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Taylor Tomasini

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What if profit maximization is not only wrong, but dangerous?

Profit maximization implies hierarchy, standardization, and efficiency (how else do you maximize?) but these activities limit diversity and create bureaucracy.

Genetic diversity is what helped people survive the Bubonic plague. Terrorist organization survive because they have no leader (hierarchy). Your body creates redundancies (think two kidneys). And your psychological frame (profit maximization) can help you act in highly unethical ways.

What if profit maximization is contributing to unethical behavior, economic fragility, boom and bust cycles, and the degradation of society?

What if instead of placing profit at the center of our aims and desires we sought to maximize something else and simply made profits a constraint -- your business must be profitable in order to continue to exist?

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    Feb 1 2013: profit maximization implies none of those. profit maximization greatly enhances and requires diversity. bureaucracy is the greatest enemy of profit.

    if one studies proper economic theory, one realizes that the opposite of profit is waste. profit is synonymous with creation and efficiency, loss (negative profit) is synonymous with waste.

    every notion that condemns profit actually promotes waste.
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      Feb 1 2013: I disagree. Innovation is wasteful because it incorporates failure. Innovation isn't the most linear path to profitability, but it tends to be the most profitable.

      I think there is a difference in mindset here. In a zero-sum system waste is tantamount to negative profits, but in a value-creating system you're not certain that your actions will yield profits and thus you subject yourself to waste and failure on your journey to create something of social value.
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        Feb 1 2013: i fail to follow you. you claim that i can't add positive and negative numbers together? or that businessmen can't? i can assure you, both are false. entrepreneurs are quite capable of understanding that if you want a greater profit in the future, you need to sacrifice some profit today. it is called investment. costs and risks are all part of this system.

        and we only know in retrospect for sure if we were right or wrong. if we generated profit, we were right. if we did not invest in something that would have generated loss, we were right. if we invented in something that generated profit, we were right. if we invested in something that generated loss, we were wrong. if we did not invent in something that would have generated profit, we were wrong. the goal is always profit.

        as profit, as i explained, but you just ignored, *equals* to creation. it does not follow or correlate. it is the same thing. profit means you have grabbed some resources, and transformed them into something more valuable then other usual possible uses of the same resources. you have added to the world's wealth. loss means you have grabbed some resources, and transformed them into something less valuable than other known uses of those resources could have been transformed into. you deprived the world of some wealth.

        that is the economic meaning of profit.
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          Feb 1 2013: But what if profit maximization blinds entrepreneurs from having a long-term focus. You mentioned that entrepreneurs are able to rationalize and to sacrifice short-term gains for long-terms gains, but what if that's not true?

          What if profit maximization causes an individual to frame their situation so narrowly that all you can see is the short-term? There's a psychology to take into account here.
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        Feb 1 2013: an entrepreneur without long-term focus is a fail entrepreneur. he will fail in the long term, and will be replaced with successful entrepreneurs that have long-term focus.
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          Feb 1 2013: Yeah. But what about the organization that has enough capital to exist for a long, long time? That organization can be a drain on its stakeholders, its customers, and society for a long time before it ever eventually goes out of business; especially if it can find ways to create walls and barriers around itself through regulation and barriers to entry.

          Markets are efficient in the long-run, but they're sticky in the short-run.
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        Feb 1 2013: if the company has capital to exist for a long long time, and all the owners are stupid as hell, it will take a long time for that company to go under.

        why would that concern us? how realistic that scenario is? companies controlling huge amount of capital usually have multiple means of checks and evaluation. they have a board of directors, many teams of revision and control, they have detailed public reports, and many of them have zillions of shareholders and a liquid market of stocks.

        another thing is that it is happening in parallel. there is zero chance that on 03/2013, all companies go bankrupt at the same time. and honestly, i could not care less if say apple goes bankrupt. its competitors are still there to satisfy the market.

        it is funny that you say markets are not efficient in the short run, because you have accused companies to be short sighted. these are two opposite views.

        the reality is that long term and short term need to be balanced. this balance is unknown. it is the task of an entrepreneur to find that balance, and risk his own money doing so.
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          Feb 1 2013: I'm going to say the same thing I said to Fritzie:

          I think I've gotten off track so I want to bring the conversation back to one question that I'd like your thoughts on.

          "The need for profit is universal for all businesses in a healthy market economy. Unfortunately, early economists went far beyond merely describing how entrepreneurs always seek profits as an important goal, to concluding that maximizing profits is the only important goal of business."

