competitiveness

Is Profit Waste?

(This post is bound to be controversial – so please, if you have an opinion, write a comment. I’m really interested in hearing what others think and feel about this concept.)

Last week, I read the Harvard Business Review’s 2011 Agenda, in which HBR reported on what projects key business and management leaders will be working on during the upcoming year. I was directed to the report by a Facebook post from Daniel Pink, author of Drive, who was a contributor. One of the subjects he touched on really moved me:

I wonder if we have reached the limits of the profit motive. It is a powerful force, of course, but perhaps it’s somehow inadequate and insufficiently inspiring for 21st century work. More and more we’re seeing that the most enduring and effective companies marry the profit motive to what we might think of as the “purpose motive”—the belief that businesses must stand for something and contribute to the world. Maybe the path out of our economic doldrums is not a tighter focus on profits, processes, or productivity but the broader awakening of a sense of purpose in our enterprises.

As someone who ponders quality and “lean thinking” all the time, this really got the little voice in my head going: Is profit waste? When we’re thinking about waste in the “traditional lean sense,” overproduction is the first sin. Isn’t profit just overproduction of revenue? Sure, but you might argue, it’s profit that helps a business expand and grow. That’s true, IF that profit is turned into investments or retained earnings that become future investments. (But how much of a company’s profit is turned into lottery-sized bonuses to executives who then pursue a personal life of overconsumption? How much of a company’s profit is the direct result of using wasteful ingredients in production, such as using packaging that clutters landfills for years? Doesn’t this equate the profit that’s generated with the waste that’s generated?)

This made me wonder whether other people have questioned whether profit is waste. I did a Google search and came up with very little… but did find two hits of interest. The first is an old article from Volume 36 of The Arena, a critical journal published from 1889-1896 and 1900-1909 and edited by a guy named Benjamin Orange Flower. It was recognized as audacious and unorthodox, and upon its demise The Arena was declared a “fearless exponent of advanced liberal thought” – so apparently, people were a little taken aback by the social mission and tone of the publication at that time as well.  The second was a blog post on the writings of the philosopher Bataille from the 1960’s, who believed that “…a series of profitable operations has absolutely no other effect that the squandering of profits” and “the fate of all profit is waste” – that is, that profit is waste.

In the Arena article, entitled “Consumption of Wealth: Individual and Collective” by C. C. Hitchcock, the author starts his article by loosely addressing the disparity of wealth in society first noted by the Italian engineer, sociologist, economist and philosopher Vilfredo Pareto, and then starts making connections with the income production of typical families of the early 20th century. He asserts that it is the profit motive in capitalism that’s responsible for the laborer (who creates value and wealth on a daily basis) earning little to nothing, while “by others who may produce nothing we see wealth approximated in sums running up into millions in a single year.”

What is Hitchcock’s solution to the inequality? He says if you want to consume more, you should create value in proportion to the level you wish to consume. Executives of multi-billion-dollar companies might argue that indeed, they are creating value for millions of people, and doesn’t that justify the consumption? At the end of his article, Hitchcock concedes that his whole argument is in place to support socialism, so that “burdened souls” can benefit from “added courage and strength to bear patiently the deprivations and disappointments of life.”

This sounds pretty incongruent with the rest of his argument to me. I tend to like the idea of socialism as a utopian concept, and completely dislike it when I think about all the able-bodied lazy people sitting around getting handouts without lifting a finger. (I know some of these people personally.)

What is Bataille’s solution to the inequality? He says that productivity itself is perhaps a myth. So what? Why pursue productivity when its end goal is just waste? His writings seem to suggest that finding meaning and enjoyment in life is superior to achieving productivity.

If that’s the case, I might stop Getting Things Done (GTD) and start Getting to Meaning (GTM). That last acronym is mine, people! 🙂

What sorts of next generation business models could we come up with if we looked at profit the same way we look at inventory holding costs, or waiting, or excessive motion in a process, or defects? Furthermore, is there a cost of profit? (I don’t know what this last question might even mean, but I’ll be thinking about it more and more in the upcoming weeks.)

Why do our business metrics STOP at profit? Why don’t we track where the profit goes, and what it’s spent on, and whether that spending generates any true value? Follow the money… that’s the only way we will be able to test whether profit is indeed waste.

6 replies »

  1. “…is there a cost of profit?”

    I’m sitting here thinking of so many ways to look at this question. In the end, though, I keep coming back to a personal philosophy of mine. When there is a choice, I opt toward patronizing businesses with smaller profits. My small contribution to the profits of conglomerates is likely not missed, but I’m sure that I am not the only one with this philosophy. If the trends we are seeing continue, profit could begin to cost in actual profits.

  2. Hi Sonya! I like your thinking… I hadn’t thought of personal preferences influencing market behavior and thus a “cost of profit”… but that makes total sense. (Hope you are doing well btw!)

  3. I was thinking the same thing while daydreaming in work about a You tube debate I’ve been having and my Google search led me here.

    While I agree with your main statement I disagree about socialists lazing around waiting for handouts. That assumption in ittself is lazy.

  4. The cost of profit is unfairness.

    Either you could have invested more in the product you made or charged less or distributed gains equally among your workers to break even. The delta between your costs and what you pocket is profit. And that delta can only be born of inequity – someone got more out of the transaction than every other party involved (workers and buyers) thought was a fair price.

    That delta can only be born of an information asymmetry. The producer hid their costs, manipulated their supply to jack up demand, or underpaid their workers for the productivity they ultimately achieved. The delta is profit. And it is WASTE appropriated by those who knew something they literally did not care to share.

    And that makes us angry. At a deep biological level. Fairness is hot wired. Watch the second half of the below (hell watch the whole thing to see the fundamental cooperative nature of all higher primates to understand the moral outrage that occurs in the second half – the moral outrage at profit.)

    So what is the cost of profit – the decay of trust born of unfairness. Ultimately, the decay of society leading to social revolution.

    It’s hoarding. In times of plenty no one notices. But when it gets cold outside, and you have the only granary, everyone will come for you. And rip you apart. On a long enough time line, that’s what profit buys you.

    Because when you say “let them eat cake” when you’ve eaten it all, it’s only a matter of time before you’re looking at your neck hole wondering why your head is no longer attached.

    Profit is the cashing out of trust and the engine of envy. Envy not as vanity. Envy as righteous indignation. Fairness. Justice. And ultimately wrath.

    No wonder that as the corporate profits rise, so do the hight of the gates on the gated communities.

    But the greater the profit, the greater the inequality, the greater the wave that will surge over the gates.

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