Capitalism and the Profit Maximization Principle:
Martin Wolf (Financial Times Chief Economics Editor) gave
a brilliant speech a few years back:
“…what should be the goal of companies?
Unfortunately, we have accepted a simplistic answer to this question:
"maximisation of shareholder value ".
An obvious
difficulty is that if companies are allowed to make the maximisation of
shareholder value their sole goal, they can (and will) argue that they are not
just allowed, but even obliged, to do whatever they can expect to get away
with. But these are the values of a psychopath. They would destroy the trust on
which civilised society is built.
A company aiming
solely at maximising shareholder value might conclude it would be its duty to
cheat its customers, abuse its staff, or pollute the air and water if it is
allowed to do so (or at last not prevented from doing so). Such a company might
use its resources to obstruct an appropriate regulatory response to such (mis)
behaviour. The only check on such behaviour would be loss of reputation. But
that is a slender reed. If we believed this is how companies think, many
potentially valuable transactions would never be made.
Shareholder value
maximisation is at the least a radically incomplete goal. Ethical restraints
must be internalised, even if they are against the interests of shareholders, for
the good of society as a whole”.
Related:
Adam Smith on Capitalism and Competition –
http://www.theatlantic.com/business/archive/2008/08/adam-smith-on-csr/8665/---
I was inspired to post the above items after reading this extraordinary piece from the New York Review of Books:
Inside the Sacrifice Zone by Nathaniel
Rich
““The entire state
of Louisiana,” writes Hochschild, “had been placed into a sinkhole.” When
confronted with the contradictions in their political logic, Hochschild’s
subjects fall into “long pauses.” Cognitive dissonance reduces them to
childlike inanity. When asked about catastrophic oil spills that result from
lax regulation, one woman says, “It’s not in the company’s own interest to have
a spill or an accident…. So if there’s a spill, it’s probably the best the
company could do.” Madonna Massey says: “Sure, I want clean air and water, but
I trust our system to assure it.” Jackie Tabor, whom Hochschild describes as
“an obedient Christian wife,” says: “You have to put up with things the way
they are…. Pollution is the sacrifice we make for capitalism,” which is a
gentler way of saying that premature death is the sacrifice we make for
capitalism. Janice Areno, who worked at Olin Chemical without a facial mask as
an inspector of phosgene gas and suffers mysterious health ailments that she
believes are “probably related to growing up near the plants,” finds comfort in
an anthropomorphic analogy: “Just like people have to go to the bathroom,
plants do too.”