Profits and people: What is business for?

Profits and people: What is business for?

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During the pandemic, anti-business activists are doubling their efforts to advocate against the alleged evils of capitalism: greedy corporations exploiting the situation to enrich their shareholders while millions are suffering from COVID-19 and over a million have died of it. The activists accuse corporations of “putting profits before people” and increasing inequality in the world.

Take the case of Pfizer, the American pharmaceutical giant and frontrunner in developing a vaccine against COVID-19. Its success, and size, has drawn the ire of People’s Vaccine Alliance, a coalition of activist organizations, spearheaded by the NGO Oxfam. The PVA has called on all vaccine developers to sign a pledge to give up their patents on COVID-19 vaccines and treatments, to make these available and more affordable in poor countries. The PVA is urging Big Pharma to “put people before profits” to help reduce global inequality.

What the anti-business, global-equality activists of the PVA fail to recognize is the crucial role of business in society. They are also mistaken about the alleged conflict between “profits” and “people” and the alleged immorality of economic inequality. It is their demands of the pharmaceutical companies that are immoral: if complied with, they would destroy profits and harm people.

Business plays a crucial role in society as the producer and trader of the material values on which our lives depend on. Without competing private businesses and if left to the government, the development, production and market distribution of vaccines, diagnostics (see my post on the South-Korean biotech company Seegene’s COVID-19 test here), and treatments for COVID-19 would take much longer and have less chance of success. (It is not hard to find examples of centrally planned economies like the former Soviet Union and East Germany failing to produce material values that people in freer economies take for granted).

It’s mistaken to think that pursuing profits harms people. Profit seeking by business does not harm but rather benefits people, beyond its owners.

The opportunity to make profits spurs companies to invest in developing products with high potential demand. If such demand materializes, the companies earn a profit—which they can invest in further product development. If the companies sustain profitability, the value of their shares increases, allowing them to perpetuate a virtuous circle of developing better products and earning higher profits.

Such a strong performance also allows companies’ owners to invest their increased wealth in other projects and companies. This  expands the virtuous circle of better (higher-quality, lower-priced) products that not only yields profits for the owners but benefits consumers as well as workers  through the creation of more job opportunities.

Sustained profitability and share price appreciation, such as achieved by Pfizer and the South-Korean Seegene, do create economic inequality. Companies that create products—such as life-saving diagnostics, vaccines, and treatments—that others value and are willing to pay for, will make their owners wealthier.  But economic inequality based on production of material values does not make anyone worse off. On the contrary, the wealth of business owners benefits consumers in the form of better, less expensive products, workers in the form of more job opportunities, and suppliers in the form of more business.

Making profits on a sustained, long-term basis is only possible by creating valuable products that people are willing to pay more for than what it costs companies to produce them. To achieve such a feat, companies must invest in research and development to come up with better products at a lower cost than their competitors. Pfizer, for example, has invested at least $1.5 billion to develop its COVID-19 vaccine. It has refused to take any government funding for it, although it has agreed to sell $2 billion worth of the vaccine to the U.S. government as part of President Trump’s Operation Warp Speed.

Pfizer and other vaccine developers investing their own money deserve to profit from their vaccines. The vaccines and the patents protecting them are the property of these companies. Trying to cajole them to give up their patents for free to poor countries is immoral. Not only would giving up their patents constitute self-sacrifice of the companies’ owners; it would also harm the intended recipients of the sacrifice, the people getting the vaccine for free.

Who would have the financial resources, or an incentive, to develop vaccines, treatments, or diagnostics when the next pandemic comes along, or cures for existing diseases? Pharmaceutical companies should not be made to sacrifice their deserved profits. They should be thanked for what they do. Profits benefit people.

Photo credit: Max Pixel

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7 Responses

  1. It seems so simple to me. No profits, no business, nothing to buy. There would be no food or clothes or medicine.

  2. I don’t believe the problem is in profit making or inequality per se, but rather with the use made of the profits when they are applied to warp the rules of our society. For example, I expect most people would agree that pharma profits applied to lobby congress to restrict Medicare and Medicaid from negotiating with drug companies is not socially advantageous. The link between wealth and the quid-pro-quo of political contributions acts to preserve that wealth and protect it from competition. And that result is a problem for society.

    1. Thank you for your comment, David. I agree with you that in the present mixed economy system–which makes government cronyism possible–profits can be unearned and not necessarily based on value created and traded. The ideal social system, in my view, is not a mixed economy (a mixture of capitalism and statism), but capitalism where the government is limited to its only proper function: the protection of individual rights of its citizens. Under such a system, lobbying and cronyism are not possible, as the government (politicians) has no favours to hand out and no privileges to grant to companies.

  3. The problem I see is that many people think business is inherently exploitive.

    A common root of that is Marx’s teachings of drive-to-the-bottom ethics, based on denial of the effectiveness of the mind for human life. And fixed-pie economics – if humans don’t create then anyone who has more must have taken it from someone else.

    He was explicitly against ‘capitalism’, seeing only value in labour not savings from labour – whether physical or mental – that were invested to produce goods and

    Perversely, people also see businesses with advantages forced by government, such as taxi cartels, but blame businesses not politicians (who are elected by voters).

    Marxist notions are widely taught in schools..

    In contrast Ayn Rand built on Aristotle’s one-world which humans-can-figure-out teaching to found ethics in the requirements of life. She saw that people collaborate, shunning the dishonest, but required protection against initiation of force which is the one thing that stops use of our means of survival – our minds. (Tara Smith covers force in her book Moral Rights and Political Freedom, which goes through various theories of ethics.)

  4. A sidelight that someone might spend more time reading and deciphering is ‘Social Credit’, which was pursed in Alberta in the 1930s.

    It uses attractive terms such as ‘systems are for individuals, not individuals for systems’, but seems to ignore capital retained in an enterprise to fund work in progress and growth and research, and perhaps even taxes paid. (It claims that there is business income not paid out in wages and dividends, which should go to customers.)

    The scheme is to pay each person via a ‘prosperity certificate’ which would depreciate in value with time. (Different from the decades later payout from oil industry royalties, apparently.) Reform of banking was a key platform, Western provinces being unhappy with financing from the more established part of Canada.

    But the government of Canada forbid monetary reform, which is the sole authority of the federal government.

    The elected government was very authoritarian in its desires.

    The name was carried on for decades in Alberta and BC, by swashbuckling mercantilist political parties.

    (Beware of a current oppressive tactic with the same name but different focus, being practiced in Communist China, which awards points for behaviour that suits the government’s ideology. The term is also being used for something in Canada and the US.)

  5. Certainly government power needs to be curbed to prevent such manipulation, which is not exclusive to business – unions and eco-activists gather much money to publicize/lobby/cozy up to politicians, for example. And to elect them – for example, one of the current cabinet ministers in BC was president of the Sierra Club of BC. And rich individuals try to influence voting, which is their right I suppose – doesn’t necessarily work as Michael Bloomberg found out in November.

    Slashing government power over individuals, including those collaborating as owners of an enterprise, would make all those things much less attractive.

    1. Couldn’t agree with you more, Keith. The government should be the servant of citizens (and then in a very limited way, protecting them against force), not the other way round.

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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.

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