Wednesday, July 7, 2010


“The purpose of a business is not to make a profit. What a dreary and demeaning description. The purpose of a business is to add value to people’s lives; the consequence of doing that well, is that you make a handsome profit.”


Mr. William Kellogg could have said much more - like enabling people through jobs so that they too can make a contribution to people’s lives; creating state revenue and (if you really insist) getting involved in community projects. We don’t even have to go into the contribution to society of “snap, crackle and pop!” Because that was the purpose. That was what made the company great and lasting, perhaps one of the better known companies of all time, appreciated by people from the first time they took solids into their tiny mouths.

“Profits are like breathing: you breathe to live, but you do not live merely to breathe!”

And an even cheesier one: “Profits are the car; the owner/s and staff are co-drivers, the market is the journey; the destination is meaning.”

I have met many of the Kellogg type in my life – from the Corporate chiefs to the plumber and electrician and hope to introduce you to them and their thinking in future writings.

The role of profit is simply to recognise the contribution of one essential resource, that of capital. It is neither more, nor less important than recognising the role of labour, nor the role of the State. Profit is also an invaluable and vital technique of measuring efficiencies, but perhaps just as vital are measurements such as cash flow and market research.

I will always vehemently defend profits, but never the profit motive! To defend it as a co-motive with service is an intolerable contradiction. They often conflict, and when they do, service is the loser. An attempt to prioritise profit as a consequence is also silly. Many companies have experienced losses, some showing no profit for a few years, and they have not died. But try not paying your staff. You will die within months. Cheat the taxman…. (Let’s leave for the time being).

Offer nothing of value to your customers, and you have certainly lost the right to exist. Indeed, one could argue that the ability to make profits without creating underlying value has caused the froth liquidity that has come to bite us so severely.

In the same context, I will always vehemently defend free markets. Markets are perfect, so much so that they will reflect all of our imperfections. Don’t throw away the thermometer because you don’t like the temperature. Market orientation means responding to the market, in other words serving the needs and wants of others.

The profit motive, a cornerstone of Capitalism, is the opposite: unashamedly self serving at times to the point of adding no value to others. There can be no greater threat to free markets than this behaviour. Far from being synonymous with free markets, the profit motive is its biggest enemy leading us on an inexorable march towards authoritarianism.

The real power of business lies in its generosity of spirit. Generosity at its purest is totally unconditional, seeks no recognition or reward of any kind. My mother, a marvellous product of the age of deprivation told me: “You kill kindness when you tell everybody about it!” But generosity cannot survive without gratitude. Contribution and reward go hand in hand. Giving is impossible without receiving.

Business is not unconditional. It has to stick to the rules of legitimate transaction and has been given some wonderful tools to guide it. They are essential to its survival. They existed long before profits or prophets were heard of. Perhaps even present when that 200 000 thousand year old jawbone fossil referred to in the previous article, was still chewing on some morsel of meat. They are the fundamental, natural economic laws of demand, supply and price.

At its purest and simplest, demand is a reflection of needs and wants, supply a response to that, and price the balancing fulcrum between them. In that sense, and again at its purest and simplest, supply exists to serve demand. It is not the other way around.

These are the fundamental rules of transaction, of fair exchange. Their value, by evolution more than design, is to enable a magnificent state of interdependence and ultimately meaning for most of us. We break these rules at our peril.

“Economics is not that simple”, a book reviewer of  my first book “Econosense” once wrote. Neither is the human body. Although at its core it simply needs air, water, food and shelter. And from that we have developed incredibly complex rituals, structures, fashions and culinary delights sometimes to the point of self destruction. So too with the natural economic state: Demand is manipulated, created, and controlled by techniques including lies, deception, addiction, targeting children in advertising, debt enslavement, government controls and many others. Supply is tainted with slave labour, Trade Unionism, corner cutting, collusion, covert monopolies, trade pacts, protection and seeing a competitor as an enemy, rather than a compatriot offering choice and an additional source of market awareness. Price has been distorted by collusion, kick-backs, bribes, corruption, interest rate manipulations, credit, derivatives, and worst of all the abuse of money which is destroying the measuring stick of price itself.

A little anecdote to end:

A young American Indian is listening to a wise old medicine man telling him that all humans have within them, two combating wolves – good and evil.

“Which one will win?” asks the young man.

“The one you feed the most,” the old man responds.

Time to change our diet!

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