Profit and Loss – and You’ve Lost Your Marbles

Years ago, Joseph Schumacher examined the ethics of unlimited growth and concluded that “Small is beautiful.” The business world, with no shortage of conglomerates and an increasing number of mergers, seems to have missed the message.

One might quip ‘Well, that’s because hedonistic greed governs the business mind,’ but a quick survey of a second year Business class – in which not one student answered the question ‘Why is profit good?’ with ‘Because it gives me pleasure, it makes me happy, I wanna be a rich sonovabitch’ – suggests that either denial starts early or something else is going on. (Or both.)

Most students responded, by the way, with something like ‘Profit is good because it enables you to expand: to hire more people, to establish branches in other cities, to increase production.’ ‘And why is this expansion good?’ ‘Well, because then you can make more profit.’ (Can you say ‘circular’?)

The concept of limitlessness is ingrained in business policy and practice. Why is this so? Because profit is idealized in business policy and practice. People in business assume that making a profit is their purpose. (‘Non-profit business’ is an oxymoron, apparently.) Some even assume that making a profit is their right.

Defence of maximizing profit/growth often includes an appeal to the responsibility to shareholders. (Can you say ‘pass-the-buck’?)

I put aside, for a moment, the question of why a business has more responsibility to its shareholders than to its stakeholders. (Distributive justice according to contribution is not the only option.)

It is explained to me that if someone invests in your company, giving you money to use, you have an obligation to give them the best return on their money. The best? Again, this notion of unlimitedness appeared. Why not, I suggest, set a fair rate of return, and then include that as an expense, rather like the interest on a loan?

‘Well, why should people invest in your company if they can make more with another company – they’re taking a loss then.’ Thus was I introduced to the strange definition of loss.

In business, apparently loss is defined as the difference between what you got and what you might’ve gotten. The baseline is not an actual amount but rather some ideal amount. (And they say business people are realists.) The measure of all things is the maximum potential.

For the rest of us, loss is the difference between what you have at Time 1 and what you have at Time 2. Yesterday, I had 10 marbles; today I have 7; so I lost a few – 3, to be exact.

Business people have a different arithmetic: if they get 10 marbles and they think they could’ve gotten 100, they ‘suffer a loss’ of 90 marbles. (I’d like to point out, by the way, that by their own reckoning, they’ve lost quite a few more than I have.)

All of a sudden, someone’s comment to my purchase of a CD player – “How much did that set you back?” – made sense. At the time, I was puzzled by his use of ‘set you back’. It didn’t set me back anything–it cost me $300. But if you use as a baseline some imagined million dollars you could make this year, buying the CD player will set you back $300 from that million.

It’s a very strange definition. It’s a very dangerous definition. First, because it’s not reality-based. (That in itself begs for the label ‘schizophrenic’.) ‘Could’ is not the same as ‘would’. And even ‘would’ is a far cry from ‘will’.

Second, this definition of loss is simply illogical: you cannot lose what you never had. What is actually being lost is not a certain amount of money, but the opportunity to make a certain amount of money.

Third, it’s very manipulative. The word ‘loss’ typically suggests cause for condolence: it suggests you do not have what you should have. But this definition entails a rather suspect sense of ‘should have’, it presumes some sort of entitlement that is, at least in my opinion, completely unjustified.

The classic symbol of business success is a graph with a jagged line on the diagonal up to the right: growth – unlimited growth. But surely there is a point at which we have enough. Don’t we all learn, when we’re about two years old, to ‘say when’? (At that, I hear a student in the back quip, ‘No, we didn’t learn that lesson. That’s why we’re in Business.’)

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