What is the purpose of business?

In the entry on Obama’s Obama-centric tribute to Neil Armstrong, and on how Obama has converted NASA into a project for Muslim self-esteem, I wrote:

In liberal society, diversity, the raising up and equal inclusion of the Other, is the highest good, the ultimate purpose of ALL human activities. The natural good of any activity has been displaced by diversity. Fishing is not about catching fish, it’s about including the Other and enhancing his self-esteem…. Running a business is not about producing a good or service and making a profit; it’s about including the Other and enhancing his self-esteem….

This set off a lively discussion about whether the purpose of a business is to provide a good or service, or to make money. Since that discussion did not fit in the Obama / NASA / Muslims / diversity thread, I am moving it here.

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Terry Morris writes:

You say that the purpose of a business is to produce a good or service and make money. I would say that the point of running a business, when you boil it all down, is simply to make money.

Incidentally, the leftist Tulsa World newspaper ran a July 4, 2011 editorial lambasting the Tea Party and asking its readers, and I quote, “But since when did it become unAmerican for people to work hard to build a business to provide good paying jobs and benefits to those who need them?” I wrote them a letter in reply in which I basically said that this idiotic goal for building a business had become “American” at the moment our society adopted Marxist values as its own.

LA replies:

You are correct that, as far as one can tell from all public rhetoric in this country, the purpose of businesses is to provide jobs. No politician ever says that the purpose of businesses is to make money by providing goods and services, and that in the process of providing goods and services and making money the business also creates jobs. No. They make it seem as though when a man starts a business, he’s doing it in order to create jobs.

Joe R. writes:

The two most common reasons for running a business are to produce a product or service, and to make money. To see the difference, look at Apple. John Sculley tried to maximize profit and the company floundered. 90 days before bankruptcy they brought back Steve Jobs, who was fanatical about products and didn’t care about money, and Apple is now one of the most powerful companies in the world.

To say that companies are ultimately about making money is manifestly incorrect. The good ones are not.

LA replies:

I agree with you 100 percent.

All good businesses exist because the businessman has an aspiration to provide a good product or a good service. He’s not just thinking about money.

LA adds:

I have to qualify what I said. Obviously, in many cases, a person who goes into business is simply thinking about making money; that’s his motivation. But then, in order to make money and to have integrity, he realizes he must provide a good product or good service.

Terry Morris writes:

If Steve Jobs didn’t care about the money, then why didn’t he donate 100 percent of his profits to a charitable organization? I don’t buy into that. But that’s not my beef anyhow. The whole reason I qualified your original statement with the word “marketable” (to provide a marketable product or service) is that I recognize the importance of the product itself to achieving the goal of being in business. On the other hand, I could build the best engine in the world, but if my product is not sellable I’m not going to be in business very long. So what purpose have I served?

The claim made that Steve Jobs didn’t care about the money puts me in mind of a scene from the movie The Aviator. Howard Hughes is having dinner with Katherine Hepburn’s family at their home when Hepburn’s mother snarkily announces to Hughes that, “We’re all socialists here. We don’t care about money.” Recognizing her criticism of him for what it was, Hughes snaps back, “That’s because you’ve always had it.”

Steve Jobs may well have had the luxury of not caring about money, but most of us do not enjoy that luxury. The bottom line has to be met, and that’s all there is to it, no matter how great our product or service is. That is why it is so vitally important that government not regulate us out of business, as it is all too prone to do. It’s difficult enough to provide a quality product at a reasonable price without government making it virtually impossible to do so.

Joseph C. writes:

I disagree vehemently with Terry Morris when he says that “the goal of a business is simply to make money.” No. The goal of a business is to provide a good or service, which in turn will help the owner make money.

I know of no successful business that exists solely to make money. That is like saying that the goal of putting your key into the ignition and turning it is not to start the engine, it is to get the vehicle from Point A to Point B. Unless the engine is first started, you will not move from point A.

Making money may be an ultimate goal, but providing a good or service must be the primary goal. If the primary goal is met, the ultimate goal becomes more likely.

I am reminded of an incident years ago when a colleague and I were discussing college basketball. We had seen an interview with Jerry Tarkanian, head coach at the University of Nevada-Las Vegas, then the preeminent team in the country. He mentioned that he told his players that their primary focus should not be winning x number of games or even x number of championships. The goal is to play as well as you can, for as long as you can, regardless of the score, and the winning will take care of itself. Vince Lombardi and John Wooden taught the same lessons. Success is not an end in and of itself—it is the by-product of a commitment to excellence in how you conduct your affairs.

We both blurted out the same thing—“It works the same in business.” Companies that exist just to make money may—for a time. But the companies that exist to provide the best good or service at the best price in the best manner will make the most money in the long-run, because they will have the most customers.

As to Mr. Morris’s reply to the Tulsa World, he is 100 percent correct. That is the number one difference between government and industry. Governments exist and are run for the benefit of their employees, and thus create as many make-work jobs and dependents as possible. Businesses work for shareholders and customers. I always wondered why more politicians never point this out. A politician who wanted to get a leg up would approach the voters and say: “Of course government must exist. I do not mean to eliminate government. But I believe government exists to serve its customers (i.e., taxpayers and residents), not its employees.” But saying that would mean actually thinking things through and confronting the opposition.

Gintas writes:

There’s something not quite right with what Terry Morris is saying about jobs, Jobs, and money. I know that there is something intrinsically interesting and satisfying about my job—it’s not just about the pay. There are transcendent elements of life even in business and work—even in the computing world—because we are at heart not materialists.

