LUIGI ZINGALES: President Zimmer, Provost Diermeier,
Deans, Trustees, colleagues, parents,
and friends of students, and other distinguished guests,
good morning.
And of course, graduating students, congratulations.
[CHEERS AND APPLAUSE]
I've participated in enough commencements
to know that I'm just a person between you
and your well-deserved graduation party.
To know that of my speech, at best,
you will remember some jokes.
At worse, how tedious it was.
At any other graduation I would just crack some jokes--
and believe me, I can crack jokes--
and get you out of here as soon as possible.
AUDIENCE: Woo!
[LAUGHTER]
LUIGI ZINGALES: But-- but this is not
a graduation at some random university, used
to entertain more than educate, where
glamorous actor of failing politicians
are invited to delivered the commencement speech.
This is the graduation of the University of Chicago.
[CHEERS AND APPLAUSE]
Where every moment is a learning opportunity.
So I will not try to entertain you.
In true Chicago spirit, my goal is
to deliver a speech that is provocative, research-based,
and relevant to you in this moment.
After all, we know that Hyde Park
is known as the place where fun comes to die.
So I'm asking you to die now, one last time with me.
[CHEERS AND APPLAUSE]
Graduation marks your entry into real life.
While many of you are still struggling to find a job,
and others are ducking this search
by entering graduate school, sooner or later,
you can not escape the responsibility
of choosing where to work, how to spend the money you make,
and how to invest the money you save.
At that moment, your ideas will meet reality.
You want to save the planet, eradicate poverty, end racism.
But you find yourself working 10 hours a day
for a company whose only proclaimed goal
is to maximize profits.
Many of you feel powerless.
Your choice is constrained by a world we,
the previous generation built. A world you don't like,
but you feel you cannot change.
Fortunately, this is not true.
You have a great deal of power.
By choosing carefully whom do you work for,
and what you work on, you can truly make an impact.
For example, last year, Google let a lucrative Pentagon
project expire because its key engineers did not
want to help develop a technology that
could be used to wage war.
LGBT community rights were recognized first
in the business world.
Not because of the open mentality of business leaders,
but because of their desire to attract the greatest talent.
In a competitive labor market, companies
are fast to adopt, if adaptation is required,
to attract the most qualified workforce.
That is you.
This impact grows with the number
of people who have the courage to behave accordingly
to their convictions.
Which is not always easy, since being without principle
sometimes pays off.
Law firms have a tobacco career track
for those lawyers willing to defend tobacco companies.
Tobacco lawyers earn more and make it to partnership faster.
While this difference may seem wrong,
it's essential for the market system to work.
Your reluctance to defend tobacco companies
reduces the supply of talented tobacco lawyers.
Thereby, increasing their wages.
When it becomes too expensive to hire defense lawyers,
tobacco companies are forced to settle.
It's precisely because it becomes
too expensive to behave immorally,
that even businesses without a conscience
end up behaving as if they have one.
But your power to change the world
is not limited to your work choices.
You have a great deal of power as consumers
even in the pre-internet world, coordinated consumer boycotts,
like the one launched by Gandhi against the British textile
products, or by African Americans
against segregated bus in Montgomery, Alabama,
had major impact.
Today, in the world of social media,
this impact is only larger and more immediate.
Banks that financed the highly-controversial Dakota
Access Pipeline saw their deposit grow less
than their competitors.
The Italian fashion house Dolce & Gabbana
experienced a collapse in Chinese exports
within days of airing a condescending and politically
inappropriate ad.
Consumer power is so great today,
that even the largest companies live
in fear of boycott campaigns on social media.
Since any UChicago Graduate is a superhero,
let me remind you of what Uncle Ben says to Spider-Man.
"With great power comes great responsibility."
It's your responsibility to ensure that this power is not
wasted to fight the minor corporate faux pas,
but honest to resolve the greatest
challenges of our time.
And what about your power as investors?
I know, the idea of investing may seem remote to you
at the moment in which you're mostly concerned about paying
off your debt.
But as soon as you get a regular job,
you will have to start saving for retirement, ideally,
investing in the stock market.
In this moment, you will become shareholders
of some corporation.
And you will discover how little power
to influence corporate policies shareholders have in America.
After the Christchurch shooting in New Zealand,
Hunting and Fishing, a local gun shop,
voluntarily stopped selling assault rifles.
Because its owners were willing to forgo
profits in name of a higher cause.
In the United States, after the Sandy Hook Elementary School
shooting, a Walmart shareholder proposed
to hold a vote on this very issue.
The company's management refused.
And that rejection was upheld by the US Court of Appeals.
Eventually, Walmart stopped selling assault rifles.
But out of fear of losing customers,
not in response to shareholder pressure.
Ironically, the strongest argument
in favor of limiting shareholder influence
comes from University of Chicago Nobel Laureate Milton Friedman.
50 years ago, he argued that society is better
served when corporations focus only on maximizing profits.
This goal does not ignore workers' or consumers'
concerns.
If workers care about diversity and therefore,
are willing to work for less in a more diverse environment,
a profit-maximizing firm will hire a diverse workforce.
If consumers are willing to pay a premium for fair trade
coffee, a profit-maximizing coffee company
will pay its suppliers more to obtain that label.
Yet, when it comes to shareholders,
Friedman recommends ignoring their social concerns.
Because, he claims, shareholders can address those concerns
better by donating part of their profits to charity,
rather than by changing the way corporations are run.
Friedman's logic has come to dominate not only
the corporate world, but also the money management industry.
Managers feel they should just maximize
their financial returns of the assets they manage,
regardless of the social goals of their investors.
