Understanding profit vis-à-vis profiteering
Profit is not necessarily unethical. But profiteering is problematic; Profiteering is about making unreasonable profits through indiscriminate use of unfair practices
In today's capitalist world, several ethical concerns are raised over the very act of doing business. While some of them such as demands for fair wages and environment friendly methods are suitably required, aspersions are often cast on the fulcrum of any commercial action - the generation of profits. Profits are often painted as arising out of exploitative practices and an unequal system and designated as something necessarily bad. However, it must be understood that profit is absolutely essential for corporate functioning and is not necessarily unethical. It is instead, profiteering, or the deployment of unscrupulous and fraudulent ways to maximise profit which is dishonourable and problematic. A nuanced understanding of this dichotomy would need unpacking of both terms.
Profit, at its simplest definition arises from the difference between the incomes and expenditures of a business. It is indispensable for stimulating, sustaining and expanding the enterprise and enables greater dividends for all stakeholders involved. Profiteering, however, is about making unreasonable profits through an indiscriminate use of unfair practices, such as slashing remuneration of employees, degrading the quality of the product offered to the consumers, taking advantage of scarcity and so on. Let us examine what both phenomena mean in the everyday scheme of things and what they lead to.
First of all, it is to be acknowledged that profits are necessary for the sustenance of all business endeavours. Large companies which ignore profits are bound to fail while small businesses compulsorily need to turn profits in to stay afloat, expand and secure financing. Profitability ensures the spread of business to more locations, the employment of more people and the promise of financing, increasing output and support and visibility for businesses, without which the survival or relevance of the enterprise is unlikely to hold. Profit, expansion and a robust presence in the market also creates value for consumers with more availability and better quality of services. Furthermore, the goal of the firm is not simply to increase profits but to provide specific goods and services to its clientele in a competitive marketplace. Profits - both made and reinvested only add to this venture.
Keeping in mind the absolute necessity of profits, they can ethically be made both in the short term and certainly, in the long term by cost-cutting through a deft management of resources and a consolidation of organizational integrities. As Robert C McMurrian and Erika Matulich note in an article in Journal of Business & Economics Research, high standards of organizational ethics can contribute to profitability by reducing the cost of business transactions, building a foundation of trust with stakeholders, contributing to an internal environment of successful teamwork, and maintaining social capital that is part of an organization's market-place image. For example, British Airways in the 1990s was going through inefficiency and losses; with a change in leadership and organisation structure, replacement of older planes and unprofitable routes, it emerged as a giant in the airline domain and holds tremendous visibility and prominence for customers.
Profiteering, on the other hand, as appropriately defined by The Encyclopaedia of World Problems and Human Potential is the pursuit of gain at public expense, which may be attained by cheating governments, overcharging consumers for goods and services and opportunistically taking advantages of unfavourable and uncontrolled situations to make money. An instance quoted in the same encyclopaedia notes how in the 1990's the pharmaceuticals industry in Canada, Germany and Norway took advantage of the classification by Codex of certain foods as drugs. This classification prevented the sale of vitamins, minerals and other dietary supplements as food, and so allowed the drug companies to jack their prices up, gouging consumers.
Bad profit, generated through unethical means bodes badly for the society at large. In a rush for short-term profit maximisation, environment-friendly production, fair remuneration of workers, workplace safety, rights of employees and ethical management practices can all be discarded. For instance, as per data by the Labour Ministry of India, over 6,500 workers died at factories and mines in five years, a major share of which can be attributed to unsafe working conditions - a component which should have been taken care of by employers who profited off the labour of workers in high-risk environments. There should be stronger policy safeguards and legal regimes in the same regard to combat the problems of profiteering.
On the whole, if profit is linked to the promising and ambitious aspects of human agency, profiteering arises out of greed, rapacity and opportunism. To build greater social cohesion, we must inspire action towards making profits ethically and improving the general well-being of people at large, and steer it away from the bad profit harvested from the worst humankind has to offer. Profit, in tandem with correct socio-economic objectives can propel ideal realities for the world and a general move towards it can counter the menace of intemperate profit-making.
(The author is Founder, Upsurge Global, and Senior Advisor, Telangana State Innovation Council)