Is the profit motive a good thing?
The ‘is profit a good thing?’ discussion encompasses more than just business and economic practice, it strays into area’s that include ideology and philosophy which is way beyond the scope of this blog for the moment.
Theoretically the profit motive is seen as a good thing as it exists to drive efficiency, innovation, diversity, competition and choice. Of course that’s in a perfect world, a neo-liberal market economic utopia. There is an argument that says the ‘profit motive’ has an inbuilt flaw in it’s DNA. That flaw is the denial of human greed. Sometimes when this ‘profit is good’ rational is applied by some of it’s most fervent practitioners, knowingly or not, it can get twisted and warped by the vagaries of some very human behavioural flaws to obscure the real motive; the intense and selfish desire for more and more riches. Put simply, ‘profit is good’ can be interpreted by those who have a moral blindspot as ‘greed is good’.
There was a huge drive to de-regulate the financial markets in the 1980’s. Of course no one wants regulations for sake of them, but regulation has a primary role in protecting industry and society as a whole. The de-regulation of the financial markets took away that protection and allowed those who were bereft of any personal moral code, to effectively legally and illegally circumvent moral responsibility. The result? Massive economic damage to society as a whole as billions of pounds in taxes that should be spent on services and infrastructure were diverted to saving the financial system blindly driven by greed to existential crisis.
Prioritising service over profit.
What if we look at profit in a different way. A business exists to make a profit, that is the point isn’t it? Well, what if a business were motivated to provide an efficient and high quality service and they say to themselves well, all the costs are met, wages paid and the books are balanced. We have decided the higher cost to the customer of making a profit is not a cost the customer should bear and would actually degrade the service. This notion is not that revolutionary. It just simply means the people providing the service prioritise the service over a profit motive. So this is my perfect world, the world of The Sovereign Economy. Of course, yes, there will be flaws in the DNA of The Sovereign Economy as well, but the argument is that The Sovereign Economy will have a very real and effective regime of regulation that will be exponentially more protective than the regulation of the free open market economy and thus better mitigate the flaws in it’s DNA.
I realise the ‘real and effective regime of regulation’ for The Sovereign Economy could be interpreted as ‘draconian measures’. Well, I would argue that a ‘light touch’ regulatory regime has now been perfectly proven to be illusory by the meltdown of the banks in 2008. Also, strong and robust regulations that provide fairness and a moral pathway, need not be draconian, just fair and morally centred.
Nationalised industries are typically seen as being inherently inefficient and wasteful because the state will always protect them from competition and moral hazard leading to inefficiency. These perceptions however are based on previous experiences from quite some years ago.
The world has changed significantly since those perceptions were formed. I would argue that two fundamental and significant changes since then have been computing and the internet.
Management systems to track efficiency are very different now compared to thirty or even forty years ago. Up to date computing systems and fast internet connections would, I believe, render a lot of the ‘inefficiency’ arguments against the nationalised industries redundant. There is no reason the dreaded KPI’s, the Key Performance Indicators cannot be applied to nationalised industries.
Competition is cited as a driver of efficiency. I would argue, that the fragmentation of an industry into smaller competitive entities results in confusion and taken overall, add huge extra costs to the end user. Especially when those entities pay inordinate bonuses and take their profits to off shore accounts to avoid paying tax.
So The Sovereign Economy is a reset proposal for the re-nationalised industries. It will always be an evolving entity, ironing out flaws and establishing it’s worth as time progresses.
Margin Surplus instead of profit.
Finally, here is a proposal which sublimates the notion of profit. I call it ‘margin surplus’. Instead of a margin for profit, a set percent ‘margin surplus’ is added on to the costs of services. Margin surplus is a bit like VAT, but the industrial entity would get to keep some of it for investment, R&D, rainy days, or maybe indeed to mitigate some operational incident or accident that comes out of the blue. The margin surplus could be set by panels of industry experts, for either a set percentage across the whole of The Sovereign Economy, or for individual industries within it. There would be safeguards established to prevent governments from abusing it, as VAT is currently with the extortionist rate of 20%. A proportion of the margin surplus would be taken as tax. The margin surplus would, I would like to think, provide a reliable and stabilising revenue stream for both the industries and the government.
A reminder, I am not an economist. I haven’t read Marx, Minsky, Milton Friedman, The Austrian or Chicago schools, Ostram, Kahneman, Stiglitz and on and on. It probably shows to any practicing economist. However, the perception of reasonably educated individual who has been observing and feeling the effects of these implemented economic theories, may possibly be of interest. This is MITS economics, the Man In The Street take. Make of it what you will.
The Sovereign Economy 