Profit Motive Fails
The best we can do?
The profit motive provides a powerful incentive that drives production and innovation. Also the profit motive can provide the funds that enable production and innovation.
Profit isn't a complicated idea. You sell something for more than you paid for it. In a business the profit is the money taken in minus the money spent to operate the business. That is, a business can increase its profits by minimizing it's expenses.
This can only go so far of course. Wages and rent and taxes must be paid pretty promptly or things fall apart. But maintenance is an expense of a different sort. Maintenance is done in anticipation of problems. It's not a response to a problem. It's a wise thing to do but it can be expensive and it can be pushed off onto others.
One of the ways of looking at farms and factories polluting the environment is they are pushing the expense of dealing with the problems onto others. This is easy to do when the others don't really know the source of the problem. This of course increases the profits for the polluter which is an incentive for the polluter to pollute more while denying that there is a problem. I'd say that is an ongoing failure of the profit motive.
The collapse of Champlain Tower South provides a different sort of example. It was a condominium; a building owned by its residents. It isn't really a for-profit kind of organization. The residents want their bank balances to increase over time. Let's call that 'profit'. So they too feel a pressure to minimize expenses by deferring maintenance. But they are not people who are expert at maintaining buildings over the long term. They may not even be around in the long term. A building like that should be collecting money from residents as a part of the condo fees to build a reserve fund to pay for maintenance in the future.
In Florida years ago there was a law mandating that but building owners and the real estate industry found the requirements too onerous and got the law repealed. So when the residents got the engineer's report detailing the damage in the building and estimating it's repair cost at $9 million they only had $700,000 in their reserve. The residents were going to be on the hook for about $80,000 each. Ouch. Much squabbling ensued. 3 years later most of the condo board resigned.
6 months later financing was finally in place and then the building collapsed. I'd say that that was a failure of the profit motive too.
What the examples show is that the profit motive can provide an incentive that does a lot of harm. I distinguish the harm done by this incentive from harm done by bad people. It's an insidious incentive in that the choices made by people seem to be rational to them at the time. And I can see a lot of rationalizing involved too. A pig farmer doesn't take steps to protect a creek from his farm. The creek turns black. The farmer rationalizes that it doesn't matter because the water will be greatly diluted as it goes down stream. This kind of thinking is a pretty normal human thing. And as they say; It's hard to get a person to see something that their income depends on them not seeing. This is a huge problem that needs a solution, but I don't think it's a moral problem. It's a practical problem. We might even think of it as a public mental health issue. (It certainly is a public health issue in many other ways too)
I think that we state the problem abstractly as: How do we get rid of the negative incentives that the profit motive enables? I'm actually fairly optimistic at this point. I know that we might fall into a right wing totalitarianism. But if we don't then we will need to deal with big issues that will change the effect of the profit motive a lot I think. The gorilla in the room is automation and the problem it causes with overproduction while not providing enough good jobs for all who need them. Our tech is so powerful now that it's stripping the mountains of trees and stripping the oceans of fish. The profit motive is behind that.
Society will need to find a way to limit the profit motive if it wants to solve those problems by doing those productive activities as a state function I think that the UBI may be very near. I've written about how it's a sort of moral requirement and also a very practical and affordable thing to do. And I think that that will greatly reduce the negative incentives from the profit motive because people won't be so desperate
What do you think?