The Shocking Truth About Shareholder Capitalism: How It Broke the Social Contract and What We Can Do Now

For decades, the doctrine that the sole social responsibility of business is to increase its profits for shareholders has dominated global capitalism. Popularized by economist Milton Friedman in the 1960s, this idea transformed corporations from multifaceted social actors into single-minded profit engines. While this shift spurred some economic growth, it also unleashed consequences that are only now fully visible.

The deregulation wave of the 1980s lowered barriers to mergers and acquisitions, catalyzing a wave of hostile takeovers. Corporate raiders focused on short-term shareholder returns, often slashing jobs and cutting investments to boost stock prices. One of the most emblematic practices was the explosion of stock buybacks, where companies repurchase their own shares to inflate value artificially. Over the last decade, S&P 500 firms spent an eye-popping $4.3 trillion on buybacks, money that could have gone to worker wages or innovation.

Meanwhile, the concentration of corporate power reached historic levels. The top 50 U.S. companies now generate about a third of the nation’s GDP, wielding outsized influence over politics and society. This consolidation has coincided with wage stagnation for most workers, the decline of family farms, and the erosion of local economies. For example, insulin, a life-saving drug originally patented for just three Canadian dollars, now costs patients hundreds of dollars monthly, illustrating how profit motives can override public health needs.

The social contract that once balanced business interests with those of workers and communities has frayed. But this story is not just one of loss; it is a call to action. Emerging models of stakeholder capitalism, increased corporate accountability, and renewed labor activism offer pathways to rebuild a more equitable economy.

Understanding these dynamics is crucial for anyone concerned about economic justice and the future of society.

Why Shareholder Capitalism Failed

The core problem lies in the narrow focus on shareholder returns. This approach incentivizes executives to prioritize short-term stock price gains over sustainable growth, employee welfare, or community health. Hostile takeovers and leveraged buyouts often lead to cost-cutting measures that destroy jobs and reduce innovation capacity. Stock buybacks, while boosting share prices, divert funds from productive investments.

Moreover, corporate consolidation reduces competition, enabling dominant firms to set prices and wages with little regard for fairness. This concentration also distorts political power, as large corporations lobby for favorable regulations and tax policies, often at the expense of public interests.

These trends have contributed to growing economic inequality and social discontent, fueling political polarization and undermining trust in institutions.

Alternatives and Hope

In response, some companies and investors advocate for stakeholder capitalism, which considers employees, customers, communities, and the environment alongside shareholders. Policies promoting corporate transparency, diversity in leadership, and long-term investment are gaining traction. Labor movements are adapting to new economic realities, leveraging digital tools to organize gig workers and advocate for fair wages.

Ultimately, rebuilding the social contract requires coordinated efforts across business, government, and civil society to ensure that economic growth benefits all members of society, not just a privileged few.

This blog draws on insights from economic research, social theory, and recent global events to provide a comprehensive critique of shareholder capitalism and a hopeful vision for the future. 1 2