Freeman

ARTICLE

Concentrated Philosophies

NOVEMBER 01, 2002 by DALE M. HAYWOOD

Some years ago, while visiting the University of Michigan in Ann Arbor, I saw a bumper sticker that got my attention. It was on the back bumper of an old Volkswagen Bug. It read: "PEOPLE, NOT PROFITS."

In one important respect, those words remind me of concentrated frozen orange juice. For these three simple words are also a concentrate. They are a concentrated philosophy-a highly concentrated philosophy.

In another important respect, the words are different from the orange juice. The frozen concentrate comes with instructions: "To serve: Mix with 3 cans cold water. Stir or shake briskly." There’s little chance the user will make a mistake as he reconstitutes the juice.

The bumper sticker, however, didn’t come with instructions. It’s left to each of us to decide how to interpret it, how to reconstitute the few words into a more detailed message, and then to infer a philosophy. So there’s a risk with the bumper sticker. Maybe we reconstitute the words the way the car owner intended. And maybe we don’t.

What did the Volkswagen owner intend?

Each term in a philosophy-of-business course I teach, I ask my students what they think are the message and philosophy of this bumper sticker. Here are a few recent responses. They’re fairly typical.

I think this message says we are putting too much emphasis on making a profit. People almost don’t care any more who they hurt because they are so money-hungry and greedy. They feel as long as they are making money, that’s all that matters.

The message that the owner of the vehicle is trying to express is that companies need to focus on jobs and hiring people, not downsizing and cutting costs to increase profits.

I think that the message being communicated by this bumper sticker is that corporations should not be so concerned about profits. This person feels that profits and money are corporations’ main concerns and he feels that this is wrong.

Generally, my students focus on current workers, those who assemble Buicks, take your pizza order over the phone at Domino’s, and change your oil in 10 minutes or less at Pennzoil stores. This is logical. We often see these people in their roles as employees. We interact with them. It’s clear how they serve us and that they serve us. I agree with my students. I, too, suspect that the "people" the Volkswagen owner had in mind are people who are currently employed.

Further, my students speculate that the message intended in the "not profits" part is simply that profits should be sacrificed for the benefit of workers’ pay. My students think this is simply a philosophy that advocates a particular redistribution of wealth. I think this is also a reasonable interpretation.

After giving them an opportunity to reconstitute the message and likely philosophy conveyed by "people, not profits," my students always want to know how I reconstitute the three words.

The first thing I do is point out that "people" are animate and "profits" are inanimate. That, in itself, introduces a subtle bias-against profits. (Of course the negative "not" serves explicitly to strengthen that bias.)

Workers are people with hearts and consciences. And children to feed. And mortgages. So readers of the bumper sticker, being people and animate themselves, are likely to readily empathize with current workers.

No Sympathy

But profits, being inanimate, don’t have hearts and consciences. Neither do profits have children to feed or mortgages to pay. So it’s much more difficult, maybe even impossible, for animate readers of bumper stickers to have sympathy for profits. For when it comes to generating sympathy, it’s no contest between the animate and the inanimate. At least on the surface, it seems positively humane to give more to animate "people" and to sacrifice inanimate "profits."

But what if we dig a little deeper?

After calling their attention to that animate/inanimate distinction, I then explain to my students how, whenever I see the word profit, I picture a simple profit-and-loss statement. It looks like this:

Revenues – Expenses = Taxable Income – Taxes = Profit

I proceed to tell them what comes to my mind when I reflect on each component of this statement. When I see the word "revenues," I think of people, namely, the corporation’s customers, the people who buy Buicks and Domino’s Pizzas, and who get their oil changed at Pennzoil stores.

When I see the word "expenses," I think of people. These are the people GM employs to assemble Buicks and Domino’s employs to make pizzas, and the people who work in Pennzoil stores. My students and I surmise that these are the only people the bumper sticker refers to. They are important, but they are not the only people who come to my mind when I reflect on the word "expenses."

