Business owners assume risk for reward, Not for good feelings. Running or starting a business is too hard to do it for no personal reward. Entrepreneurs must save the money (or borrow it) to pay for:
the education to run a business
machinery and fixtures
rent or land to build office/warehouse space
inventory or supplies
salaries for employees
They invest the time to:
get a business degree or learn a business from the ground up
write a business plan
apply for business loans
locate land or building solutions
interview and hire employees
develop business relationships with suppliers
set up a business identity (website, Logo)
work very long hours for the first 5-10 years
They assume personal risk if the business fails; it's the business owner who might lose her house and life savings if the business fails, And whose marriage suffers with all the long hours and money spent on the business, And whose reputation suffers when there's public grievances or failure. And it's her vision, Creativity, Resourcefulness, Character, And ingenuity that determines the eventual success or failure of the business in the first place.
If, Having gone through all this, She is able to turn a profit, She should be able to provide a comfortable lifestyle for her family and an inheritance for her children. Some people resent the fact that the CEO makes more than the cashier. But the cashier didn't risk anything.
In every socialist environment, When private property, Individual responsibility, And personal success are "equalized, " people stop trying. Wealthy firms and innovators move to other countries. Employees begin to work less hard (because why work harder for the same money? ).
People who view profits in a negative light tend to be those who don't have "sweat equity" in any endeavor, Who have never taken the enormous risks associated with building an organization. They don't know what it feels like to toil away at an idea which -- when it is mature -- brings pay, Benefits, Retirement savings, And other blessings to many people by providing a product or service that millions MORE other people want and are willing to pay for.
Some say that employers exploit employees. But what if it's the other way around? Hate your job? There are plenty of other jobs around. But if a business owner is fed up with the personalities, Rising prices, Challenges, Competition, Taxes, Inflation, And regulation (not to mention personal tragedy, Health events, Divorce, And just wanting a change), He can't just door. He MUST continue on (or close/sell the business). We employees let entrepreneurs assume the risk so we can get pay and benefits.
Motivators other than profit -- such as mastery or philanthropy -- are not as sustainable or compelling for the kind of high-stakes, Long-term sacrifices that starting a business requires.
This assumption holds for many initiatives, Such as donating to charity: A company could instead pay higher dividends to investors or wages to employees, Or charge lower prices to customers, And they could donate it to the charity of their choice. Individuals have social responsibilities beyond profits. Social responsibility of business is to increase profits because doing so gives individuals—investors, Employees, And customers—maximum flexibility to choose which social responsibilities they wish to fulfill. It’s not the CEOs’ prerogative to take this decision away from them and support their own pet social cause.
This has profound implications, Because many companies—and even governments—believe that stakeholder capitalism involves corporate philanthropy. India requires large companies to spend 2 percent of their profits on CSR initiatives; many firms around the world make similar pledges voluntarily. But if you’re a drinks company, Your expertise is making drinks —not choosing which charitable causes are most worthy.
Companies should only invest in social causes if they can generate more value than anyone else, And there are many activities that satisfy this “principle of comparative advantage. ” Coca-Cola has developed expertise in logistics to distribute its drinks all over the world, Including the onerous last mile to a rural village. So its Project Last Mile leverages this expertise to distribute medicines throughout several African countries. It delivers medicines, Rather than books, As the former must be kept cool—and, As a drinks company, Coca-Cola has a particular comparative advantage in refrigerated transportation.
But others don’t. Companies donating money to Black Lives Matter in the light of George Floyd’s tragic death should have instead invested their money in recruiting under-represented minorities at all levels, Stamping out discrimination in their promotion and evaluation processes, And ensuring that their culture encourages a diversity of thinking—actions that only they can control, Which means they have a comparative advantage in doing so.
The government sets the rules of the game: it has “the responsibility to impose taxes and determine expenditures for such ‘social’ purposes as controlling pollution or training the hard-core unemployed. ” Some voters want high minimum wages and carbon taxes; others don’t. Politicians set regulations at the level that best represents the aggregate preferences of the electorate—or else they can be voted out. In contrast, A CEO who pursues social causes “is in effect imposing taxes, On the one hand, And deciding how the tax proceeds shall be spent, On the other. ” She may pursue her own preferences, Not shareholders’ or society’s.
The reason is that companies could actually have variety of more reasons than to just earn money. They could be developing and manufacturing products to help the needy people, Or to just invent a product in the spot that could be necessary in people's daily lives. Therefore, Profitability should not the driving force for all companies.