When Does the Quest for Profit Become Greed?

Patrick O’Rourke, the American journalist and novelist wrote; “if we're looking for the source of our troubles, we shouldn't test people for drugs, we should test them for stupidity, ignorance, greed and love of power”.

So at what point does making profit become greed – or doesn’t it? Organisations need to make profit, year on year, not just for their shareholders, but so they can invest in their futures and create employment for their communities. That has to be good – so when could it become bad?

Even basic economic theory states that organisations charge a price for a product or service that the consumer accepts, based on supply and demand; otherwise they wouldn’t sell anything and hence wouldn’t make profit. So if significant profits are made it’s because customers are happy with the value for money they received for the product or service.

Yet there is a negative connotation with excessive profit, which in today’s world is perceived by many to be nothing more than self-indulgent greed; where excessive profits are not used for organisational growth, but for ‘rewarding’ the few at the expense of the masses - but who defines 'excessive'? The sole concentration on shareholder value, for example, has been widely criticised by academics and others, particularly after the financial meltdown of 2009. While a focus on shareholder value can benefit the owners of a corporation financially, it does not provide a clear measure of social issues like employment, environmental issues, or ethical business practices. A management decision can maximise shareholder value while lowering the welfare of third parties.

Margaret Wheatley, the author and speaker, stated that; “in our daily life, we encounter people who are angry, deceitful, and intent only on satisfying their own needs. There is so much anger, distrust, greed, and pettiness that we are losing our capacity to work well together”.

Adam Smith, the Economist, believed that markets and profitability took care of themselves; where he first described the ‘invisible hand’ theory, also known as the invisible hand of the market, which is the term economists use to describe the self-regulating nature of the marketplace.

The theory of the ‘invisible hand’ states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole. The reason for this is that self-interest drives actors to beneficial behavior. Efficient methods of production are adopted to maximise profits. Low prices are charged to maximise revenue through gain in market share by undercutting competitors. Investors invest in those industries most urgently needed to maximise returns, and withdraw capital from those less efficient in creating value. Students prepare for the most needed (and therefore most remunerative) careers. All these effects take place dynamically and automatically.

It also works as a balancing mechanism. For example, the inhabitants of a poor country will be willing to work very cheaply, so entrepreneurs can make great profits by building factories in poor countries. Because they increase the demand for labor, they will increase its price; further, because the new producers also become consumers, local businesses must hire more people to provide the things they want to consume. As this process continues, the labor prices eventually rise to the point where there is no advantage for the foreign countries doing business in the formerly poor country. Overall, this mechanism causes the local economy to function on its own.

In respect of the US, Barak Obama said, “we didn't become the most prosperous country in the world just by rewarding greed and recklessness. We didn't come this far by letting the special interests run wild. We didn't do it just by gambling and chasing paper profits on Wall Street. We built this country by making things, by producing goods we could sell.”

So, in theory, free market economics ensures a fair and reasonable accumulation of profit, which is used to finance growth and offset risk. So if this is true, why does there appear to be so much anger from people from both first world and third world countries – as the rich get richer and the poor get poorer. The economics seem sound – but only if they are applied correctly, which means reinvesting in the organisation and rewarding staff appropriately – but, if the profits are pocketed by the few, how does this equate to creating fair value and fair distribution of wealth.

So at what point does 'profit' equate to 'greed'? Maybe it’s time to go back to basics……...