In a previous post, I outlined ten objections to the profit motive, and I tried to counter each in turn. In this post, I offer ten more complaints that allegedly result from the pursuit of profits.
See what you think of these, and let me know in the comments!
11- Reduced job satisfaction
This was Marx’s complaint – factory workers were alienated because they produced only a single component of the final product and were therefore denied the satisfaction enjoyed by craftsmen who fashioned the whole article. However, factories exist in non-capitalist countries as well, so this problem isn’t confined to companies driven by the profit motive.
Moreover, American factories are producing more goods than ever with fewer people. Automation has taken over much boring and repetitive work. Since the late 1950s, the service sector has employed more workers than the manufacturing and agricultural sectors combined. Service work – sales, legal services, healthcare, information technology, management, financial services, architecture, real estate – offer interesting and fulfilling employment for millions of Americans.
12- Depletion of natural resources
Back in the 1970s, I took an environmental engineering course. The textbook pinpointed the date on which the U.S. would run out of oil: in mid-1979. The book was wrong for a variety of reasons. First, reserves aren’t static. People with the freedom to explore are continually discovering more. Second, free people find substitutes for existing resources. Natural gas, for example, has replaced coal as the country’s primary fuel for electrical power plants. Third, as natural resources become harder and more expensive to find and produce, rising prices encourage people to reduce consumption.
Finally, it’s a mistake to confuse a resource with the service it provides. We don’t care, for example, whether our phone conversations go over hundreds of thousands of tons of copper wire, through fiber optics, or over the airwaves. We just want our calls to go through.
As economist Julian Simon observed, the “ultimate resource” is human ingenuity and that is far from depleted. Regulations and laws, however, can and do stifle human creativity.
13- Hindering of technological progress
Most technological progress comes from the private sector. Most “hindering” comes from government regulations and dysfunctional intellectual property laws.
14- Decreasing ethical standards
That is hardly confined to companies. We’re seeing declining ethical standards throughout society. Much of that stems from government’s adopted role as the ameliorator of all pain. Disconnecting actions from consequences destroys morality and, ultimately, society.
15- Increased risk of financial losses
Risk is inherent in any activity. In a free market, risk is diffuse and uncorrelated. In a regulated market, however, risk is often concentrated and coordinated by regulatory “herding” that can quickly become regulatory stampedes. The recent bank failures, for example, were made all but inevitable by regulations that herded banks into “safe” investments such as government bonds. When the Fed started quickly raising interest rates, the value of those bonds plummeted.
16- Monopolization of markets
While monopolies do occur, especially when new products or services are first introduced, it’s a mystery to me that so many believe that monopoly by corporations – which must satisfy their customers to survive – is bad, while monopoly by government – which can use deadly force to survive – is good. Moreover, private monopolies rarely last unless government restricts market entry.
17- Reduction in customer service
Driven, at least in part, by minimum wage laws, employer mandates (benefits such as insurance, paid leave, parental leave, retirement plans) and payroll taxes for Social Security and Medicare. Increasing the cost of employing workers leads companies to automate and to switch to self-serve formats.
18- Abuse of social responsibility
Companies are morally and contractually responsible to their shareholders, customers, and employees. They are not responsible for catering to the Left’s latest “social justice” fads, nor are they competent to deal with social issues.
19- Promotion of unsustainable practices
Firms have a vested interest in practices that are sustainable over the long term. Politicians, by contrast, often look no further than the next election. For example, the current political tactic of claiming that an election was lost to fraud – a tactic that is, unfortunately, popular with both political parties – erodes trust in the democratic process and is destructive to the nation. Similarly unsustainable is the common tactic of setting groups against each other to create special-interest voting blocs.
20- Misleading advertising tactics
As William Bernbach, the “father of modern advertising” once observed, “A great ad campaign will make a bad product fail faster.” A misleading advertisement might get me to try an inferior product once, but not twice.
Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource.
READER COMMENTS
steve
Apr 16 2023 at 2:11pm
The profit motive and capitalism are clearly the best economic model we have found, but it does have problems. You do capitalism no service by not looking at those problems.
11- A lot of those service sector jobs, especially in the growth area, are in places like retail, restaurants, hotels which really arent satisfying. The lower level health care jobs arent that wonderful. To be fair not sure that is the fault of the profit motive.
13- Its often from a combination of govt financed research plus private innovation. Not a lot of incentives for private companies to do basic research.
