Unregulated profit depletes nature, people, society

and why smart regulations can help markets become more efficient

This piece is a critique of the standard profit-maximizing corporation, and of the concept of profit itself. Because in our society, participants willfully ignore the damages they inflict on each other and on nature through commercial activity — much of the category of profit is illegitimate and life-destroying.

Bloody Trees by Banksy. Get it here.

Instead of letting business as usual continue, and expecting different results, we need to introduce regulations that help industries and businesses internalize the costs they pass-on to others. For example:

• Rather than letting polluters keep on polluting, charging fees for their amount of pollution can help reduce the aggregate level of pollution and drive these companies towards better practices. It will also make more eco-friendly companies more competitive.
• A similar argument can be made to the food system, which currently let’s companies pass on the costs of bad health outcomes to society while they can continue to make profits serving unhealthy food.

Read below for the more detailed critique of business as usual and profit as a category of social value.

The unpopular truth

Let me state the obvious: Companies singularly focused on extracting profit are destroying society and the planet. Let’s recall from the dictionary that a sociopath is “a person with a personality disorder manifesting itself in extreme antisocial attitudes and behavior and a lack of conscience.” Since corporations not only inflict damage, but still insist that things should be allowed to continue as is, we may conclude they are willing to produce misery and death of others, even the collapse of ecosystems, rather than accept a reduction in the profits they extract. They are therefore sociopaths, rather than gleaming beacons of success.

Most of us understand that cigarette or weapons companies could be seen as sociopathic, but we think the rest of the corporate world is decent enough. For instance, companies like Facebook, Amazon, Tesla, Google or Apple are admired and seen as great employers and the wave of the future. But my point is that even and especially these companies are destroying society and the planet.

The definition of profit is profit = revenue - costs. The formula lays bare that a company singularly focused on profits should look towards minimizing costs and maximizing revenues. Let us analyze this formula and see how it is much easier to win the profit game by damaging others than creating social value.

Theft from nature is the baseline for profit

When a company cuts down a tree, or takes fish from the ocean, whom do they pay for being able to do this? They pay no one. Similarly, when a company dumps chemicals into a river, or when they emit plumes of carbon dioxide, they do it for free — pretending that our beautiful planet Earth will absorb their waste forever.

Hence, the entirety of the profit system is already subsidized through an unsustainable theft from nature. This is the key point. It means that many activities that are currently profitable are possibly running at a loss if we were to quantify and fully load these activities with an appropriate price for their theft of natural resources. Or at the very least, their profits would be much lower.

In addition to this underlying and unsustainable transfer from wealth from natural resources to the pockets of the owners of large corporations, these organizations further find it easier to degrade the social fabric than they do to create actual value to increase their profits. Let’s see how and why.

How to maximize revenues?

This can follow two paths. The benign way leads to the creation of products or services that people need at affordable prices, thus producing “goods” for society. That is hard and rare.

On the other hand, risks for pursuing damaging and predatory tactics are low and the benefits are great. Tactics include products that are addictive by design (Facebook, the food industry, cigarettes, alcohol), eviscerating the competition to maximize pricing power (Microsoft, Amazon), preying on the vulnerable (payday lending), getting government subsidies through cheap access to capital and concession-like business structures (banks), greasing the palms of decision makers (pharmaceuticals) and suppressing knowledge of damages caused by the product (cigarettes, pharmaceuticals, agribusiness, the food industry) are just some of the tactics involved in the gyrating mass of business as usual in modern day American society.

Another way may be to force the obsolescence of products to force consumers to turn them over. This introduces massive waste, but it significantly juices company revenues and therefore profits. From a single product, the company can introduce a pattern of upgrades and replacements that will milk profits for a lot longer. Apple is one such example of this process. Rather than produce their products with the expectation that they will last, they purposefully introduce software upgrades which slows their performance down and pushes people to buy again. Far from being harmless, this dynamic produces excessive resource waste while leading to trivial benefits.

How to minimize costs?

Methods such as technical innovation and automation work may be benign on the long-run, yet these are costly, bear high risk of failure and are therefore challenging. Clearly, however, their consequences depend very much on the social system in which a particular business operates. the less protection for the workers, for example, the worse the consequences.

Other, less benign even malignant methods, are a surer bet. You do that by breaking up unions to prevent organized bargaining. You slash and burn wages and benefits packages — for every dollar you claw out of a low-wage worker is a real dollar you get to hoard with zero risk in the transfer. You save on facilities, environmental and health protocols thereby producing harsh working conditions. You output dangerous and toxic waste into the environment saving on costs to neutralize or filter such waste. Over time, such practices causes disease and destruction in the vicinity of where you operate. Yet these are all in the short to medium term.

Over the long-term, you fund publications, academics and other opinion leaders to make it seem like good business and good common sense to pollute and lay waste to the environment. For instance, you donate to think tanks that produce studies validating that removing regulations improves economic performance and innovation. You also fund political campaigns of sympathetic politicians who wax moralistic and virtuous on American freedom and advocate cutting the excess bureaucracy that encumber job creators. They reward your business handsomely through laxer regulations, tax cuts and increasingly in-vogue market protections from foreign competitors.

The invisible hand gives way to visible destruction

These are merely examples. One could create an infinite list of how legal extractivism depletes people and the environment. And if both misery and ecological collapse are compatible with high profits, then we must surrender that darling of market economics that the pursuit of self-interest at scale brings about progress and abundance for society generally. At best we may say that profits alone do not signal value-added to human society.

Now what?

If I am correct in my argument, two courses of action seem sensible. The first as a voluntary actor, the second as a rule-making society.

1. Companies and individuals who wish to to part of the solution rather than the problem need to take account of the damages they inflict, reduce these as much as possible, and invest profits towards redressing the damages they have caused.
2. Because profits are a powerful drive to action, voluntary amends are not enough. As a society we need to regulate away the ease with which destructive tactics are employed to generate profits. For example, imposing a price on carbon, much higher fees for extracting resources from nature or dumping waste. Such market corrections would help generate the more significant investment on the elements of society required to transition towards a sustainable way of life.