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Tag: profit

  • Type X or I Motivation

    By Elgin Hushbeck, Jr.
    One of the common criticisms of those on the left, particular the religious left, is that capitalism is an evil system because it treats individuals as commodities of momentary worth, rather than as people made in the image of God.  This is really just a self-serving definition that tells us more about the person making the claim than about capitalism itself.
    One reason for this is that at its core capitalism is based on a mutual giving among individuals that is, at least ideally, freely chosen.  There is nothing in this that demands greed or exploitation.  Granted we live in a fallen world where people are not always driven by the highest motives, but this is a problem with all systems, from sports to science, movies to teaching, the private sector, government, and yes, even socialism. It is hardly limited to capitalism.  People are people, regardless of where they are. One of my favorite quotes is by Victor Frankel from his book Man’s Search for Meaning (If you have not read it, you should do so now).  Frankel, from the perspective of one who had recently been freed from a Nazi Concentration Camp, wrote,

    From all this we may learn that there are two races of men in this world, but only these two — the “race” of the decent man and the “race” of the indecent man. Both are found everywhere; they penetrate into all groups of society. No group consists entirely of decent or indecent people.

    What Motivates You?There is nothing inherent in capitalism that makes men greedy or teaches them to exploit others, in fact if anything it is the opposite for capitalism simply seeks an exchange that is best for both sides, where what is best is determined by each individual.  Since it is based on mutual consent, it encourages people to be concerned with the needs of others, which I believe is one of the reasons those supporting capitalism are on average more charitable than those supporting socialism.  If someone were driven by greed and a desire to exploit others, unless there was some mechanism to restrict choice, they will find it difficult to find those who will freely want to be exploited.
    You will notice that I have talked about a generic “exchange” instead of money.  While money is required for most transactions, this requirement is not inherent in capitalism. Capitalism, for example, functions just as well in a barter system where no money changes hands. It is only economic conventions, and in some cases laws, that require the use of money.
    Nor is there any requirement to accumulate great wealth, though this might be the result of one or more exchanges.  Again each side decides what is of value to them.  While for some profit is important, it is also often only a means to a different end, and not an end in and of itself.  For many companies profit is just a means of staying in business, for if there is no profit, the business fails. For many profits are reinvested back into the business so it can better serve customers, open new locations, and yes, even hire more employees and to pay them better.
    [ene_ptp]Many may find this strange, particularly given that there are some sections of the economy that are more profit focused than others.  For example, the stock market is very profit focused, but is this really greed? When you combine households, mutual funds, pension plans and government retirement plans invested in the market, you are looking at about 70% of the total market. Insurance policies’ holdings that protect people from risk make up another 7%.  Is it really greed that is driving people to save up for retirement?
    Add to this the growing number of purpose driven companies, companies where profit is seen as simply a means to other and often more noble goals. Again, to many it might seem strange, but the companies that focus less on profit and more on a purpose often do much better.
    This is because there is a growing body of evidence that the traditional carrot and stick approach to motivation, what is called Type X motivation, is of limited value, and may not be a very good fit for a 21st century economy.
    Extremely briefly, for thousands of years societies have been based on extrinsic rewards and/or punishments to motivate people.  While these worked in some situations, they become increasing ineffective and even counter-productive the more a task requires creativity or originality, something a growing number of modern jobs require.  For example in one study, some artists were commissioned to produce a work of art while others were ask to contribute a work without pay. Later a group of judges, without knowing where these pieces came from, ranked the works of equal quality, but consistently ranked the art works that had been commissioned to be lower in creativity.
    Where all this enters into capitalism is that the motivation behind an exchange is left to the individual. Sure a person could seek a higher wage because they are greedy, but they could also seek a higher wage as it allows them to travel to third world countries on their vacation to spend that time helping those in need.  The motivation is up to them and capitalism works either way.
    Democracy coverIntrinsic or Type I motivation is much more powerful than type X, which is why purpose driven companies often do better than those who seek only profit. While we are in a transition to purpose driven, like the transition into the industrial age it will not be easy. Intrinsic motivation is driven by Autonomy, Mastery, and Purpose.  People must believe in what they are doing, spend the time and effort to master what they are doing, and be free to determine how they do it.
    Since capitalism does not care what motivates a transaction, only that it is freely entered into by both sides, both forms of motivation are consistent with capitalism, though the freely-entered-into part requires at least some autonomy.   Intrinsic motivation strongly conflicts with socialism, at least in its current form, as socialism requires a strong central government.  While mastery might still fit, purpose is questionable. It would be fine if your purpose just happens to line up with the Government’s but if not, you have to try and find a way around the government.  The biggest problem however is autonomy. Government by its very nature is based on the older extrinsic motivation model. Do one thing and you pay a fine, or even go to jail.  Do another and get a tax break. Classic type X.   Government restricts autonomy, at times even the ability to freely enter into a transaction.  The bigger government is the more laws and regulations it passes the less autonomy people can have.  This is a big mark against socialism, and in favor of capitalism.  It also to some extent helps explain the success America, with its emphasis on Liberty (autonomy) and until recently limited government, has tended more towards Type I.