14- True, it seems universal but you really think we had the Enron guys shutting down power to old ladies to make more money because the govt ameliorates pain? Why is it that money is an incentive when it comes to taxes but not when it comes to crime?
15- The people taking the risks and potentially benefitting if they pay off rarely suffer real consequences if things go bad. We deliberately designed corporations to work that way.
19- Firms may have that interest, but their management does not. Just as a politician is worried about the next election corporate management focus on the short term and what is best for them, not necessarily the firm. Average CEO term is 4.9 years now.
20- If we are talking about shaving cream this is very true. How about a heart valve? Health insurance products that dont really pay for what was advertised and leave people with bills in the hundreds of thousands? Yes, this will eventually catch up and the companies go under, meanwhile many suffer damages and the people who made money in the meantime understand IBGYBG.
Steve
Richard W Fulmer
Apr 16 2023 at 6:48pm
True, even in a workers’ paradise someone must empty the bedpans. Still, working in air-conditioned facilities with good lighting, indoor plumbing, and coffee breaks beats swinging a pickax in a 19th Century coal mine.
And yet according to the NSF, in 2019 U.S. private industry invested about $18 billion in basic research (and over $115 billion in applied research).
Alphabet, Google’s parent company, has a division called Google Research that is dedicated to advancing computer science as are Apple Research, Microsoft Research, and Amazon Research; IBM invests in research in the areas of AI, quantum computing, and nanotechnology; Intel invests in basic research in the areas of computer architecture, materials science, and AI.
Other companies involved in basic research include Pfizer, Johnson & Johnson, Facebook, Tesla, GE, Lockheed Martin, Ford, ExxonMobil, Dupont, 3M, Merck, Gilead Sciences, Procter & Gamble, Dow Chemical, Illumina, Bristol Myers Squibb, Corning, Genetech, Honeywell, Novartis, and Amgen.
Evil existed before the welfare state was created and will exist long after it’s gone. However, free markets reward the so-called “bourgeois virtues” of honesty, reliability, diligence, self-reliance, persistence, thrift, creativity, tolerance, and civility and punish their opposites. Perfection isn’t an option, but free societies are far less corrupt than their unfree counterparts.
A company’s officers who make bad decisions might have a tough time finding new jobs, buty they’re likely to walk away relatively unscathed financially. On the other hand, the company’s share and bond holders will probably take a hit. Investors, therefore, have an incentive to research the firms to which they lend.
In addition, the failure of a single company typically has little impact on the economy. Contrast that with the potential impact of a regulatory failure by the Federal Reserve or a policy failure by Congress or the President.
The principal-agent problem is real. However, many companies have managed to solve it as demonstrated by their longevity. Corporations such as GE, Ford, Coca-Cola, IBM, Procter & Gamble, DuPont, and ExxonMobil have been around for more than a century.
Firms that don’t solve the problem go out of business. But failure is a key component of the free enterprise system. We don’t want companies that waste resources that have alternative uses to keep on wasting resources. By contrast, the failure of a government program is typically “proof” that more resources are needed.
Market problems engender market solutions. I don’t have to research most of the products I buy – a middleman does that for me. If something I buy at Walmart or Kroger doesn’t work, I take it back to the store and let them deal with the factory. So, stores have a big incentive to sell quality products.
When it comes to bigger, more expensive, more critical products, I do have to do some research. Buying a car from Smilin’ Zack’s Used Car Lot or medical insurance from Fly-by-Night Incorporated is not likely to end well.
Still, I can buy a Consumer Reports magazine when I need to buy a new car or even when I want to find good health insurance. Middlemen such as health insurance brokers, independent insurance agents, and healthcare navigators are also available for advice when purchasing medical insurance. Got a problem? The marketplace likely has a solution.
On the other hand, to whom do you turn when you’re dissatisfied with government-provided services or products?
steve
Apr 17 2023 at 6:41pm
11- Its 2023. Why would we care about working conditions then. Doesnt address the issue.
13- Yup, they do some. That does not mean they are not dependent upon govt funded research for the rest and even a lot of what you are citing as private company research is actually partnership work with universities or other govt agencies. Private industry does not have the incentives, or the ability, to replace the basic research funded by govt.
14- So you dont really have an answer for this. The attempt to blame it on pain was pretty lacking. The problem here is that if you refuse to use the power of govt to go after bad actors then they persist. You can claim it will eventually catch up to them but in the meantime many are harmed.
