The Profit Motive
Everything has its time and place, conditions under which it is appropriate. Nothing except God is absolute and forever.
The above statement, that nothing is appropriate everywhere and forever, I suggest applies to the profit motive, too.
The profit motive has been hailed as “the engine” that locomotes advancement, competitiveness, improvement in our standard of living, efficiency, market orientation, and customer satisfaction, etc., etc., etc. It is hailed as the panacea for all the bounty a market economy can offer.
While it is true that having a profit motive provides the above benefits, it is also true that in some situations it can be totally inappropriate and cause undesired outcomes. It is like a drug. It can heal you or kill you, depending on when and how you use it.
It seems to me that economic and finance theories that we teach with high fervor do not make this distinction, or make it well enough.
Take the life cycle of an organization: For a start-up, being profit-oriented can be a kiss of death. A start up company should focus on producing a product the market is willing to buy and invest for its growth. Profit should be a consideration for the long long run and economists tell us that in the long run it is the profit motive that companies should aim for, but how long is long? What should a company focus on when it makes its annual plan?
Additionally, there are industries in which profit orientation is totally misplaced and can subvert the true mission of the organization. I am referring to health, education, and culture.
Let us start with culture. What is the difference between commercial and fine art? In commercial art we deliver the artist or art that the audience wants. In fine art we bring to the artist the audience that he or she wants.
Commercial art does not develop the audience. It exploits their needs, and the more basic those needs are, the bigger their market is. Thus, it is no surprise that commercial TV delivers lots of sex and crime scenes because the most basic need of a human being is survival.
Just imagine a society without artists who produce whatever drives them even if the market rejects them. There would be no artistic growth, no social animation. It would produce cultural stagnation, like in communist and fascist societies where art was used as a propaganda tool for the regime.
Now let us focus on education. Granted, there is place for profit-oriented education but it is not developmental education. It is called education but in reality it is mostly training.
If all educational programs were geared to what the market wants, there would be no research, no new programs that explore new possibilities to learn new disciplines or investigate the validity of old ones.
When I came to the USA from Europe and Israel I was shocked that a person could graduate high school by learning how to drive, type, cook, repair a car, and build a wooden box…. What happened to literature, science, history? No wonder we have high school graduates who do not know the multiplication table or how to read and write well.
Lastly, we come to health; it is a hot topic now. If those involved in health care are all profit motivated, how could the cost of health care not go up? And how could it be provided to anyone other than those who can afford the ever-rising costs?
Where is the surprise here? Insurance companies want profit, and the more the better, so of course they would drop those who need coverage the most—the sick who cost too much.
If they could, insurance companies would insure only those who do not need health services. Those who cost nothing. Those who are healthy and have no prior conditions.
Doctors—if they are revenue oriented, because that is how society measures their worth—will drop those who do not pay enough, like Medicare patients, and prescribe unnecessary surgeries and repeat treatments to increase their revenue.
If everyone wants more, why should we expect that it should cost less?
Profit is a good motivator for the short run but disastrous as a motivator of long-run behavior.
Business is short-run oriented and should be. Business will drop a product and change on a dime as market preferences change.
But health, education, and culture are, and should not be, short-run oriented. They should have a long-run orientation, and for that the profit motive is too addictive and thus destructive.
Health, education, and culture must have a segment of their industry that is not-for-profit, to have their mission serve the long-term needs of the society rather than exploit short-term needs.
It should not be all or nothing: all organizations are for-profit, like in vulgar capitalism; or no one is profit-oriented like in socialism or communism. Diversity of goals, mission, and means is what society needs.
Here is food for thought if you accept my thesis above: Should pharmaceutical companies and the food industry be profit-oriented or service-oriented? Run both scenarios in your head; what do you think? Compare them to the fashion and textile industries. Or the travel industry. Are they the same?
Dr. Ichak Kalderon Adizes