Others include the people who make the tires for the Buicks, the people in the dairy industry who make the cheese for Domino’s pizzas, and the people employed in the refineries that make the oil for the Pennzoil stores.

These others also include the creditors of all of those businesses: the people who have worked, saved, and lent their savings (probably through financial intermediaries such as banks) to the businesses to help finance the equipment that their workers use-robots, ovens, hydraulic pumps. To these creditors, corporations pay interest. Interest is an expense.

When we get to the bottom line of the income statement, "profit," yet another group of people comes to my mind: stockholders. They own the corporations. They don’t show up for work, yet they perform a vital role. They, along with the creditors, finance the plant and equipment that the workers use. Those tools multiply what the workers can accomplish with brains and brawn alone.

Some of these stockholders might be currently working. Others might not be. But most of them became stockholders by working at some time in their lives. It’s likely that many of them had to work harder than current workers, because they had less-advanced tools at their disposal. They made sacrifices. They didn’t spend everything they earned. They chose to buy stock with some of their savings. Profits compensate them for their vital role.

Profits Represent People Too

So, with just a little probing, we find that profits are fundamentally animate too! Reasoning this way, we eliminate the bias against profits that I had alerted my students to. Just as corporations pay wages and salaries to workers for their current contributions to the business, corporations "pay" profits to stockholders (in the form of cash dividends or retained earnings that may fuel capital gains) for their contributions to the business. These two groups of people simply make different contributions, the former more direct, the latter less direct.

To me, then, the bumper sticker really reads "people, not people" or "wages, not profits." Either way, the implied philosophy is clearer. We can now be even more confident that the owner of the Volkswagen was advocating a different-and what he probably considered a more just-allocation of revenue, namely, more for workers and less for stockholders.

Would that redistribution be wise or more just? Attracting revenues in business is a challenge. Just ask anyone still employed in the U.S. airline industry, or the people no longer working at Kmart. We don’t have to look hard to find dramatic, or undramatic, examples.

At one time, buyers wanted shag carpets. Now they want berber. At least in our neighborhood, the floor covering of choice for kitchens is currently hardwood. Not too long ago, it was ceramic tile. I remember when there were no "light" salad dressings. But judging from what you’ll find in our refrigerator door at this moment, you might wonder if there is currently any other kind. Buyers are fickle. It’s tough for sellers accurately to anticipate what buyers want.

Then, as if consistently anticipating what buyers want weren’t challenge enough, there’s a second big challenge: pricing. This is a challenge because sellers like higher prices and buyers like lower prices.

Once business owners and managers have revenues in hand, they face still other challenges. Employees and suppliers want a higher percentage of those revenues, but that would leave a lower percentage for the stockholders, who also want a higher percentage. But that would leave a lower percent for the employees and suppliers. However, as we have seen, customers, employees, suppliers, and shareholders are all people. They are all important to a viable business.

The men and women in business who set prices and who control the disposition of revenues must perform an extraordinary balancing act. They must simultaneously and harmoniously balance the interests of all of these people for the benefit of all of them over the long run. I think the message on a bumper sticker that reads "people, not profits" and the philosophy it implies are destabilizing and counterproductive. They fuel an adversarial relationship between two vital groups of people. They foster an "us" (workers) versus "them" (stockholders) mentality. This is not useful. It is positively harmful.

In concluding my response to my students, I recommend an alternative, a bumper sticker that reads "PEOPLE AND PROFITS." For, in a highly concentrated form, I believe my three words communicate a much sounder message and philosophy. My bumper sticker would contribute to a clearer understanding of profits and stockholders and to a more complete and accurate understanding of the philosophy of private enterprise. I think my bumper sticker would be helpful.

My students think so too.

Dale Haywood is a professor of business at Northwood University, and an adjunct scholar with the Mackinac Center for Public Policy, both in Midland, Michigan.

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November 2002

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