15- Take a hit! Oy. While they take a hit many people who were not going to benefit from the risk taking lose jobs, get evicted since they cant pay the rent, etc. Meanwhile maybe mgt has a harder time finding a job, but the couple of million they made before things went bad is a better cushion than what the other people harmed will have.
19- Its especially a problem in the finance sector. Yes, the business may fail but again many people who were not benefitting from actions taken to benefit the management class aare harmed. You dont have an answer for them it appears. Too bad the bankers screwed up so you are losing your home, job, whatever.
20- A lot of what looks like research is paid advertising. Insurance brokers are dependent upon the info given to them by insurance companies. For the heart valves we were dependent upon information, advertising, from the manufacturers (really happened). Anyway, the point is that for minor purchases the issue is trivial. For large one time purchases where the consequences are very large you dont really get a second chance.
While I said markets/capitalism are the best economic system we have found, there are problems. You seem to want to advocate away from govt intervention, but that leaves you without answers for a lot of significant problems or waits for a natural solution that may take a long time.
Steve
Richard W Fulmer
Apr 17 2023 at 8:19pm
11- Market-driven progress is irrelevant?
13- How, then, did we ever make any progress before government-funded research? The steam engine, the automobile, the airplane, the telegraph, telephone, radio, and so endlessly on, were all created without government funding.
14- Who said I didn’t want government to go after people who break the law? Enron officials broke the law and went to prison. I have no problem with that.
15- Perfection is not an option. People make bad decisions and businesses go under. When that happens, employees are hurt, sometimes badly. But you didn’t respond to my point that when government fails it fails big and hurts many more people: The Great Depression, the oil crisis of the 1970s, the Great Recession, the destructive COVID lockdowns were all the results of government failure, and all were far more devastating than Enron.
19- See my response to 15.
20- I assume that the heart valves in question were approved by the FDA. The FDA requires companies to test their own drugs and medical devices and provide the test results to the government. See any conflict of interest there? Further, the fact that the FDA approved the device legally shields the company at least to some extent.
steve
Apr 18 2023 at 8:21pm
11- If we are talking about 2023. Its not irrelevant to past gains but if we are talking about the present its not important.
13- If you know your history you know that a lot fo those people making discoveries were actually living on grants or had their research paid for by royalty ie govt. Anyway, I hope you arent claiming that developing the items you list counts as basic research. Taking the basic research and turning it into innovative products is largely the purview of private enterprise. Go spend some time with some university engineering and science departments. Pretty common to see people who do the basic research go out and start their own businesses or work with others to turn basic research into real products.
14- Good to hear. Active policing to stop this stuff before it happens. No?
15- Agree we will never have perfection, but ignoring those hurt seems like a poor option. I think we would disagree a bit on some of the causes of your list (and are on some) but I would note that in the libertarian POV it does seem as though bankers have no agency. They never take bad risks because it will make them rich if it works, but only because the govt somehow mysteriously forces them to do stuff.
To your point, I would agree that govt makes mistakes. If its the federal govt it can be large mistakes. That said, it does good things too. It makes sure that people can enforce their private property rights. Public health in the form of vaccines, clean water, safe food, etc. Courts so that we decide things by law and not violence (even if they are flawed), Disaster relief, roads, ports, airports and basic research as indicated.
So its a balance. However, if capitalism/markets or however you choose to describe it can address some of the shortcomings I noted then we need government to do less. However, if the goal is always to minimize govt involvement and you dont have viable answers to these kinds of problems you will inevitably get people looking for answers.
Steve
Richard W Fulmer
Apr 19 2023 at 11:02am
Free markets tend to be dynamic and growing. In such economies, new businesses are constantly being created and existing businesses are constantly shrinking, expanding, and failing. When a business goes under, its employees are hurt, but in a dynamic economy, they can usually find new jobs quickly.
When government gets involved, however, its regulations tend to “herd” businesses into approved paths. For example, risk tends to become defined in uniform ways and to be dealt with in uniform ways. The Basel Accords, for instance, encouraged banks to invest in bundled mortgages and in government debt. What could go wrong?
The problem is that regulatory herding can lead to regulatory stampedes. So, instead of a few businesses failing here and there, you can get thousands of businesses failing all at once.
john hare
Apr 17 2023 at 4:25am
People that get up and go to work every day have a profit motive. They will stop when the paychecks do.
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