You can’t maximize profits and bash capitalism at the same time (not for long)

You can’t maximize profits and bash capitalism at the same time (not for long)

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A recent Wall Street Journal column, comparing 1970’s and today’s situation, made an astute observation about the difference. Today, America’s corporate leaders are allied with the political Left “that argues America is a fundamentally flawed society in need of complete transformation.” The writer is referring to the leftist claim that America is systematically racist and inequitable and needs to be dismantled and rebuilt in a Marxist fashion into a socialist system. Yet, corporations “reap unprecedented riches from investors’ convictions that things have never been better.” (An editorial note: the investors, of course, are the owners of corporations, and they are the ones “reaping riches”).

The WSJ column prompts two questions: 1) How is it possible that corporate leaders and owners hold the two contradictory principles at the same time: self-interest (profit maximization) and self-destruction (bashing capitalism, the system that makes profit maximization possible)? 2) Why does holding such a contradiction matter?

Holding contradictory principles is possible by compartmentalizing: regarding one field (business and its fundamental goal of profit maximization) as separate from others on which it depends (such as the social and economic system).

Business leaders and owners who think they can keep maximizing profits regardless of the social system are evading facts.

They are evading the fact that everything in reality is interconnected and that they ignore those interconnections at their peril. Their support of the government’s violation of individual rights through wealth “redistribution” schemes (increased taxes on the wealthy, transferred to the less productive in the name of equity) and other interference in the economy (such as the Biden administration’s “infrastructure” plan, catastrophic energy policy, and social spending) will increase the cost of operating business and make it less competitive, discourage investment, and diminish profits over the long term.  

It is true that businesses can reap high short-term profits as cronies to the government that is dismantling the country. But the government can indulge in largesse only as long there is wealth being created and favors to be handed out. Trillions of dollars of government spending cannot be sustained by taxing the wealthy and printing more money.

Wealth is created by profit-maximizing businesses, but profit maximization requires recognizing facts, not evading them.

To maximize profits in the long term, companies must identify what products and services are objective values to potential customers (that make their lives better and that they are willing to buy). The companies must then identify how to create those products and services before and/or better than their competitors (in an ongoing process) and trade them at competitive prices. This is the only way profit maximization (and wealth creation) can be sustained over time (absent government favors, handouts, and protectionism).

Many leaders of successful corporations (think of Amazon, Apple, Facebook, Google) have done just that: identified and integrated the facts needed to create and trade objective values. Investors have rightly rewarded corporations for that. But many leaders and investors have also compartmentalized and ignored the wider context on which profit maximization depends. They have failed to recognize the fundamental social condition profit maximization requires: freedom.

Freedom means the right to act as one chooses, as long as one does not violate others’ freedom (by using force) to do the same. It means the right to produce and trade freely and the right to use the profits as one chooses (to keep, to invest, to spend). The social system that recognizes and protects such freedom – and makes long-term profit maximization possible – is capitalism.

But in America today, freedom is rapidly diminishing and the capitalist elements of its mixed economy are disappearing. The government is trying to undermine the Constitution – on which the recognition of individual freedom and rights rests – and is expanding the role of the state in the economy by ballooning spending and even getting involved in business (such as semiconductor manufacturing).

Corporate leaders and investors who endorse and embrace these developments are doing so at their own and their employees’ and customers’ peril. They can’t have their cake and eat it, too. Profit maximization cannot be sustained in socialism or any other freedom-killing statist system toward which America seems headed today.

It’s time corporate leaders and investors stopped compartmentalizing and started recognizing and connecting facts: the requirements of long-term profit maximization and the consequences of ignoring them.

Photo by Rehan Syed on Unsplash

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4 Responses

  1. Yes, integration – all factors in one view, not the mind-body dichotomy of Marxism and religion.

    Companies are pandering, in some cases in the face of government force.

    The star of The Social Network, the founder of Facebook, is cooperating with the US government to censor people.

    Amazon, Apple, and Google stopped hosting, or refused to, the social network Parler (considered right-wing, an Objectivist is now its policy boss). And none of them has operational excellence. There is much ‘wokeness’ in those companies.

    Years ago favouratism and worse was also at work. Aviation pioneer Jack Northrop has revealed how he was bullied by the US government:
    He sold out in disgust, as Bill Boeing did when the US government broke up the Boeing-Pratt&Whitney-United Airlines conglomerate.

    1. THanks for your comment, Keith. Yes, companies are pandering. As I have written in an earlier post, my speculation is that they do it more out of pragmatism rather than on ideology.

  2. Thank you for writing on this topic. This contradiction is now unravelling in China. The companies who have benefitted from the Chinese governmental policies (theft of IP, restricting foreign companies, etc.) are now themselves in trouble as evidenced by recent events. How long will the Chinese model last? I don’t think they want to kill these companies. They want to control them and put them to use to make the Chinese government rich to foster Chinese force around the world. However, they have killed Hong Kong and perhaps the entrepreneurial spirit in China. Who will take risks when the Chinese government decides who should do what? Etc.

    Given the Marxists influence in American universities, it is not a surprise (as you know) that the business leaders are Marxists or semi-Marxists. Altruism is eating away their minds and soon their companies will also be disrupted. They also look admiringly to the Chinese model and hence their compartmentalization only deepens.

    As you know, only a philosophical revolution can reverse course, but I don’t see that happening anytime soon. Perhaps, the system has to go bankrupt before new and better ideas can take afoot.

    1. Thank you for your comments, Rohit. I agree, we need a philosophical revolution – which may not happen until the current cultures comes to a dead end and collapses. Given how anti-human (anti-mind) and therefore unsustainable the dominant ideology (Marxism, and the associated irrationality and emotionalism), it cannot last. But when it ends and how long it takes to build anew, is difficult to predict.

      How did the shift in the course after the 1960s and the 1970s happen? And even then, the completely irrational philosophy got replaces by only somewhat less irrational one.

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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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