Is there any guarantee that the profit motive can be restrained in the interests of all?

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Ντέντας Ραφαήλ – Δημήτριος, φοιτητής οικονομικών επιστημών Α.Π.Θ.

Is there any guarantee that the profit motive, so destructive in causing the financial collapse of 2007-2009, can be restrained in the interests of all?

As Dr. Martin Luther King, Jr., once observed: “The profit motive, when it is the sole basis of an economic system, encourages a cutthroat competition and selfish ambition that inspire men to be more concerned about making a living than making a life”. The above statement could perfectly match with the reasons that led to the global financial meltdown of 2008.

Why did the financial organizations make unsafe loans that were therefore packaged into high interest rate securities and bought by other parties? You should ask Mr. Profit Motive and the greedy bankers. A long domino had been created and the markets were waiting for the mortgage rates to start the show. Although at that time, the show equaled an uprising number of negative macro & micro-economic consequences that in some cases of our today-world, have not been completely wiped out.

Nevertheless, an adequate level of profit motive is necessary for the optimal performance of the capitalistic system that we (the most of us) live in. Attracting Foreign Direct Investments is a phrase that can be heard or read in daily topics that are related with the growth or at least the stabilization of our economies. But, who stands behind those Investments and this economic phenomenon? It is again Mr. Profit Motive. Consequently, the profit motive is essential for the reproduction of the current capitalistic system and the progress of our economies but if it surpasses the “healthy levels”, it can be the underlying cause behind a new worldwide financial crisis.

Is there any evidence that can prove its maintenance between the normal levels[1]? The answer: There is, but it is still weak evidence. The Paris Agreement, the first-ever universal, legally binding climate deal could stand as a proof that the profit motive can be restrained in the interests of all. As Barack Obama stated in the recent documentary of National Geographic called Before the Flood, “this agreement is the first step, a basis on which we can build so as to confront the climate change”. An agreement that can be interpreted as a benignant trade-off between profit motive and the interests of the human & non-human kind.

As a matter of fact, this agreement sets the background to imagine a future where humanity depends on cleaner/renewable energy sources. However, the use of fossil fuels by the industries, in their efforts to satisfy the world demand for goods & services, consists of the main factor behind global warming. In this way, the industries that make profit directly or indirectly out of oil and other types of fossil fuels, need to limit their profits margins and pass to a transition phase which will definitely cost them a lot of money.

Despite the fact that the Paris Agreement was adopted by 195 countries in December 2015, it has almost not been set into action yet. Could you think of any reasons? Conflicts of interest is the most obvious one. The fossil fuel industry is the most powerful sector in terms that it can influence politics and legal decisions. Furthermore, approximately one third of the Congress in the US maintains interests in such companies. Are they willing to limit their profit motives for the shake of our planet? The answer here seems pretty gloomy.

Jim Inhofe, who is the Chairman of the Senate Environment Committee in the US does not actually believe in the global warming phenomenon and the projects that can be implemented in order to prevent its deterioration. He has characteristically stated: “Man cannot deal with the climate change”. The miserable fact is that there is a significant number of people related to the US policy-making decisions, who can actually block the progress that has been made with the Paris Agreement after the 21 consecutive years of unfruitful discussions.

Tuesday, November 8th, 2016. The US is voting for the upcoming world leader. The unexpected election of the republican nominee Donald Trump, comes to reassure that humanity is probably not moving on the right direction. He is the man who does not accept the scientific evidence that global warming consists of a human-caused reality. He stated that the US is going to dismantle the Paris Agreement, maybe the only subtle evidence that profit motive can be restrained in the interest of all. His prepositions after getting the American presidency are not yet clearly outlined, but if one takes for granted his pre-election campaign thoughts, he/she would not draw the greatest piece of art regarding the Earth’s future.

Given the situation in our world’s largest economy, it still remains unclear whether profit motive can be restricted in front of the arise of such important challenges. Consider the outcomes, should we expand our thoughts further than the relation between the profit motive & the environmental impact of human activities.

From my perspective, profit motive is the mechanism that tries to coordinate the global economic system. I used the word “tries” because there will always be those people who are left behind in the capitalistic competition game; and that is its strongest weakness. Take for instance the patent systems. A patent system functions as an incentive that promotes innovative activity and deals with the market failures. Consequently, it needs to exist. At least, theory shows that the gains of its existence are relatively more. Profit motive is the main reason that lies behind it. And it is reasonable. Why would a firm invest millions of dollars in R&D projects, if no one guaranteed that there is going to be a payout period after the final product is launched to the market?

Patents and the scientific papers attached to them often include valuable information that can only be accessed by an exclusive number of people. In the case of a biotech’s patent, the papers could contain information regarding the treatment of a specific type of cancer. Wouldn’t it be better for the social welfare that this information could be accessed by a larger number of scientists who could potentially contribute with their own ideas and accelerate the process of creating the final drug? That is a characteristic case where the profit motive comes into conflict with the interest of the society.

Rational behavior. In economics, a person is considered as a rationalist when she/he pursues the maximization of her/his own profit. So in economic terms, it might sound irrational to mitigate your profit motives for the interest of all. Personally, I believe that this perception prevails among human beings nowadays. There are a lot of ordinary examples coming from the daily life. A theme park in Japan, called the Space world, had the idea of killing 5000 fish just to decorate its ice-skating arena and make it a more unique attraction for tourists. The managers behind this idea thought that this can indeed raise the number of the expected revenue. We can again conclude that the profit motive leads to both miserable and favorable situations.

The interests of all are not only referring to the human beings but also to every alive organism in this planet. From this scope, the evidence coming from human activities is not the most encouraging one. People seem that they will only understand that profit motive needs to be restrained when the challenges will be at a much worse stage than there are today. In a worldwide scale, more and more people are getting concerned about the interests of the society, but are they enough? And how can each and every one of us respond to that, “should we be concerned about making a living or making a life”?

 

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[1] The normal levels of profit motive equal the point where one can observe the maximization of the social welfare in terms of the gains that arise from an economy’s growth.

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