Ethics of Profit, Part 1: Excessive Profits

This is the first of a 3-part series on the ethics of profit.

Is making a profit ethically good, or bad, or neutral? Or, better still, are there situations in which making a profit is either good, or bad, or neutral?

Profit is often the subject of criticism. The film, “The Corporation”, has as its main target not corporations per se, but the profit motive in particular. Michael Moore appears in the film, saying that while some corporations do good things, “The problem comes in, in the profit motivation here, because these people, there’s no such thing as enough.”

Now, the idea of profit is often tied up with money, with ‘filthy lucre.’ After all, everyone knows that saying about money being the root of all evil. But in the abstract, profit needn’t be defined in terms of cash. In the abstract, profit is just the “cooperative surplus” that results from a mutually-beneficial exchange. When I buy an apple (for, let’s say, $1) at my local market, both the owner of the market and I end up better off. We both “profit.” My own “profit” is the amount by which I value the apple over the $1 that I paid for it. And the market owner’s profit is the amount by which the sale price of $1 exceeds her own costs (apple + labour + overhead, etc.). And the fact that we both profit from the exchange is precisely what makes the exchange good for both of us.

Now, I think we need to distinguish between our ethical evaluation of profit, and our ethical evaluation of the profit motive. Because even if we agree that profit is generally OK, we can still worry about the things that people (or companies) will do in the pursuit of profit.

I’ll focus another day on the profit motive. Today I want to focus on profit itself. It seems to me that there are 2 kinds of circumstances in which profit itself is subjected (rightly or wrongly) to ethical criticism. One is when profits are excessively large; the other is when profit is gained unjustly. Today I’ll focus solely on the idea of excessive profit.

Several industries are commonly singled out as having unjustly large profits. One is the banking industry. Another is the pharmaceutical industry. Likewise, if we expand the category of “profit” to include individual profit in the form of salaries, then Wall Street is regularly singled out as a place where excessive profits are to be had. The fundamental ethical question with regard to large profits is what philosophers would call a question of “distributive justice.” Basically, is it fair that some people have so much money, while others in the world have so little?

A few points are worth making about big profits:

1) It’s worth remembering that very large corporate profits don’t necessarily translate into large amounts of personal wealth for anybody. Consider the fact that a company that has several billion dollars in profits — a lot of money, by anyone’s accounting — might have hundreds of millions of shares outstanding, spread across thousands (or even millions) of shareholders, and might pay out only a tiny dividend (say, a dollar per share). So a massive profit doesn’t necessarily translate into massive personal wealth for anyone.

2) Although many of us have intuitions that say that large disparities in wealth are unjust, it has proven incredibly difficult to translate those intuitions into anything like a coherent ethical theory. Despite our best efforts, we simply have no sound explanation of a) why it is that differences in wealth (fairly acquired) ought to be considered unfair, or b) just how large a difference has to be in order to be considered unfair. The lack of such a theory doesn’t negate our intuitions, but it should give us pause before we assert that particular disparities are “obviously” or “grossly” unethical.

3) It’s worth noting that what I referred to above as our “intuition” about injustice might also be referred to as a form of envy. And envy is far from admirable. As philosopher Anthony Flew once pointed out*, “this envy which resents that others too should gain, and maybe gain more than us, must be accounted much nastier than any supposed ‘intrinsic selfishness’ of straight self-interest.”

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*Anthony Flew, “The Profit Motive,” Ethics, Vol. 86, No. 4 (Jul., 1976), pp. 312-322
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Update: Part 2 of this series is here and Part 3 is here.

5 comments so far

  1. […] focus last day was on unjustly large profits. Today’s focus is on profits that are gained unjustly, regardless of the size of those […]

  2. Nicole Edge on

    A point about profits ≠ personal wealth, while the number of shares may indicate that any one share would gain little in terms of profit/share for a number of organizations the shares are held by a limited number of investors. When you look at the number of companies out there, relatively few of them are the massive organizations which draw institutional investors. If we take as an e.g. a oil and gas “junior” company, it is typically held fairly closely. Frequently the CEO and executive group held a significant % of the shares personally. If we consider their decisions on expenditures related to restoration of wellsites and land or their decisions on maintenance of pipelines, these choices will have a direct impact on level of profit, and therefore a direct impact on their personal wealth. If they have wealth accumulation as their personal objective what is the motivation for ethical land management or for safety and security of individuals living and working near pipelines? What level of profit is ‘reasonable’ and how much is enough restoration or maintenance?

  3. Chris MacDonald on

    Nicole:

    Yes, for sure. In closely-held companies, corporate profits do translate pretty closely into personal wealth. My point above was merely that that’s not always the case.

    As for the effect of the profit (or wealth) motive, that’s the topic of an upcoming blog entry.

    Chris.

  4. […] is the third in a 3-part series on the ethics of profit. (See also Part 1 and Part 2.) As mentioned in previous postings, we should distinguish between our ethical […]

  5. Lori on

    the LOVE of money is the root of all evil….not money is the root of all evil.


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