Profit – a dirty word?

Profit – a dirty word?

According to an article from The British Psychological Society (August 4, 2017), it would appear that most of us have an instinctual inbuilt bias against the profit motive. Apparently, we treat profit-seeking companies with distrust and believe that the more profitable a company, the more likely it is to harm society.

This, despite the fact that free markets around the world, in which profit-seeking businesses operate, has largely been credited with lifting enormous numbers of people out of extreme poverty and make rest of us, particularly in the developed west, wealthier than any generation that has lived. In addition, research shows that companies that make greater profits tend to contribute more to society in terms of environmental responsibility and corporate philanthropy.

The article quotes the authors of a new paper (Anti-Profit Beliefs: How People Neglect the Societal Benefits of Profit), who believe that this anti-profit bias has led many politicians and voters to endorse policies that perversely would lead to the very opposite outcomes for society than they want to achieve. It is also pointed out that if you want to see how extreme anti-profit socialism works, look at the turmoil that currently envelopes Venezuela.

It seems that when thinking about this, we reference our own experiences, particularly when buying large items where the vendors profit comes at the expense of our loss. Studies in which participants rated large companies in terms of how profitable they thought they were, assumed that the more profitable a company, the more it engaged in damaging practices. Another study found that even when engaged in the same business activities, we have a marked tendency to rate not-for-profit companies more beneficial to society than for-profit companies.

Depressingly, the research was carried out in the United States and I have no doubt the results would be replicated in the UK, probably to a greater extent. The authors of the paper found that when participants were educated about how the long-term profit motive encourages such things as product innovation and quality, greater benefits for staff and more concern for reputation their views softened somewhat. It was clear, however, that most believe, erroneously, that customers have few choices and little information about firms’ reputations.

This level of misunderstanding about how free markets operate is worrying and is currently being exploited by left-wing politicians all over the world. My view is that education on the benefits of free markets and the profit motive is essential to begin to change this mistaken impression that many people have. Given that the educational establishment in this country appears to be in the grip of the left-leaning it is unlikely to come from our great institutions. The great companies of this country and the free world have an obligation to provide this education to protect themselves, and more importantly, all of us.

Click here to read the article from The British Psychological Society.

This document is for information purposes only and should not be considered advice or an offer of any product for sale.

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