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  • Joel Watts – Question 6 – Answer 1 (Profit)

    Joel Watts – Question 6 – Answer 1 (Profit)

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    Question 6
    Elgin’s Answer
    Joel’s Answer
    Elgin Hushbeck – Question 6 – Reply 1 (Profit)

    Content:

    (Note: Content corrected an updated 7/30/13, because the editor posted the wrong content.)
    1) You say profits must be kept low. But terms like “low” and “high” are relative terms, and frankly very subjective. What is low or high is very likely to vary widely from person to person, and particularly between buyer and seller. What will be the basis for such determinations?
    I think high profit would be something along the lines of what the former Exxon executive received as a retirement package. I must turn again to Aquinas. Money is consumable, unlike land and other means of production. To have more money than is consumable by the individual is against natural law (as Aquinas would state). To have consumable money making money consumable money, neither of which will ever be consumed, this is against natural law. If profit is consumed to provide for the poorest, it is a virtue. If profit is wasted (as in left only to consume itself), then it is sinful.
    2) You say “But, to keep them low, one must employ external forces, such as government regulations.” How is government going to perform this role, and what gives you any confidence that they have the ability to fulfill this role?
    “They” is not a term I thought we would rightfully use in a Republic. I would prefer the term “we.” The anti-trust/monopoly acts worked well until they were balkanized to the point of non-existence. Further, taxes based on high profit (profit unconsumed either in the means of production or in the means of comfort, but profit consumed only in the production of more profit) would likely yield a comfortable natural force, as was evident before the concept of low taxes means a better economy was the trend in the 1960’s.
    3) You say you have different expectations for the profit and non-profit. What are these expectations, particularly when it comes to for profit and government?
    I thought we were talking about profit and non-profit, not profit and government. I fully expect a profit organization to seek to make profit for the betterment of its members. A non-profit should seek to raise money for the betterment of others.
     
     

  • Elgin Hushbeck – Question 6 – Reply 1 (Profit)

    Elgin Hushbeck – Question 6 – Reply 1 (Profit)

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    Question 6
    Elgin’s Answer
    Joel’s Answer
    Joel Watts – Question 6 – Reply 1 (Profit)

    Content:

    1.) You quote Scripture regarding pay. Are profit and the pay the same thing?
     Well, there are clearly some differences; otherwise we would not have separate words. But at their core they are basically the same in that they are the compensation for services rendered.
    Where they differ is in how they are paid. Wages are paid for a particular unit of time. But, if we look at a store owner selling a can of soup, it would be very difficult to if not impossible to determine the hours worked to get a can of soup on the self so it could be purchased.  As such the store owner is paid for his or her work by the difference between the cost of the can of soup and the amount paid for the can of soup.
    This difference also results in another key difference that is often overlooked.  Most people see profit only in terms of gain. But there is no guarantee that anyone will purchase the can of soup.   If someone works for a wage, they are virtually guaranteed to receive payment for services rendered; as such there is little, if any, risk.  With profit, there is rarely any guaranteed and normally there is significant risk.
    I have worked both ways. When I worked for a wage I have always been paid for the work I did. When I worked for profit there have been many times where I have not.  If my costs ended up higher than I had expected, then my compensation was reduced.  In fact, there were many times when I wrote checks for my employees’ wages, and did not have enough money to even pay all my bills, much less myself.
    So at their core, they are both compensation, but they vary in how they are paid and the risk involved.
    2.) Do you see only one “profit?” In other words, you speak about profit motive, yet we have seen in recent economic epochs the increasing split level of meaning applied to profit. Do you believe in different profits or is there only one profit, with just different avenues to get there?
    Similar to the previous question they are all compensation, but there are two things that distinguish among the various types of profit. One is in what the compensation is in exchange for, is it in exchange for a good or a service?   There is at times some confusion about this because at times the service being provided is not clear, and at times not understood by many people.
    The other is in the number of people being compensated, is it the single owner of a small store, or thousands of stockholders of a corporations?
    3.) You write: “You pay a store in exchange for goods and services received.” I would contest that while this is philosophically the case, this is not always true. There are profit centers in business where profit is earned at a greater rate than with other products. Your statement seems to indicate you believe in a fair exchange. Economic practices no longer pretend this is true. Would you regulate fair exchanges? What if the exchange wasn’t fair?
    At a minimum I would want to add a lot of qualifiers to these statements, but I would accept the general concept of a fair exchange as a goal, the main problem being how one defines “fair.”  But if we ignore that issue for now, I do think there is a need for some regulation.  To me the issue is not the existence of regulation, but the purpose or goal of regulation.
    Regulation that aims at encouraging choice and competition is good. Because of the nature of regulation, regulation aimed at encouraging choice and competition is limited in nature, as too much regulation creates barriers to entry that stifle competition.  On the other hand, regulation that seeks to impose some concept of fairness is doomed to not only to fail, but will ultimately make things worse.
    Here is a case in point.  A few years back Florida was hit by a hurricane and there were charges of price gouging by gas stations.  In response, the Florida Attorney general made a very public point of saying that the states anti-gouging law would be strictly enforced.  As chance had it, a few weeks later, another part of Florida was hit by another hurricane.  Sure enough this time there was virtually no gouging – because there was no gas.
    It is easy to understand, and in fact is simply the law of supply and demand in action. When stations were “gouging” with the first hurricane they were effectively rationing it and people purchased just what they need. After the second hurricane, they simply filled up “just in case” and stations quickly ran out.  In addition, with the first hurricane station owners were encouraged to take extra efforts, perhaps purchasing a generator and getting an electrician to wire it up knowing they could recoup their costs.  If they did that in the second case, they could easily be charge with “gouging” and end up in court and even fined. So why take the risk?
    As for what to do if the exchange is not fair, the first question is who determines what is and is not fair? For me the best solution is to ensure consumers have choice. This will encourage business owners to provide the best value to customers.  Again a case in point:  There is a lot of competition among restaurants, and prices vary widely.  Some places charge more for a lunch than others. But who is to say that one place is unfair and the other is fair?  If I have a problem with one restaurant, I can very easily go someplace else.
    The bottom line is that given all the factors that are involved in a transaction, so many of which are subjective, it is simply impossible for the government to regulate this in any effective manner and history is pretty clear that the more they try, the worst they make things.    Thus government should instead focus on making sure there is choice and competition for consumers and then let consumers decide for themselves which of the many suppliers provide them with the best value.
     

  • Joel Watts – Question 6 (Profit) – Answer

    Joel Watts – Question 6 (Profit) – Answer

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    Question 6
    Elgin Hushbeck – Question 6 (Profit) – Answer
    For we do not aim to be rich merely for our own sakes, but for the sake of our children, our neighbors, friends and most of all, for our community. For the private fortunes of individuals are the wealth of the state. (Cicero, De Officiis)
    St. Thomas Aquinas cites Augustine in saying “The businessman who is eager for profit blasphemes at his losses, and he lies and swears falsely over the price of his goods. These, however, are the vices of the businessman himself, not of business in general, which can be conducted without these vices” (Summa Theologica II-II, 77, 4)
    For more of what could be considered my philosophical starting point, see here.
    1.) What is the value of profit as a motive for action in the marketplace and competition as a regulating force?
    The theology of the scientific theory of evolution is one benefiting us here, I believe. “Life will find a way” is a statement common in movies about dinosaurs resurrected for our benefit and the creators’ profits. But, in this Hollywood statement are tenets of great philosophical struggles. Life will find a way.
    Why must life find a way? Because the forces of non-life are always present and are the primary substance of the universe. As of yet, we have found life only on one planet, in one solar system, in one small part of the growing universe. Non-life is the constant of the universe. Yet, we have life.
    “Find.” Find implies motive. We must find a way because it is natural. Competition and push-back are those things that drive us in our need to find a way to survive.
    The same thing occurs with profit. Without the desire to live by what we make, we do not flourish as humans, but languish as natural beasts of the field. I believe in the concept of human flourishing, that of finding out who we are meant to be. I believe humans are naturally competitors. We compete against our siblings, against our schoolmates, and against one other in the pursuit of jobs, fame, and fortune. Profit and not material gain such as land, goats, and children is the modern goal of that pursuit. To deny, then, the pursuit of profit as a human need is to suggest we have somehow “become as the angels” have thus have need of nothing, not even love. The pursuit of profit is part of human flourishing.
    At small levels, competition does present a regulating force; however, when profits are too large and thus power too easily bought, competition is easily snuffed out. Even Adam Smith knew this. When profits are kept low, competition is naturally occurring because more people are able to invest in order to achieve profits. Further, when profits are kept low, this means consumers have more money to spend. But, to keep them low, one must employ external forces, such as government regulations.
    2.) Do you trust profit making organizations more than non-profit? Under what circumstances?
    This is a rather difficult question to ask, given the wide range of organizations under those banners. Even non-profits must make money in order to say afloat.
    I would venture to guess that the reasons many non-profits form as such are the tax laws. If we were to rectify them first, we might see the end of this dubious separation.
    As far as a matter of trust, I do not think I can fully apply that term to a non-human entity. Corporations are not persons, my friend. I do, however, have different expectations for the two groups.