Also, any of us can enjoy the “luxury” of not worrying about money, without even having a lot of it. Our Lord said (Matthew 6:25-33):

Therefore I say unto you, Take no thought for your life, what ye shall eat, or what ye shall drink; nor yet for your body, what ye shall put on. Is not the life more than meat, and the body than raiment?

Behold the fowls of the air: for they sow not, neither do they reap, nor gather into barns; yet your heavenly Father feedeth them. Are ye not much better than they?

Which of you by taking thought can add one cubit unto his stature?

And why take ye thought for raiment? Consider the lilies of the field, how they grow; they toil not, neither do they spin:

And yet I say unto you, That even Solomon in all his glory was not arrayed like one of these.

Wherefore, if God so clothe the grass of the field, which to day is, and to morrow is cast into the oven, shall he not much more clothe you, O ye of little faith?

Therefore take no thought, saying, What shall we eat? or, What shall we drink? or, Wherewithal shall we be clothed?

(For after all these things do the Gentiles seek:) for your heavenly Father knoweth that ye have need of all these things.

But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you.

Joe R. writes:

Terry Morris writes:

“If Steve Jobs didn’t care about the money, then why didn’t he donate 100 percent of his profits to a charitable organization?”

That is a non sequitur.

When I say that Steve Jobs didn’t care about money, I mean that he didn’t make decisions based on profits. As Jobs pointed out once, you will make different decisions if your goal is to make a great product, rather than making money. It’s not a question of having the “luxury” of doing anything.

Terry Morris writes:

Wow! I wasn’t trying to stir up a hornet’s nest. Really. But right now I’m too busy providing a service, with the goal of making money, to respond. I’ll get back into the discussion later, when I’m at home relaxing. :-)

Bjorn writes:

The purpose of business is to produce goods and/or services at an adequate rate of financial return.

Your previous writers speak of “making money” and “maximizing profits” versus producing something desirable for a set of customers. But there is no contradiction between these concepts. A buyer seeks to minimize his costs and looks for a good deal for his money—for the buyer, a cost of zero would obviously be very attractive. However, a cost to the producer lower than the cost of production will soon put him out of business, however much the products are loved by the customer. Only by selling above cost and accumulating profits for product improvement and production maintenance can an entrepreneur seek capital and stay alive. An excessive profit is only possible for a period of time since this will rapidly attract competitors seeking to replicate the goods at a lower price.

Hence an adequate return must be the overall goal. And this is why the overall rate of return in most businesses eventually settle towards a norm.

It is interesting that Steve Jobs is being hailed by your commenters as the example to be followed. During the time when he was solely in the personal computer business, Steve did not manage to outperform IBM (and others) in the personal computer business, and his NeXT operating system company did not do very well at all. It was only when Steve returned to Apple and re-invented the personal entertainment and communications industry (iPod, iPhone, iPad, etc.) that Apple found its second life. Steve did this by inventing great products while maintaining iron-clad control over his technology and maximizing profits through volume manufacturing and very high prices.

LA writes (August 28, 11:38 p.m.):

Terry Morris tells me that in my editing of his original comment (which was necessary to make it conform with my editing of my own comment), I inadvertently changed his meaning and set him up for the strong disagreements he’s been receiving. If I misrepresented Mr. Morris’s meaning, I’ll have to straighten everything out. But I won’t be able to do this until tomorrow.

The work of a blogger who personally prepares and edits readers’ comments never ends. It’s a hard path I’ve chosen. But it’s worth it. (And by the way, making money had nothing to do with my choosing the path of blogging, but the donations I receive from readers have enabled me to continue doing it, and without those donations VFR would not exist, at least in anything like its current form.)

LA continues:

In the meantime, before I straighten out the problem with my editing of Terry’s comment, I have to point out that there has been some misconception in this exchange. Somehow it became a debate between two unreal positions which I don’t think anyone had actually proposed, but which various commenters have been attacking as though someone had proposed them: (1) that a businessman should care only about making money, and (2) that a businessman should not care about making money at all. As a result, both sides seem to be arguing against a straw man.

Robert B. writes:

There is something not quite right with all of your respondents on this topic. Maybe I’m the only responder that has owned a business that he started and that’s why. The primary motivation of a business owner or the person who runs a business for its owners is producing a profit—anything else is essentially Marxist. There was and is no reason for me to get up at 6:30 a.m. and work a minimum of 10 to 12 hours per day just to have the satisfaction of having a “job well done.” In point of fact, while between jobs at the age 26 and trying to decide which way to go, I read a WSJ article titled “Top Ten Ways To Make A Million in America.” Number ten on the list was “Excavating Contractor.” While I knew a fair amount about construction, I knew very little about excavating and even less about pipe laying. My plan was simple enough, learn the business and become the best at it. By being the best, I would maximize production and therefore profit.

To this end, I was successful and grew to be, within five years, the fifth largest sewer and water contractor in the Twin Cities by permit volume. If not for the money, I would never, ever have worked such long hours, or performed such rigorous and often painful labor. Without a profit motive, such work seems silly to me. Did I have pride in seeing my trucks and equipment with my name and company colors roll down the road? Of course. Did I do my best to provide a quality product at a fair price? Yes—because I never wanted to deal with the loss of profit if the work had to be redone. I charged as much as the market would bear and no less. As an inspector told me when I was first starting out, “You might think you’re doing okay and these people are happy because you unknowingly gave them a deal, but it isn’t enough just to make a good or even a very good living, kid. You need to make a lot of money to stay in business. These people won’t be here to pay for a new hoe when you wear this one out and they sure as hell aren’t going to be there when the time comes for you to retire.”

Adam Smith recognized that the profit motive was the prime motivator of economic activity. It’s up to the public to decide which “brand” gets their loyalty.

Posted by Lawrence Auster at August 28, 2012 01:48 PM | Send