10 Responses to Does a Profit Driven Business Model Corrupt

  • Kyle R. Cupp says:

    I agree that the pursuit of self-interest is not itself an act of greed, but I would still say that greed matters a great deal for markets. Pursuing self-interest may not corrupt, but the habit of greed does, and its corruptive effects will be felt in the market. The greedy man will seek his own interests at the expense of others, by causing harm to others if that harm helps him in a cost-benefit analysis. Situations can be made where workers are coerced into working for sub-standard wages. Customers can be convinced through advertising to pursue the fulfillment of false needs, things that may actually be spiritually or physically harmful for them. I don’t see that the market itself provides sufficient incentives to check the ill effects of greed. Rather, I think that for a free market to work well, to be really free, it has to function in a society ordered by moral frameworks that encourage people to pursue the good.

  • j. christian says:

    I think that for a free market to work well, to be really free, it has to function in a society ordered by moral frameworks that encourage people to pursue the good.

    Quite true, although ditching markets in favor of heavy command-and-control approaches does not solve the problem of sin, either. Was it James Madison who made the remark about our Constitution being suitable only for a moral people? The same is true of free markets. That’s why we don’t really have 100% free markets; we have a mixed solution.

    The economist in me would also add that we don’t need to be entirely fuzzy about deciding if/when free markets are a good thing. There are very strong theoretical models that suggest how markets can fail. Asymmetric information, public goods, principal/agent problems, externalities, etc. All of these market failures remind us that not all markets can satisfy the conditions for an efficient competitive equilibrium. The only question that remains is, How often are these failures present?

  • Gerard E. says:

    Ditto to j-c. A profit-making organization is only as good- or bad- as those within it. Particularly those at top of food chain. True of any Girl Scout troop, corner bakery, humongous bureaucracy. Simply a smokescreen for the eternal Capitalism vs. Socialism debate. Say we communicate on fancy computers hooked up to loads of internet sites. Not likely they could be developed at USDA. Or that fancy cell phone surgically attached to you. Your local Motor Vehicles office is not a hothouse for these technological developments. Of course we have the laff-riot issues involving the current governor of Illinois. Of course it was Michael Dukakis who noted the Greek proverb that the fish stinks from the head. Twas ever thus.

  • Cheryl says:

    Do you live in Chicago’s Hyde Park or what? That exact same scenario of grocers played out in Hyde Park. The Co-op is completely gone (hurrah!), while the family owned Hyde Park Produce just moved into the Co-op’s smallest location (more than doubling its size). The family owned location provided decent to pleasant service and average to above-average products for the expected local grocery store, while the Co-op in its considerably larger main location provided terrible service, average to below-average products and no significant difference in price.

  • A profit-making organization is only as good- or bad- as those within it. Particularly those at top of food chain.

    Indeed, good point. I think that a free market tends to reward good people running businesses well (with well being defined as: in the way that their customers want them to) but it certainly doesn’t make people good!

    Also ditto on Kyle’s point about the necessity of virtue for free institutions to work. Though I’d add: free institutions tend at least to reward virtue, while command-control institutions often do the opposite.

    And of course to J. Christian’s point, there are certain circumstances where a market isn’t really free and equal, in which case the attempt to act like it is can run into problems.

  • Ryan Harkins says:

    One of the things that I think is important to look at in the question of greed versus honest profit is the worth of the job. DC brought up good points in the carpenter/mechanic example he gave, but there’s a flip side to it. Suppose I’m offering a general service (say, computer repair and virus-cleaning) to people, and I charge a much lower rate than my competitors but barely eek by on my earnings. If I then raise my prices and earn more money, that’s not necessarily greed, but getting a more accurate reflection of the value of my work. We had some discussions a while ago about just wages, and the concept applies here, as well. If I, as a private practitioner, raise my rates, one could try to argue that it is simply greed and I’m price gouging; but on the other hand, the raised rates could simply be me ensuring I receive a just wage for my work.

  • blackadderiv says:

    The greedy man will seek his own interests at the expense of others, by causing harm to others if that harm helps him in a cost-benefit analysis.

    The greedy man will do this if he can get away with it. Most people, I think, greatly overestimate the degree to which he can get away with it in a market setting.

    A profit-making organization is only as good- or bad- as those within it.

    I disagree. Obviously the people that make up a profit-making organization (or any other type of organization) matter a great deal. But they aren’t the whole story. The “rules of the game” also tend to matter quite a lot.

  • Matt says:

    Great post and great comments. As an ex-distributist convert to free markets, I think that the biggest problem is that “anti-capitalists” frame the argument incorrectly. They rely on undefined terms. They also overlook opportunity costs. Maybe there are trade-offs in the market system. But there are trade-offs in anything in life, and the market offers the most choices and minimizes adverse impacts. As blackadderiv noted, socialists tend to exaggerate the potential for exploitation within a market/rule of law system. They ignore the egregious political, moral and economic exploitation under a controlled economy, as I saw when in the former Eastern bloc in the early 90s.

  • j. christian says:

    As a practical matter, no organization can consistently operate at a loss, and hitting the break even point exactly is almost impossible, so all organizations (even ostensible “nonprofits”) seek to make a profit. It’s the only thing a wise manager can do: try to make sure that revenues exceed costs. Your pastor in your local parish probably thinks this way, too.

    Another thing we can add to the list of market failures is missing markets. Sometimes there’s a bad outcome because we don’t have a market for something — like information or risk — that might make us better off. Think of credit rating agencies, for example, and the informational role they play in finance. Missing markets aren’t something that government can typically supply; they’re often an innovation that makes other markets more competitive and efficient.

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