasserting the company’s commitment to competitive enterprise and rejecting calls for it to embrace social activism. In an age when woke politics are increasingly infecting corporate America, he wanted to “remind everyone that we are a business,” and, “more importantly, a hugely ambitious one.”
“We are trying to create a world class product that gives superpowers to the merchants that we are obsessed over,” Lütke wrote. “Everything Shopify does is to accomplish this, and everyone at Shopify should be able to describe how their job, through a series of direct or indirect steps, furthers this mission.”
“Shopify, like any other for-profit company, is not a family,” he continued. “The very idea is preposterous. You are born into a family. You never choose it, and they can’t un-family you. The dangers of ‘family thinking’ are that it becomes incredibly hard to let poor performers go. Shopify is a team, not a family.”
“We cannot solve every societal problem here,” Lütke warns. “Shopify’s worldview is well documented—we believe in liberal values and equality of opportunity. Sometimes we see opportunities to help nudge these causes forward. We do this because this directly helps our business and our merchants and not because of some moralistic overreach.”
The CEO reiterated his commitment to a meritocracy-based employment system, driven by efficiency, not politics.
“We will always have compassion for team members in truly difficult situations… [but] we need to remind everyone that like any other competitive (sports) team, it matters how you show up every day and contribute to the team’s success,” he wrote. “Beyond straight performance output, everyone that engages in endless Slack trolling, victimhood thinking, us-vs-them divisiveness, and zero sum thinking must be seen for the threat they are: they break teams.”
“We want to build one of the best companies in the world,” Lütke concluded. “We want everyone to have a shot at bettering their lot through entrepreneurship… when we succeed in our mission, millions of merchants do better. Millions of people find employment. We have the opportunity to make that tens and even hundreds of millions in the future.”
The CEO may have just intended to get his company back on the right track, but his poignant comments also squarely reveal the problems with newfangled woke capitalism.
For one, in profit-seeking enterprises, businesses are held accountable to consumers who vote with their wallets. This pushes them to accommodate society’s desires and make improvements over time. But woke corporations focused on social justice aren’t held accountable to anyone except angry Twitter mobs, generally unproductive and woefully unrepresentative of society at large.
“Who decides the definition of social responsibility?” Jon L. Pritchett and Ed Tiryakian wrote for FEE.org. “What metrics determine if C Suite execs have achieved annual goals? Profits be damned, we reduced our carbon footprint by 2 percent, we saved four polar bears, and we made the world a better place for our kids by .0002 percent last year.”
The problem with this approach is manifest: its inherent nebulousness and vagueness leave it ripe for ineptitude and exploitation. As Nobel-prize-winning economist Milton Friedman, a renowned scholar on this subject, once noted, “The discussions of the ‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor.”
“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, which is to say, engages in open and free competition without deception or fraud,” Friedman famously argued.
He was right then, and he’s right now. When companies focus on the pursuit of profit in a free and competitive market, in order to enrich themselves they must fulfill customers’ needs and create opportunities for others. In Shopify’s case, as Lütke notes, they only make more profit by enabling more outside entrepreneurs to thrive and earn a living using their app.
Within its proper bounds, the pursuit of profit is in itself moral—not something to be shied away from. Here’s hoping more woke CEOs follow Shopify’s lead and rediscover this fundamental truth of free-market capitalism.
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