Is the Profit Motive Anti-Social?
HUNGER FOR INDIVIDUAL RECOGNITION MUST BE SATISFIED
By GLADSTONE MURRAY, Public Relations Counsel Formerly General Manager of Canadian Broadcasting Corporation
Broadcast at the Toronto Sunday Evening Forum, Toronto, Ontario, October 22, 1944
Vital Speeches of the Day, Vol. XI, pp. 147-150.
IT has been said "speech is precious; it should be used not to wound but to heal, not to darken but to enlighten, not to condemn for error, but to release from error." If, however, in releasing from error one is obstructed by evil or ignorance one should denounce and rebuke. It is in this spirit that I address myself to a discussion of the profit motive.
Origin of the Profit Motive
I daresay one of the earliest manifestations of the profit motive was when man, still in the tribal state, discovered by early experience that those tribesmen who wished to survive the rigors of winter had to accumulate both fuel and food during the other parts of the year. The desire to secure a margin above costs for oneself has been and is pretty nearly universal. Moreover, the craftsman or office worker who seeks an increase of pay or promotion is actuated by the profit motive; he wishes to get on in life, to do better for his dependents, and so on.
As with other elementary human urges, the profit motive may be abused; it certainly is capable of being anti-social; that does not mean, however, that under the proper controls and rules it is, or need be, anti-social. Those who criticize the profit motive usually advocate its replacement by the motive of "use"—on the face of it an attractive doctrine. But there is involved much more than appears on the surface.
Before we reach the area of acute controversy, however, I believe it is possible to suggest a statement of objectives that most people of good will and understanding would accept. Here's what we are aiming at: on the material side, freedom from want, abolition of mass unemployment, the widest possible spread of prosperity; on the non-material side, intellectual and spiritual health; and in freedom, the sovereignty of the individual citizen. This individual sovereignty is paramount in a machine age of mass production whether the economy be that of the Communism of Soviet Russia or of the capitalism of the United States; there is acute hunger for individual recognition—hunger which cannot be satisfied by material solutions alone.
Priority of the Common Good
Some spokesmen of the Socialist or Communist solutions as of the free-enterprise capitalist solution fail to acknowledge that the collectivist principle has already been applied in some of our activities, likewise that the profit motive has not been abolished from the U.S.S.R. It is a truism which is now accepted that the Common Good is superior to the economic interest of any private group; it follows that the area for private enterprise should extend only to the limit of the ability of private individuals better to serve the Common Good. Beyond this limit, government enterprise can better serve the Common Good; moreover, in that part of the economy where private enterprise can better serve the Common Good, the people through their government must devise and enforce the rules of the game. It follows also that the Common Good takes priority over particular creeds or doctrines; thus we are not to sacrifice the Common Good in order to gratify the fanatic doctrinaire who opposes all compromise.The Profit Motive Properly Controlled
The profit motive operates through the price system. As the conception of the Common Good is applied, the price system and the profit motive are not allowed to run amuck; monopolistic practices, the exactions of cartels, and measures of extortion are eliminated by law. Thus we have the profit motive applied through the price system under conditions of guaranteed competition with full legal safeguards of the public interest. I do not claim that we have reached this stage yet, but I do suggest that we are on the road.
Suppose the profit motive were abolished, one has then to set up an alternative system; the motive of "use" rather than the motive of profit. How this would work is fully explained in Socialist literature. After The National Planning Commission had given expert advice, the Socialist administration would determine what would be produced and distributed. As already mentioned, this is, at first glance, an attractive theory; instead of having goods produced in the ordinary commercial way, there would be a study of what things were really of value to the people and only these things and services would be made available. There would be no "hit or miss"; there would be conscious central planning. In Germany under their totalitarian scheme they have gone even further, they have established the function of Freizeitgestalltung, which means the shaping of the use of the people's free time. In the matter of the arbitrary determination of goods and services to be produced and distributed, a Socialist or Communist administration in Canada would face not only the normal difficulties of effecting a revolution in the habits of citizens, but also the special difficulty that the profit motive would persist across the United States border. There has been some discussion in the correspondence columns of newspapers on what goods should be produced under the "use" motive. Examples are found in the letter page of the Toronto Star.
Writing in the issue of The Star of August 24th, 1944, Mr. Charles Negrych declared, and I quote:
"If the C.C.F. was in power (as a federal government) today there would not be any difference whatsoever in any luxury enterprise (such as concerns making expensive automobiles, jewelry, expensive clothing, fancy non-essential foods, homes costing approximately over $6,000, etc.) except that the C.C.F. would try to prevent any sweat-shopping of persons engaged as employees in the luxury enterprises."