  • Elgin Hushbeck – Question 6 (Profit) – Answer

    Elgin Hushbeck – Question 6 (Profit) – Answer

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    Question 6
    Joel Watts – Question 6 (Profit) – Answer
    What is the value of profit as a motive for action in the marketplace and competition as a regulating force? Do you trust profit making organizations more than non-profit? Under what circumstances?
    While profit and the profit motive are often maligned they are the driving force in most of that we do, nor should this be seen as a problem. As 1 Timothy 5:18 says “For the Scripture says, ‘You must not muzzle an ox while it is treading out grain,’ and, ‘A worker deserves his pay.’”  For some, the concept of wages and profit may seem like apples and oranges.  But they are really the same thing, the compensation we get for our work.
    Like many things, the profit motive can be both overdone and underdone. More importantly, it needs to operate within a system that allows it to be productively channeled, and that system is the free market system driven by choice for consumers and competition among suppliers. If businesses do not provide good value, customers can go elsewhere. Even most not-for-profit organizations must provide value in order to receive donations.
    Government has no such driving force.  This also explains why government is so wasteful.  It has nothing to do with the people, but with the incentives, and the system in which they operate.  Government has no competition, and can just demand money in the form of taxes. In fact, to be innovative and save money, for much of government is counter-productive. Administrators who do this would be “rewarded” by having their next years’ budget cut, whereas wasteful administrators are likely to have their budgets increased even more.
    When it operates within a system of choice and competition, the profit motive has some very positive outcomes. The first is a desire to improve.  Whether this is an individual who goes to school so as to get a higher paying job, or a business that wants to attract more customers, the profit motive drives improvement.  The second is that the desire to improve, when combined with competition, pushes people to search for new and better ways to do things; in short it results in innovations.
    This is something that most not for profits simply cannot do. Not-for-profits can consume and distribute wealth but they do not create it.  To be sure they can adapt to innovations, though they often have trouble doing even that, but rarely do they ever drive innovation. This is particularly true for Government because rather than innovation, government regulates, which by definition hinders innovation. Regulation looks back and seeks to standardize past practices, rather than looking forward to create new ones.
    The side effect of all this is a tremendous amount of good for humanity.  This is seen both in the increase in the standard of living, and in the tremendous array of products and services that make our lives better, nearly all of which we have because of the profit motive.
    In addition, because most resources are limited, the profit motive, when combined with choice and completion drives a more efficient use of these limited resources. The more efficient you are the lower your costs and the higher the profit.    Before Rockefeller got into the oil business, most of the oil produced was simply wasted.  It was wasted because no one knew what to do with it so it was just thrown away, or wasted because of leaks and losses during transportation, but it was wasted.
    Rockefeller sought to improve all aspects of the process, from funding the development of some 300 new uses for the “gunk” that used to be thrown away, to better delivery systems that reduced loss.  As a result the cost of the oil used at the time for light dropped from what was for most an unaffordable 58 cents per gallon to an affordable 8 cents, allowing them to have light at night. In the process he created a vast amount of wealth, a vast number of jobs and increased the standard of living for millions.
    The profit motive not only benefits the society at large, it benefits the individual as well. There is, of course, the desire for self-improvement it instills, but it goes deeper.  At the heart of a system governed by choice and competition is the exchange of value.  The employer pays you in exchange for a certain amount of work.  You pay a store in exchange for goods and services received.
    While the ultimate goal of a business is to earn a profit, if a business makes profit their primary goal, they are sure to fail.  This “paradox of business” is simple to understand: who wants to deal with such a business?  To attract customers, a business must provide value in exchange for the money they receive.  To grow a business must provide a better value than their competition.
    To do this one cannot just focus on what they want, they must be concerned with the needs and wishes of others.  This is why most companies provide far better customer service than government does.  For profit companies are driven by the profit motive which forces them to be concerned with the wishes and desires of their customers.
    This also goes a long way towards explaining why those who support free market solutions driven by the profit motive tend to give more to charity than those who support government solutions.  The profit motive operating in systems governed by choice and competition reduces poverty, increases the standard of living, make society better, and makes the individual better. What’s not to like?
     

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