Profit or the common good?

Beyond Capitalism - Both. But there's need to change the economic and social model.

By Luigino Bruni

Published on Città Nuova n.15-16/2010 of 10-25/08/2010

Current public debate on work, employment and crisis (and the suffering of families) can offer us the opportunity to more deeply reflect on what was not done during the last few decades on the nature of businesses, profit and therefore, of capitalism. We won't get out of the serious crisis we're living - from the area of finance, to terrorism and unemployment - until we don't seriously question the current economic and social model. Capitalism, the shape that the market economy has taken during the last two centuries, must evolve into something else. And while the enormous capacity of civilization and freedom that capitalism contains must be saved, 8 million people also need to be allowed to cultivate their own humanity. 

One of the most serious facts about the financial crisis in the last two years was the vulgarity (I can't find another word for it) of the stipends and million-dollar bonuses that banks and insurance agencies saved in fall 2008 with public money and then began to redistribute to their managers in the first few months of 2009. Even in times of cutbacks and union conflicts, no one questioned the high profits of the businesses and the salaries of the superstars. There lacked courage to question the capitalistic system, and discussion was limited to speaking about economic ethics, responsible business, non-profit and philanthropy, functional and necessary phenomenon to the existing economic system.

But are we sure that the goal of business activity is maximizing profit? If we limit ourselves to the most positive part of the market economy (omitting the discussion about the nature of speculative "profits"), we can affirm that profit is the added value generated from the company's activity that is attributed to owners, who at one time were called capitalists. Therefore, profit is not the entire added value, but only a part of it. An example: Business A produces automobiles, transforming raw material into a finished product called a "car", at the cost of 10. If we add the cost of work (8), charges and down payments (3), the gross profit (before taxes) of a car sold at 30 is 9. If the business then pays taxes of 4, the net profit becomes 5. 

At this point, two questions come to mind. The first: where does this profit come from and on what does it depend? History of economic thought is also a history of different theories on the nature of profit. One hundred years ago, Schumpeter, for example, sustained that profit is the "award of innovation" to an entrepreneur, therefore, the compensation for an entrepreneur's innovative capacity. A half a century earlier, Marx affirmed that profit is nothing other than capitalists robbing workers, as the one true source of added value is human work, especially that of the workers. Today, we know that added value includes many things, among which is an entrepreneur's creativity, human labor, institutions of civil society, the tacit culture of a people and the quality of family relationships in which children grow during their first six years of life (as Nobel winner James Heckman has shown). In that added value of "5", there is not only the creative role of those who own a company's means of production, but something more that deals with the life of the entire collectivity. There is also this awareness behind the 41 article of the Italian constitution, when it declares the "social function" of a business, a function which also has a social nature. 

However, one thing is certain. If Business A sells cars for 30, and has a profit of 5, in a hypothetical "no-profit" world (meaning profits of 0), cars would cost 25 instead of 30. In other words, profits of businesses are also a form of tax on goods, paid by citizens, which reduces the collective well-being of a population. That is why a "no-profit economy" is often desired, dreamed of, and in certain moments of history, made real on small or vast scales. However, this often creates greater damage than the problems people wish to remove, as in collectivist experiments of the 20th century. These experiments did not work for many reasons, all deep, but one of these reasons is that when you take that "5" away and you hand it over to society, those who build businesses (public or private) no longer commit themselves to innovation and work. The wealth of a nation then diminishes, and not only economic wealth. Everyone grows poorer and even that value (5), hoped to be given to society, disappears. At the same time, the great crisis we're living teaches us that an economy founded on profits and speculation is also unsustainable. What can we do then?

Considering what has been said, what is happening today in the so-called civil and social economy, and particularly in the Economy of Communion, can be read in two different ways. One reading, minimalist and conservative, sees civil and social economy as the cork in the capitalist system. Normal (for-profit) businesses are not able to worry about the "losers" who fall along the way (in the language of G. Verga), and there's need for someone else that plays the role that families and churches played in the past. It's the logic of the 2 percent (no-profit) that leaves the remaining 98 percent intact (for-profit economy).

However, there is also another reading of the civil economy movement. Imagine, for now just on a small scale, an economic system where true added value, both economic and social, is distributed among many (not only to shareholders). Imagine that this happens without entrepreneurs and workers changing their commitment to work for lack of incentive, in order to avoid falling into the same problems of the collectivist and socialist economies. The true wager of the new market economy that awaits us will then be to show entrepreneurs (individuals and also communities) who are motivated by "reasons greater than profit".

The last phase of capitalism (which we can call functionalist-individualist) arises from pessimistic anthropology, tracing back at least to Hobbes: here, human beings would be too opportunistic and self-interested to think that they can commit themselves with high motivations (like the common good). We can't leave the last word about common living to this "anthropological defeat". We have the ethical responsibility to leave a positive view towards the world and towards man for those who come after us.

But so that all this does not remain just written on a page but becomes life, what is needed is a new humanism, a new educative season. What is needed are "new men and women" who are the center of the Economy of Communion project, capable of committing themselves and working, not just for profit but also to make their working activity a work of art. If this happens, then the new market economy, in which new significant protagonists are entering (like Africa, for example), will be a beautiful place in which to dwell, live, love.

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