Two days later on August 26th, under the title "C.C.F. and Luxuries," there appeared this indignant rejoinder signed by Mr. Henry Gibson, and I again quote:
"I am both amazed and shocked at the letter from Charles Negrych which you published. I wonder with what authority he speaks on behalf of the C.C.F. I am an original member, and took part in the discussions from which the Regina manifesto emerged. And I can say with the full authority of this experience that when we come to power we are certainly going to have a lot to say about luxuries as about everything else in this predatory society. We are going to put a stop to the production of all goods and services that are not good for the community; this is essential if we are to apply the fundamental doctrine of production for 'use' and not for 'profit'."
Acute difference of opinion is inevitable. The profit motive and price system, with commercial enterprise, provide an automatic, rough-and-ready means of meeting the requirements of the public in goods and services. When you substitute the "use" motive for the profit motive the decisions must be the result of conscious central planning, imposed from above. Of course in some countries it is easier to impose decisions from above than it is in others. For example, the conscious central planning of Soviet Russia began in conditions favorable to regulation and with a general standard of living far below ours. Yet it is now common knowledge that the intensely practical genius of Marshal Stalin has never permitted rigidity of doctrine to impede progress in the light of practical experience.
The Role of Specialists
The London School of Economics has become famous as a generator of dynamic thought in economics and political science. Harold Laski has been its chief protagonist of left-wing views; Sir William Beveridge, although more in the middle, is the unchallenged apostle of social security. Now the London School of Economics produces a front-rank economist and political thinker who challenges Harold Laski. I refer to F. A. Hayek, whose recent book "The Road to Serfdom" is regarded by competent critics as one of the most significant of this generation.In our predilections and interests we are all in some measure specialists. As Professor Hayek points out, those who are planners by inclination or by training are almost all specialists. And we all think that our personal order of values is not merely personal, but that in a free discussion among rational people we would convince the others that ours is the right one. The lover of the countryside wants above all that its appearance should be preserved, and that all the blots made by industry should be removed, no less than the health enthusiast wants picturesque but insanitary old cottages cleared away, or the motorist wishes the country cut up by big motor roads criss-crossing; the efficiency fanatic wants the maximum of mechanization, no less than the idealist who, for the development of personality, wants to preserve as many individual craftsmen as possible. All feel sure that their aim can be achieved by conscious central planning, and in this way only, and they all want planning for that reason. But, of course, the adoption of the planning for which they clamor, at once reveals the concealed conflict between their aims; indeed, the movement for conscious central planning owes its present strength largely to the fact that planning is still an ambition which unites almost all the single-minded idealists, all the men and women who have devoted their lives to a single task. The hopes they place in planning, however, are not the result of a comprehensive view of society, but rather of a very limited view, and often the result of an exaggeration of the importance of the things they place in the forefront. Now in a free state of society such as ours this type of men and women has a very real value. But it would make the very men who are most anxious to plan society the most dangerous if they were allowed to do so—the most intolerant of others; from the saintly idealist to the ruthless fanatic is often but a step. Though it is resentment of the frustrated specialist which gives the demand for planning its strongest impetus there could hardly be a more unbearable or more irrational world than one in which the most eminent in each field were allowed to try to proceed unchecked with the realization of their ideal. Nor can "co-ordination," as some planners imagine, become a new specialism. The economist is the last to claim that he has the knowledge which the co-ordinator would need; his plea is for a method which effects such co-ordination without the need for an omniscient dictator. And that means the retention of some such impersonal checks on individual efforts as those against which most specialists chafe.
The profit motive under the price system, duly regulated and controlled so that the public interest is safeguarded, is certainly not an ideal arrangement; nor for that matter is any human expedient so far tried, but it works, it produces goods and services which most people want; its operation is simple, it is in fact, democratic. The alternative method, the "use" motive cannot by its nature be applied in a democratic way; it must be imposed. In a society which for its functioning requires central planning this control cannot be dependent on a majority being able to agree; it would be necessary often that the will of a small minority be imposed uponthe people, and for this very good reason because the minority will be the largest group able to agree among themselves on the question at issue. Democratic government has worked successfully where and so long, as the functions of government were by a widely accepted creed restricted to fields where agreement among the majority could be achieved by free discussion ; and it is a merit of this creed that it reduces the range of subjects on which agreement is necessary to one on which it is likely to exist in a society of free men. It is sometimes said that democracy will not tolerate "capitalism." If "capitalism" means here the competitive system based on free disposal over private property; the price system and the profit motive, it is important to realize that only with this system is democracy possible; when it becomes dominated by the collectivist creed democracy will inevitably destroy itself.
Democratic Socialism Impossible
That democratic socialism, the great "Utopia" of the last few generations, is not only unachievable, but that to strive for it produces something so utterly different that few of those who now wish it would be prepared to accept the consequences, many will not believe till the connection has been laid bare in all its aspects.