          Mackey, John; Sisodia, Rajendra (2012-12-25). Conscious Capitalism: Liberating the Heroic Spirit of Business (Kindle Locations 486-488). Perseus Books Group. Kindle Edition.

          Question: What are your thoughts on John Mackey's statement? Is he right? Is he wrong? Is there something to it? That's all I'm after. What do you think?
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        Feb 1 2013: the john mackey quote is meaningless. business is created solely to make stuff we want. profit is a measurement how good they make the stuff we want. any other measure is either superfluous or downright wrong. this is my point from the beginning. you can only make profit if you deliver what people want. valuations of people appear in the profit. it might be the case that people are after things they should not be after. but if you "correct" people's valuation, it merely means that demand for certain things will drop, and for other things rise, thus changing the prices, thus rendering some business activities profitable, others not profitable. business still needs to seek profits only. profit is a message from people to business.
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          Feb 1 2013: Thanks for the input. I understand what you're saying, but I just don't think we're going to reach an agreement on this issue. I do, however, appreciate you talking through all of this stuff with me.
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      Feb 1 2013: Organizations see standardization and efficiency as their saving grace. It's their way of 'maximizing profits' for their shareholders without doing the hard work of creating something new. Much easier to cut costs, than to risk failing at creating something new.

      So why does profit maximization not imply diversity? Because standardization and efficiency are systemic ways of killing internal diversity. That's what creates the inefficiencies. If processes are diverse and actions are diverse and the way each division or geography or sub-division of the organization acts is different from the other then there's waste. That waste is the cost of diversity.

      The same rings true for hierarchy. Hierarchy is a way to garner efficiency. This is why you saw government agencies clamoring for shared-service organizations 10 years ago. If you centralize everything. If you make things neat, and you get efficiency.

      But standardization and efficiency come at cost. They come at the cost of creating systematic risks. Now your entire organization is subject to the same risks because all of your processes and actions and aims are homogeneous. Now, instead of having parts of your organization as being more robust than others, it's all the same. If one part goes down. It all goes down.
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        Feb 1 2013: let us have an example. we both have a company, we both install air conditioners. i come up with a way to decrease the time needed from 4 hours to 2 hours. thus i can cut my price significantly. you don't do anything of the sort. who will be more successful on the market? what do you think, creativity and inventions increase profit or decrease it?

        profit seeking corporations are the single biggest sources of innovation by a huge margin.
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          Feb 1 2013: I'm not talking about profit seeking corporations, I'm talking about profit maximizing ones. You can't not seek profits, or else you wouldn't be around very long. And I'm not talking about non-profit organizations.

          I'm talking about the difference between, profit maximization being the only goal a corporation should have -- as has been stated by Milton Friedman -- and organizations that seek to benefit society first and make profits in doing so.
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        Feb 1 2013: what is the difference between profit seeking and profit maximizing? profit is like health. there is no such thing as too much health or too much profit
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          Feb 1 2013: : )

          A.J. Jacobs has a TED talk titled How Healthy Living Nearly Killed Me. His talk articles his journey to live as healthy of a life as he possible could for a year. To do this he heeded all medical advice, including wearing a walking helmet. And he maximized his health.

          But his talk lead me to question the point of his actions and whether maximizing health really is the goal. Like all things, his actions had trade-offs. And I think what I'm trying to say with profit maximization is that while profits are good they have trade-offs -- most of which are completely justified and worth it, just like your air conditioning company example.

          The concern I have is on the maximization part. Just as in maximizing one's health you can lose sight of that which really matters -- which is the beneficial trade of value for the good of all involved.

          What's if we've gone too far with the maximization part to the detriment of our employees, stakeholders, customers, and society? That's what I'm getting at with the call center example I gave in another post or the think pink slime example. What if the creation of pink slime is that step too far, that trad-off too many, that maniacal focus on profit maximization that is doing us harm?
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        Feb 1 2013: i'm trying to explain you for a long time, to no avail, that profit === opposite of waste, opposite of failure, opposite of loss. how on earthy could less waste hurt society? it has no meaning to say more profit hurts society. society is the very thing that benefits from profit. the valuations of people are already included in profit. you can not prefer the needs of people over profit, because it is the same thing.

        you obviously have some metaphorical mental concept about profit, and you imagine a bunch of suits conspiring to exploit and brainwash people.
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          Feb 1 2013: Maybe it's something similar to what Jesus did - he won by losing.
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          Feb 2 2013: This guy puts me in mind of a young Paul Krugman?

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