The Profit Motive

If capitalism has proven anything, it is the strength of the profit motive as an incentive.

Having a sound understanding of the profit motive is important for all of us to ensure we don’t end up blaming the wrong people and fighting for the wrong kinds of change.

A funnel of water

Capitalism itself is an unbiased system with no particular goal or ideology. Hence what makes capitalism good or bad is the results it produces. These results all come down to incentives and rewards.

The incentive (fuel) behind capitalism is the profit motive. The profit motive is what drives everything forward in capitalism.

If you think of capitalism as a water funnel, then the water is us (the people and businesses that make up the markets) and gravity (profit motive) is what forces water through the funnel. Most importantly, the shape the funnel is the regulations and social norms that govern capitalism.

For example, as a human race we agree that buying and selling humans is unacceptable. So capitalism plays within those rules, it aims to make as much money as possible without buying and selling people.

If we change the shape of the funnel, two things change: the efficiency and the outcome. Some shapes will increase friction, making it less efficient. While other shapes will decrease friction, making things more efficient.

Where we have gone wrong recently is thinking that efficiency is the goal. The goal is to create a shape that works best for humanity. If there are parts of the system that are low efficiency, then that’s ok.

How does the funnel get its shape?

Ultimately the funnels shape comes from the laws, policies, and regulations that society imposes upon it.

There are two ways that this comes about:

  1. Bottom up pressure (people) – when enough people think that human slavery is wrong, then governments and international agencies change the shape of the funnel to fit. This requires people applying pressure on the system through organised and coordinated activism.
  2. Top down pressure (businesses) – when business want a different shape, they leverage their money to convince governments and agencies that the shape should change.

Why does this view matter?

We need to stop thinking about the Energy companies as the bad guys. Everyone in the system is fuelled by the profit motive. The only bad capitalists are the ones who are no longer around because they failed to make profit within the rules of the system.

The people within the capitalist system have a minor impact on the big picture effects. It is the shape of the funnel (the system itself) that produces the effects.

If the system is producing bad effects, the problem lies in the shape of the funnel. Don’t expect people to just do the right thing, create a system that aligns the profit motive with your desired outcomes.

sebastiankade

Sebastian Kade, Founder of Sumry and Author of Living Happiness, is a software designer and full-stack engineer. He writes thought-provoking articles every now and then on sebastiankade.com

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