Pursuing self-interest in business is not exploitative, because it can only be based on voluntary trade.

The Myth of Profit Making as Exploitation

by | Aug 2, 2019

I recently visited the new premises of my alma mater, Aalto University Business School, in Espoo, Finland. There I picked up an issue of the magazine of the School’s student union. When I leafed through its pages, an article that discussed the purpose of business caught my attention. The student writer was disdainful of money making as the purpose, and argued that instead of money (profit), business should pursue peace as its purpose. (In Finnish, the words for money (raha) and for peace (rauha) are similar).

The article’s argument was based on emotion rather than logic and on the universal appeal of the value of peace. Advocating peace as the purpose for business, the writer never discussed what the conditions of peace are and never questioned his premise that profit making is incompatible with peace and somehow leads to war.

This was not surprising, given that business gets blamed for “greed” and exploitation and being a force for evil in general. These arguments are often accepted by business students—and not countered by most of their professors—which is tragic. If the future wealth creators disdain profits or feel guilty about making them, all of our prosperity and therefore human flourishing will suffer.

But are the arguments about the evils of profit making true? What are the conditions of peace, and how does profit making by business relate to peace?

As you would have guessed from the title of my book, How to Be Profitable and Moral, I will defend profit making as the proper purpose of business and explain how it promotes peace.

The mistaken belief of profit-making as evil exploitation is based on a fundamental confusion about self-interest, the driver of all business activity. While most people recognize that we need to pursue self-interest in order to survive and prosper, they are confused about the nature of self-interest. They believe that pursuing self-interest is a zero-sum game and therefore inherently exploitative.

The thinking goes like this: If I pursue my self-interest and gain a value, say, profit, by selling goods at a price that exceeds the cost of making them, that somehow “steals” profits from my competitors who didn’t not manage to attract the same customers as I did. According to this faulty logic, not only do I harm my competitors but exploit my customers (by making a profit and not giving the goods to them for free, or at cost) and my employees (by taking a profit and not distributing it all to them).

Understood properly, pursuing self-interest in business is not exploitative, because it can only be based on voluntary trade. Business firms cannot force customers to buy their (as opposed to their competitors’) products and services, no more than they can force employees to work for them, or suppliers to provide credit or raw materials. All parties to the trade participate voluntarily based on their own self-interest: they all expect to profit from the exchange.

As Ayn Rand observed, voluntary, mutually beneficial trade is possible only when nobody initiates physical force against others, in other words, in the conditions of peace. To be sustainable, profit maximization requires peace. Exploitation and pillaging of others’ property will discourage production of values, and the exploiters will soon run out of victims. Peaceful, profitable production and trade leads to increased wealth creation, raising everyone’s level of prosperity, which disincentives aggression and war.

Prosperity alone does not prevent war. People are not automatically benevolent and cannot be counted on to refrain from coercing others. Their freedom to produce and trade and to profit (and to engage in any other peaceful activities) needs to be protected against initiation of physical force; that is the role of government.

The proper role of business is to make profits through production and trade of goods and services, which leads to prosperity and makes human flourishing possible, when government protects business and others against the initiation of physical force.

Business students (and businesspeople) need to recognize this and find creative ways to maximize profits. They should feel proud, not guilty, for doing so—and the rest of us should appreciate the value they create.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book. Visit her website at profitableandmoral.com.

The views expressed represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine

 

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