This article originally appeared on The Wall Street Journal on August 17, 2020.
Is Joe Biden a moderate or a radical? He says businesses “have a responsibility to their workers, their community, to their country”—a truism. But he has also called for “an end to the era of shareholder capitalism.” He says it’s “untrue and a farce” that a company’s primary responsibility is to generate returns for shareholders.
In reality, corporations do enormous social good precisely by seeking to generate returns for shareholders. They give investors a way of putting money into promising businesses without risking personal liability for the businesses’ broader obligations, such as debts and lawsuits. By limiting investors’ exposure to the risks of business failure, the corporate structure has been overwhelmingly successful in generating the investment required for economic growth and increasing standards of living.
The ventures Americans invest in profit by providing products or services other people want at a price they are willing to pay. Whether it’s Apple pioneering affordable smartphones, a biotech startup researching vaccines, or your local restaurant serving your favorite meal, profit-motivated investors fund businesses that help consumers.
Over the past 25 years, living standards have improved as annual global output has grown from around $39.2 trillion to $80 trillion because of “economic freedom underpinned by free-market capitalism,” according to the Heritage Foundation’s Index of Economic Freedom for 2020. In economically free societies people live longer, are healthier, take better care of the environment, and push scientific innovation further.
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