Britain needs profit!

07 March 2013

Andrew Large of the CSSA argues that the profit motive is essential for UK Plc to get back on track

Andrew Large of the CSSA argues that the profit motive is essential for UK Plc to get back on track

If today's politicians are to be believed, then it would seem that profitable business should no longer be part of Britain.Aside from the railing against bonuses, there is a more corrosive philosophy spreading that says that running a business for profit is incompatible with economic recovery and that somehow capitalism itself has failed.

This is wrong, and the politicians (of all parties) that spout this sort of nonsense are doing their country a dangerous disservice.Without profitable business, there will be no economic recovery and without that, everything else just becomes a pipedream.

We need to restore the link between profit and social welfare, and knock down the growing idea that somehow profits are a bad thing, to be discouraged, minimised or taxed out of existence.The inconvenient truth is that without profit there would no innovation, no quality and no efficiency.

A profit is the reward that an entrepreneur gains for successfully taking an economic risk.The cleaning industry is full of people who have re-mortgaged their family home to start a business. In a competitive market, the new business needs to be better than the other businesses out there to secure customers and thrive.Without these customers it will wither and die and the family home will have been lost. And how do new cleaning businesses win customers? They innovate; they offer something new or different, whatever it may be. If successful, these innovations spread into the market and improve the service for all until the next innovation comes along.Without the profit motive and the chance to benefit from successful innovation I very much doubt that entrepreneurs would innovate and that customer service would improve.

Driving quality Without profit, there would be no incentive to increase quality either.

Think of it this way;why would you spend time and money to make your product or service better if there was no benefit to you to do so? Frankly, people wouldn't.Without the profit motive and the ability of customers to choose between competing suppliers, there is little incentive for people to invest in improving the quality of service.The next time someone suggests that profit making is bad for quality; ask them to explain how the state owned British Leyland made cars that were so much better than the privately owned Toyota.

Profits lead to improvement in productivity too. Without the opportunity to profit,why would you seek to re-engineer processes and procedures and use less time or materials to produce the same product or service? Again, you would not. Some people say that these productivity improvements are a disguised abuse of employees.Those people are wrong. Productivity gains are the essential part of the process of making sure that as little as possible is wasted.Without productivity improvements, too much time and materials need to be used to make a product or service.This is both environmentally damaging and deprives the rest of the economy of the scarce resources that it needs to make other things.Unless productivity improves, new innovations and improved products and services cannot thrive.

Entrepreneurs are decision makers.They decide what businesses to start and which products and services to sell.The profits they make are the rewards for the capital risks and the good decisions that they take in a competitive environment. In reality, those that challenge capitalism and seek to abolish profit only redistribute it to other groups by making a value judgment.They would seek to enrich employees, by increasing wages, clients, by cutting prices, or indeed the state, by raising taxes.All of these at the expense of the risk taking entrepreneur. Little by little the entrepreneur gives up, thinking rationally that the game is no longer worth the candle.This way lies the economic ruin of the country.

The profit motive is essential for good business, and essential for the recovery and economic health of Britain. Entrepreneurs need to get out and win the argument as to why and how capitalism works.

The fightback starts here.