Whenever political debate turns to economics, the familiar indictment of corporations is never far behind. On the left, that is hardly surprising. But the argument is increasingly common on the right as well: corporations care about only one thing, profit, shareholder value, and, supposedly, nothing else. To which the proper response is: good. That is precisely what corporations should be focused on.
I am increasingly tired of hearing “profit” treated as a dirty word, as though earning more than you spend is evidence of some uniquely corporate moral failure.
If someone wants to condemn a business for pursuing profit, then that business would be equally justified in accusing its employees of caring only about a paycheck and firing them accordingly. Everyone has an interest in earning more, whether they call it a salary, a return, a wage, or, when a corporation does it, a sinister plot against the moral goodness of humanity.
The real question is not whether businesses seek profit. Of course they do. The question is what the pursuit of profit compels them to do. The answer lies at the heart of free-market capitalism, a system increasingly under bipartisan attack, yet one in need of defending and almost entirely responsible for the broad human prosperity we enjoy today.
When most people hear “profit” or “shareholder value,” they picture greed: executives counting money in a boardroom. But to someone who understands the free market, profit means something quite different. It is a measure of the value a company creates for others.
Take Amazon. When its profits rise and shareholder value increases, it is generally because hundreds of millions of customers are receiving low prices, speedy delivery, and a level of convenience that has become so routine that many people now take it for granted. As shareholder value and profits increase, communities gain jobs, investment, and tax revenue. Small businesses gain access to a national, and sometimes global, customer base they could never have reached on their own.
Or consider a Wall Street investment firm, which is even less likely to inspire warm feelings in the average American. Its role, however, is to direct capital toward companies expected to use it most productively. Those companies can expand operations, hire workers, develop new technology, launch better products and services, and compete to offer consumers more for less. The investor earns a return only if the business creates enough value to justify the investment.
Or consider a corporation that produces something genuinely harmful, say, an AI company determined to build a bad product. Its investors are not insulated from the consequences. If customers reject the product, the company loses revenue, its valuation falls, and the individual investors suffer right alongside it. Competitors offering something safer, more useful, or simply less awful can then attract that capital, take market share, and replace the failed product with a better alternative.
That is the market’s corrective mechanism, encapsulated in the most hated word in economic policy: profit. Companies that create value are rewarded; companies that destroy it are punished.
And whenever profit appears to be failing as a force for the public good, there is usually a government policy not far behind.
The lesson is to encourage the pursuit of profit unapologetically. In a competitive market, profit comes from giving other people something they value more than what they pay for it. To earn more, a business must serve more customers, solve more problems, invent better products, lower costs, improve quality, or do some combination of all four. Even the most self-interested entrepreneur therefore has to make life better for someone else before he can make life better for himself.
Greed, in the abstract, is hardly a virtue. But profit is. It is simply that sin of self-interest put to work for everybody else.
