The Social Value of Profits and Wealth
In recent weeks, the Sunday
Gospel readings in the Episcopal Church have spoken about issues of business
profits and wealth. Our orientation as a
business economist means we take these commentaries seriously, and we might
have a different spin on them than theologians and clergy do.
On September 18, the 18th
Sunday after Pentecost, we had a passage from Luke 16 about a dishonest
manager. This person was being fired by
the rich man who employed him because he had cheated in running the business,
so the profits he generated were clearly in excess of what they should be. The conclusion to the appointed scripture is
the familiar, “No slave can serve two masters; for a slave will either hate the
one and love the other, or be devoted to one and despise the other. You cannot serve God and wealth.”
The next week, on September
25, we heard the well-known story, also from Luke 16, of Lazarus, the poor man,
who rested on the doorstep of Dives, a very rich person. Dives evidently refused even to share the
scraps from his dinner table with poor Lazarus.
The accompanying lesson from the Epistle is from 1 Timothy 6, which
includes the familiar, “the love of money is the root of all kinds of evil.”
Profits and wealth. It’s easy to use the Biblical readings we’ve
just mentioned to disparage those worldly concepts. At the same time, profits and wealth can be
beneficial, and in fact, they can contribute vigorously to the well-being of
not just the profit-earners and wealth-holders, but to the life-condition of many
other people with whom successful business leaders are associated.
This brief article will just
scratch the surface, but we feel like we have to try. The social value of profits and wealth seems
to us to depend on two important factors, how the profits and wealth were
earned, and what uses are made of them.
Profits: from Sound Business
Operations or from Price-Gouging?
The problem presented in the
first Gospel lesson above is that the manager earned profits through
cheating. The news recently has been
full of stories about profits earned by Mylan, Inc., through substantial price
increases on the Epi-Pen. According to
the Wall Street Journal, Mylan has raised the price 17 times in the nine years
they have marketed the allergy reaction first-aid shot injector, totaling more
than 500% to a retail cost more than $600.
We can’t say exactly that cheating was involved here, but it certainly
seems strange to need such large
increases for a product that
is not new. Indeed, the main medical
ingredient, epinephrine, is a generic chemical that has been around for years.
As we note, another criterion
for judging the appropriateness of profits is how they are used by the
company. If they are just used to
inflate the paychecks of top management well beyond some industry standard,
then one might argue that they are excessive.
Indeed, in this case, Mylan executives receive the second highest
compensation of comparable managers in drug companies. But Mylan is not the second largest drug
company; to the contrary, it ranked 11th in the U.S. in 2015 by
revenue and 16th by market valuation.
Our commentary here is hardly
meant to single out Mylan, but this case has emerged as a very timely and
visible example of what seems to be price gouging implemented toward less-than-noble
goals.
By contrast, we can argue in
favor of profits if they result from genuinely efficient business operations,
and if they are used toward positive ends.
We might assess a business’s
operating efficiency by measuring profits against output or revenue and
comparing that ratio to the ratio for a whole industry. We’d want to raise questions if the company’s
result is significantly higher than the whole industry as well as if it is
weaker. Another measure might be output
per worker. In both cases, we’d be looking
for competitive pricing and competitive performance results.
Profits Contribute to Growth
in Jobs and Business Investment
Profits can make important
contributions to business operations in successive periods. Very simple comparisons of Commerce
Department national income data show that for the total of nonfinancial
corporations, profits in a given year are highly correlated with employment and
with investment in new facilities and equipment the next year.
Thus, profit growth is a
suggestion that our business might be open to expansion. We can afford to hire more workers and they,
of course, would need more operating facilities. Or, without hiring additional workers, we
might still want to invest in improved models of the equipment we use. The company’s profits are the first source of
financing for expansion and investment in capital goods. Even if funds are raised from banks or
investors, those financers want to know that a company has good credit quality
and is prospering, so its profits provide an important backdrop for the
external funding sources.
In the cases where we’re
assessing profits against the performance of overall markets and demand for our
products, it would thus be strange to issue advice calling for profits to be
reduced. That recommendation would be
reserved instead for special cases when the profits are seen to come from excessive
pricing, improper reporting or other anti-market actions. Like the Epi-Pen situation.
Ministry to Business Managers
& Wealth Holders
A book on this whole topic is
called Anointed for Business, in which the writer, Ed Silvoso, argues
that, just as clergy have a calling to their ministry, business leaders have a
calling to their work. If they see it as
a genuine calling to a kind of ministry, perhaps they would be more inclined to
do their work with consideration for all the parties involved: their
shareholders, yes, and also their customers, their employees and even their
competitors.
And what about the CEO or the
lead shareholder or anyone who has done well investing in a business and/or
stocks? Should they be required to
sacrifice the gains they have made through their contributions to society? Indeed, if their business is successful in
the long-term or their stock portfolio has grown consistently, is their
resulting wealth sinful? This is a huge
question, of course, and takes books and books, not just a couple of paragraphs
in a blog post. But our take on it comes
from two angles. First, In Mr. Silvoso’s
book, one of the chapters is titled, “God Loves Bill Gates, Too”. Absolutely.
And God probably loved Bill Gates before he founded the Gates
Foundation, as God gave Gates the gifts to develop the Microsoft systems and
form the company. Gates, of course, has
carried the principles of corporate structure and operation into his charity;
in operating the Foundation, he and Mrs. Gates have focused on the results of
their charitable work, not just performing it.
Thus, they try to do their charitable work efficiently so as to get the
greatest possible benefit from the resources devoted to it. This approach has changed the perspective of
many of the world’s charities, to the benefit mainly of those for whom that
work is done. This is clearly a good use
of wealth and hardly argues for diminishing it.
Second, the other point we
would make about wealth comes right out Jesus’ own work. On September 28 in the assigned Daily Office
readings, we had the story of Jesus’ calling of Levi, a tax collector, to be
one of His disciples (Luke 5: 27-32).
Levi did leave his desk to follow Jesus and then invited Jesus to his
home, where he gave a banquet that included his tax-collector friends. The Pharisees and scribes saw Jesus eating
with tax collectors and asked him what on earth he was doing with those awful
people. Jesus replied that He in fact
needed to be with those who are sinners;
they are the ones who need Him, not those who are already righteous and
trustworthy. So if indeed, we are
concerned about business leaders and how they lead and how honest they are,
then let us minister to them and work with them. Let us enlist them and show them about using
their resources for the common good.
All told, the points about
money, income and wealth are concerned with honest, careful and prudent operations
and using positive financial results to favorable ends. The money and the wealth are not evil
themselves, but it’s whether we use them constructively that matters.
--------------
Sources:
We consulted several recent issues
of The Wall Street Journal for data on Mylan, Inc., as well as websites showing
various rankings of pharmaceutical companies.
Ed Silvoso. Anointed for Business. Ventura, CA: Regal Books. 2002.
Labels: Christianity, Economy
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