Do businesses truly need profit?

 

To argue that businesses do not need profits to survive, in a world where money is a necessity for every company, is simply incorrect. Whether companies are “non-profit” organisations or an LTD they still must have some income to pay for their most basic needs.

If businesses function without profits then they must be state-run. Thus, turning the economy into a commanding market. There is simply no other way for a company to function. Investments and advertising for future products have to be funded some way. In theory, a regulated market is not as effective as an unregulated one. Under full government regulation, there would be an inefficient allocation of resources. However, as no market has ever truly been fully regulated (because it would not be successful) this has not been fully tested. Profits are clearly needed in order for resources to be allocated efficiently. A free market signals to producers what quantity of a certain product they should create and for what price. This not only maximises profits as an incentive for producers but also allows consumers to benefit from low prices and enough of a certain product to satisfy them.

 

The responsibility of most business’ is to maximise profits through the trading of goods and services. Any apparent “social responsibility” they have is a construct created by followers of a socialist ideology. Milton Friedman within his New York Times article ‘The Social Responsibility of Business is to Increase Profits’ argued this by stating that no business has a “social responsibility” instead they only exist to make profits. If a business was formed in order to serve the population whilst simultaneously not making profit from this service they would quickly run short of funds and declare bankruptcy. This is economics 101.

 

The idea of financial stability being crucial is especially true for small businesses which represent the majority of companies. Approximately 99% of employers in the USA are small businesses. Small businesses are often reliant on proving that they are making steady profits in order to stay afloat via bank financing. The only true “social responsibility” that a business has is to provide their product to a customer and pay the taxes to the governments of the nations in which they operate within. The company Apple would not be expected to hand out free IPhones because some members of society believe that they are owed luxury products at no cost. With over 210 million phones sold in 2016 alone they, as a company, would expect some revenue. If a company as hard working as Apple which puts thousands of hours into designing and selling new phones was treated as an equal to a small window cleaning business, despite there technically being equality through this, the work put in is not equal. The profits received reflect the work put in.

Any social responsibility arguably is at the hands of governments rather than businesses. A Government’s main objective is to provide basic needs for their people. This is done through trades with nations as well as taxes. No business receives money in such a way. Simply put, to treat a business in the same way (to serve people with little compensation) would be impossible. Shareholders would not invest as their stocks would plateau not allowing any return on investments. This would eventually lead to any funds drying up and a true non-profit organisation slowly fading out. A lack of income alone demonstrates how businesses cannot survive without profit. Profit is an incentive for outside investors to pump money into a company which is then used to improve product quality, marketing and staff training amongst other things. This leads to a cycle that is broken by removing profits from business. Thus, crippling the companies in the long run.

 

To postulate that a business does not need profit to function is unrealistic. Any argument in which businesses do not require profits would be difficult to justify. We live in a state where having a constant flow of income is the only way to survive. Whilst not perfect, the majority companies have lived this way for hundreds of years. In recent years, nations attempting to go against the grain (Vietnam and Laos) have not found the success that the bulk of countries who have followed a capitalist way of thinking have.

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