The virtue economy, the only bubble I have ever called, has now completely burst. Many companies are cutting their DEI programs, flows into ESG funds in the US have fallen, and companies are being more quiet about politics.
The disappearance of the virtue-industrial complex does not come without a cost, on a human as well as financial level. At the same time, there is a clear winner — the concept of shareholder primacy. The idea, popularized by Nobel laureate Milton Friedman in 1970, is that corporate executives and boards have a single goal: to maximize return to their shareholders.
The notion that shareholders are all that should matter sounded cruel and heartless in 2019, when 181 CEOs of the Business Roundtable signed a statement redefining the purpose of a corporation. They committed “to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders.” How they would do this, and to whom they would be accountable, was unclear. But who could argue with such a noble-sounding goal?
By then environmental, social and government (ESG) standards and diversity, equity and inclusion (DEI) programs were already popular. Still, the statement signified full private-sector buy-in. Soon it seemed every corporate decision — from who it hired to how it managed its supply chain — was weighed in relation to its stated values. It could all be featured heavily in marketing, to demonstrate how a company was committed to a better world (and worthy of your business).
Eventually, true to the spirit of capitalism, an industry of DEI consultants, marketers and HR professionals sprang up. It is hard to put a number on the size of the virtue economy, but it went beyond the corporate world: Virtue became a bigger priority among university administrators, at non-profits, and in the media. I remember talking to a business school dean in 2022 who noted that many more students were aspiring to work in DEI because they saw such jobs as well paid, hard to monitor and stable.
By 2025, that turned out the be a bad bet. It took a few years for corporate America to realize that Milton Friedman was right: It is better for society, the economy and a company’s bottom line for it to just focus on profits.
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This is not to say that advocates for the virtue economy did not have noble motives; it was a sincere effort to make the world a fairer, safer, cleaner place. The problem is that the “stakeholder capitalism” model pits equally deserving (if that’s the right word) groups against each other.
For example, should a company move a factory from Detroit to Nashville? If it does, the unionized workers in Detroit will suffer, but the non-unionized workers in Tennessee will benefit. Whose interests matter more? Or consider environmental concerns: How much should consumers be willing to give up today, in terms of wealth and consumption, in exchange for a better environment decades from now? There are winners in the future, losers today — whose preferences matter more?
How much weight to put on each of these goals is a question of values. Everyone has different values, and one person’s values are not necessarily better than another’s. This may be why, when companies take a political stand, it tends not to boost employee morale, but to be divisive.
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Friedman’s argument is not that values have no place in the economy. Workers have rights. Inequality and discrimination exist. If companies were simply allowed to pursue profit without regulation, some would harm the environment or take risks we all end up paying for.
The case for shareholder primacy does not deny any of that. It simply argues that it is not the CEO’s job to impose their values on shareholders, employees, customers or anyone else. It is the role of public officials to represent society’s values, through laws, regulation and taxation. And if they have values the majority of the public doesn’t agree with, voters can hold them accountable.
Many of the champions of the virtue economy are now dismayed to see CEOs courting President Donald Trump. Instead of seeing this as a betrayal, maybe it’s better to view it as the final act of the virtue economy. Were these CEOs pretending to care about DEI a few years ago, or pretending not to care now? It’s impossible to say. But if they had just stuck to business, none of this would be necessary.
Going forward, there will need to be some economic and professional readjustments. With the demise of the virtue economy, some jobs are being lost, some skills will prove less useful, and many young people will need to rethink their careers. At least the population that was most likely to benefit from the virtue economy — the well-educated and relatively affluent — also tends adjust fairly quickly to economic shocks. That is one small consolation in what has been a costly experiment. - Bloomberg Opinion