For example, an anti-violence foundation
should not try to stop Wal-Mart's sales of assault
weapons.
It should just use the profits from those sales
to fight violence.
As Oliver and I argue in our joint work,
Friedman's theory rely on the assumption
that by donating their dividends,
shareholders can reverse any corporate wrongdoing
at no extra cost.
In most real-world situation, this condition
does not hold true.
It's cheaper not to pollute, than to pollute and clean up.
It's cheaper not to sell assault weapons, than to sell them
and spend resources to protect all the public places.
In these situations, it's more efficient for companies
to adopt shareholder social objective,
such as protecting the environment and reducing crime.
In other words, corporate boards should
maximize shareholders welfare, not just their monetary return.
Paradoxically, today, the only way shareholders
can express their social preferences
is by selling off stocks of companies they don't like.
While politically appealing, this divesting
may achieve the opposite outcome.
If all environmentally-conscious investors
were to divest from oil stocks, all companies
will end up in the hands of investors who don't
care about the environment.
And those pollute more.
The solution is not to divest, but to invest and engage.
You are in a unique position to shape how this new engagement
will be implemented.
So far, I describe a world where people have alternatives.
If you don't want to be a tobacco lawyer,
you can become an environmental lawyer.
If you don't like McDonald's, you can eat at Chipotle.
You might have to pay a price difference.
But this difference is more.
This is what we economists call a competitive market.
Most corporations operate in such environments.
In this world, your power as worker, consumers,
and investors, can make a difference.
In this world, by rephrasing President Kennedy,
do not ask what companies should do to change.
Ask what you can do to change them.
[APPLAUSE]
Yet, there are some corporations,
very small in number, but very relevant in size,
that do not face real competition.
These are monopolies.
It's easy to see what a monopoly is.
How many people in this audience use Bing as main search engine?
Please don't be shy.
It will not be held against you.
And how many people use Google as a main search engine?
So this is what a monopoly is.
A monopoly acquired through merit, since Google is, by far,
the most efficient search engine.
But nevertheless, a monopoly.
Our anti-trust laws can not do anything
against these kinds of monopolies.
Historically, we have dealt with them in two ways.
Nationalization, or regulation.
The idea of having Google run with the efficiency of the US
Postal Service is not very appealing.
And regulation does not seem a particularly attractive avenue
either.
George Stigler, another of our Chicago novelists-- and I
promise I will not name them all.
Otherwise we don't ever go to the party.
--has thought us that regulation tends
to be shaped, what we economies refer to as capture,
by the very companies it's supposed to discipline.
It increases their power, rather than reducing it.
So what can we do?
In joint work, Oliver Hart and I proposed a third way
to deal with monopolies.
To mandate a change in the objective
of their corporate boards.
Those are monopolies like Google,
will be required to maximize social welfare,
the utility of society as a whole,
not shareholders' welfare.
What does that mean, in practice?
Consider Google choices of how to rank news
about political candidates.
Experimental evidence shows that searches
leading to a higher ranking of bad news
about a political candidate result in fewer
votes for that candidate.
So a board and maximizing profits
will tweak the search results to disadvantage
those candidates who want to tax Google or break it up.
This is the reason why we want the boards of monopolies
to maximize social welfare, not just profits.
You might argue that Google would never
tweak political search results, out of concern
for its reputation.
Might be true.
But if reputation is sufficient to make monopolies behave
in the interests of society as a whole,
then our proposal is redundant.
Yet, it could be used as an insurance policy
to prevent bad behavior when concern for reputation
falls short.
A more charging question is are we
convinced a board elected by the shareholders
to maximize social welfare?
The simple answer is that we impose
on both the monopoly an additional fiduciary duty
towards society.
In addition to the existing one, towards shareholders.
Finally, some may say that our proposal
is tantamount to socializing monopolies.
In fact, it only forces social considerations
into corporate decision-making when
a company is deemed a monopoly.
It's no different from Google's self-imposed model,
don't be evil.
We just add some bite to it.
We regard our proposal as a simple application
of Uncle Ben's principle, with great power
comes great responsibility.
If Google or other monopolies find this social responsibility
too burdensome, they can easily be relieved of it
by breaking them self up voluntarily.
To fight monopolies, your power as workers, consumers,
and investors, is not sufficient.
Your participation in the political process is critical.
This is not a Republican or Democratic battle.
It's an American battle.
This country was born fighting monopolies.
The Boston Tea Party was not, as often repeated, a revolt
against higher taxes, but a revolt
against the unfair advantage enjoyed in America
by Britain's East India Company, one of the worst monopolies
history has ever seen, as many of the Chinese and Indian
present here can testify.
The connection between American democracy and fight
against monopolies was not lost on Senator John Sherman,
who in 1890, brought us the first antitrust law.
"If we will not endure a king as political power," he wrote,
"we should not endure a king over the production,
transportation, and sale of any of the necessities of life."
If there is one sentence from my speech
I hope you will remember, this is the one.
My conclusions may surprise some people
who identify Chicago faculty, especially the economic
and finance faculty, with a certain ideology.
Chicago faculty, however, abide to a method,
not to an ideology.
It's a method of intellectual inquiry
without the blinders imposed by conventional wisdom.
A method based on the courage to carry basic principles
to their logical conclusions.
Even when these conclusions are unpopular.
A method based on constant attention
to empirical evidence.
A method designed to forge superheroes like you.
I hope you will carry this method with you
the rest of your life.
If you do, the expensive tuition you paid
will not have been paid in vain.
Congratulations again, superheroes.
And now, have fun.
You deserve it.
[CHEERS AND APPLAUSE]