Profit Motive is the new Titanic
The twin corporate issues of sustainability and governance are not only changing the rules of the game but the game itself. They are challenging the way business has been understood since Adam Smith and they must have the likes of Milton Friedman twitching in his recently dug grave, writes Jerry Schuitema.
When the Titanic set sail from Southampton in the spring of 1912, it was more than the biggest and best passenger ship of its time. It represented both the best and the worst of contemporary society. It was the epitome of grandeur, opulence, refinement and innovation. It was also an engineering marvel and was hailed as a symbol of man’s mastery of the elements.
It stood for the notion that out of man’s hunger for material wealth comes greatness. In its variously classed cabins were cocooned the desires, dreams, aspirations and, later, courage and cowardice of both the elite and the common people. It was the embodiment of profit-driven greed, competitiveness, pride and arrogance. These things, not the iceberg, were what sank it.
The Profit Motive has also hit an iceberg. It is foundering. The Ethics, the Sustainability, and the Good Governance are steaming to its rescue, but they can no longer save the ship. They may be just in time to save the passengers and crew from the freezing waters.
The Profit Motive has done what the Titanic did; it has challenged the laws of nature – not only the physical laws but also the natural laws of economics. After Enron, a CNN/USA Today survey revealed that company chiefs ranked second-lowest among people that can be trusted; they were just above second-hand car salesmen!
In the light of headlines about fraud, corruption and corporate collapses and misgovernance, it is clear that the debate on business ethics is livelier than ever. In an attempt to address the disquiet the response has been, as it so often is, to create new rules, new prescriptions and new spin techniques such as sustainability reports, triple bottom lines and a plethora of other feel-goods.
It is a serious question whether these new devices are doing more than establish a whole new revenue stream for accounting firms, organisational and public relations consultants and word merchants of consultant-speak… all of it to do what good business should do naturally and has done for centuries.
The debate is at its most intense in more than 50 years, casting a searchlight on the behaviour of global capital and the fundamental social and environmental challenges of our generation. These are the real issues behind sustainability and governance. They are challenging the fundamental existential core of business: the profit motive.
Why indeed does business exist? Until a few years ago, any answer other than “to make a profit” would be met with much more than scepticism. The proposal would be greeted with huge suspicion about its political affiliation: red or blue.
Not long before his death in 2006, Nobel economics laureate Milton Friedman still wrote: “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”
The fact is that capitalism is as dead as communism. It is clinging to life by a great falsehood: that it is synonymous with free markets and being market driven. It has borrowed a mantle of respectability to which it has no real claim. Being market driven means exactly that… it is to be driven by the interests of the market, or, more profoundly, to be driven by the interest of the other.
That has never been what capitalism is about. It is driven by its own interests, or more narrowly, by capital; by the interests of shareholders or the owners of business. The existential logic of business is contained in the natural laws of supply, demand and price. In that relationship, supply clearly exists to serve demand, never itself. Being market driven is therefore as old as trade itself and existed long before profits or prophets were heard of.
Those who argue that markets are not perfect, miss a critical point: they are indeed perfect; so perfect that they will reflect in great detail all our imperfections as human beings.
It is, for example, a moot point whether Eminem should be earning hundred-folds more pay than a teacher. Or, as Walter Cronkite told a journo who asked whether he was not overpaid: “Compared with a pop star, no; compared with a teacher, yes vastly so.”
One cannot control markets. One can only, at best, influence the behaviour reflected by markets. Inevitably then, we are always trying to control behaviour. The rules implied in sustainability and governance are again a knee jerk response to Ted Heath’s “ugly face” of capitalism, or worse still, Ronald Runcie’s “facelessness” of capitalism.
“Facelessness” implies an absence of accountability. What it also means is that, until we address the behaviour itself, we will always be treating symptoms and not causes. In turn, the more rules we create, the more criminals we create, and the more adept criminals will become. More fundamentally, the less free we will become and, if we are not free, how free can markets be? In that sense, capitalism is as invidious to freedom as communism was.
Behaviour is driven by motives, which in turn are driven by what we believe is good for us or what we desire. It is here that capitalism has in my view got it wrong: the assumption that all human beings are driven by Free Market Foundation’s Leon Louw’s definition of “immediate self interest.” As much as he could argue in his defence that this leaves the choice of either being selfish or “enlightened” up to the individual, it has become abundantly clear that this has been interpreted as outright selfishness, materialism, unbridled consumption and greed.
Indeed, it went a lot further to create the ’80s credo that greed is good as evidenced by the prosperity of capitalist America. Today this argument is at the very least being tempered and, if Wayne Visser’s and Clem Sunter’s latest book is to be believed, greed has to be “reasonable”.
I believe it has to go further still. Greed simply can never be “reasonable”. Because there is such an obvious link between contribution and material reward in the transactional world, we have made an assumption that the latter drives the former. Which is the passive and which is the active? Is Adam Smith’s invisible hand in the form of a grabbing claw, or generously open?
More importantly, what does the capitalist credo say about the human spirit? That we are all driven by the baser qualities of acquisition, avarice, greed, fear and insecurity?
I simply cannot believe that.
For too long economists have made assumptions about human beings and then applied those to economic theory.
Perhaps they should take more seriously the writings of psychology doyens such as Jung and Frankl and apply those to economic theory. The real drive of most human beings is meaning, not means. For most this lies in the contribution they make, not in the material reward. For most it lies in doing something rather than owning something.
Despite their dubious assumptions, capitalist champions would point to its track record against other systems and argue that it has been very successful in promoting economic growth and prosperity. This in itself is debatable, and beyond the scope of this article. But even if one grants a successful capitalist track record, one can still challenge the fundamental assumption that it is due to the profit motive.
Capitalism has not been alone in championing free markets. Many successful socialist economies have followed the same dictum and have been equally successful even today. The simple truth is that free markets are not a system, but the absence of a system. They also existed long before the 19th century which gave rise to the systems debate.
Next, in part 2 of this feature:
Jerry Schuitema on being market-driven – with a conscience
Jerry Schuitema spent more than a quarter of a century in the front line of Economic communications. He pioneered many Economic broadcast products including the establishment of the Economics Desk at the SABC. A Fellow of the Institute of Management Studies, Schuitema has won several awards and citations, including the Rosholt Fellowship. He is the author of the best selling Econosense which has been prescribed reading at tertiary institutions. He is has just published Value Through Values. For more information, email Mandy de Waal or visit www.values.co.za.