Germany is the prototype of this development. There the suppression of competition was a matter of deliberate policy, and was undertaken in the service of conscious central planning. In the advance towards a completely planned society the Germans, and the people who imitate their example, are merely following the course which nineteenth century German thinkers mapped out for them. The history of the past hundred years is a good illustration of the truth that in social evolution nothing is inevitable but thinking makes it so.
Complexity and Planning
A current fallacy among the whole-hogger collectivists is that modern technological progress makes conscious central planning inevitable. It is contended that the complexity of our modern industrial civilization creates new problems with which we cannot hope to deal effectively except by conscious central planning. Also it is claimed that the increasing difficulty of obtaining a coherent picture of the complete economic process makes it indispensable that things should be co-ordinated by some central agency if social life is not to dissolve. I submit that this argument is based upon a complete misapprehension of the working of competition. Far from being appropriate only to simple conditions, it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such co-ordination can be adequately brought about. If a single person or board could effectively survey all the relevant facts, central planning and conscious control would be feasible. But when the factors which have to be taken into account become so numerous that it is impossible to gain a synoptic view of them, decentralization becomes imperative. And once decentralization becomes necessary because no one can consciously balance all the considerations bearing on the decisions of so many individuals, the co-ordination cannot be effected by conscious control but only by arrangements which convey to each agent the information he must possess in order effectively to adjust his decisions to those of others. And because all the facts of the changes constantly affecting the conditions of demand and supply of commodities and services can never be fully known, or be quickly enough collected and disseminated, by any one center or series of centers, what is required is an apparatus of registration which Automatically records all the relevant effects of individual actions, and whose indications are at the same time the resultant of and the guide for all the individual decisions. The more complicated the whole, the more dependent we become on the division of knowledge between individuals whose separate efforts are co-ordinated by the impersonal mechanism for transmitting the relevant information, known as the price system, and based on the profit motive.
Planning for Competition
Compared with solving the economic problem by means of decentralization plus automatic co-ordination, the more obvious method of conscious central direction is incredibly clumsy, primitive, and cramped in scope. Fortunately man tumbled on a method by which the division of labor could be extended far beyond the limits within which it could have been planned. Any further growth of its complexity, therefore, far from making central direction more necessary, makes it more important than ever that we should use a technique which does not depend on conscious control. Planning and competition can be combined only by planning for competition and not by planning against competition.
Changes of AttitudeIn considering economic conditions and organization on this Continent it is important to recognize that great changes are taking place in the attitude of management and ownership. Parallel changes are taking place in Soviet Russia. It is a fair observation that while Russia is retreating to an extent from the system of rugged collectivism we are retreating to an extent from rugged individualism. The 19th Century conception of profit motive and free enterprise is thoroughly outmoded; in its place has come the conception of responsible enterprise, which lays down a creed of specific social obligations and responsibilities for both management and labor. Our kind of planning for competition and for the application of fair rules of the game can be conducted by the voluntary co-operative effort of labor, industry, agriculture and government. Things we certainly learn from Russian practice and experience include the value of incentive rewards in industry and the fallacy of undue rigidity in wages. Flexibility of wage structure will be an important factor in "shallowing" recessions, but I do not believe that it will be accepted or can be applied without a considerable extension of profit sharing; this is an important point. That the profit motive should be in its right place in our scheme of things its advantages should be available in the most obvious way to wage earners as well as to management and ownership. Akin to this conception and in line with enlightened thought is a revision of the idea that while management and administrative staff in industry are classified as permanent overheads, wage earners have been looked upon as temporary or seasonal employees; in a sense "expendable." Once the principles of flexibility of wage reward plus profit sharing are accepted, then industrial and agricultural workers should have as much security as any others.
The manager or owner subscribing to the creed of Responsible Enterprise considers it part of his paramount duty to safeguard the employment of his work people. Although depressions that create mass unemployment are to be eradicated—this indeed is essential to any tolerable future—there are bound to be recessions, compensated by advances, in the course of progress. The relatively small proportion of work people likely to be displaced in recessions of this kind can be easily taken care of: no longer are these people simply to be turned adrift and put on relief. The conception of stewardship for continuous employment shared alike by management, government, and labor leadership is an essential characteristic of the new era. I believe that the profit motive operating through the price system, suitably regulated and controlled in the public interest, is fundamental to our free way of life. But I believe also that the profit motive, operating through the price system, without proper regulation and without social conscience, would lead to catastrophe. The enthronement of greed will not be tolerated. On the other hand, hide-bound architects of revolution, the people who threaten with violence those who advocate a middle road consistent with freedom, are not declining either in numbers or influence at nearly the same rate as the old-fashioned predatory capitalists. And perhaps this is not surprising.
The professional agitator thrives on dissension, misunderstanding and hatred. Hence the parrot cry of the Class war. Especially in this country where there are no class divisions or distinctions the professional agitator, masquerading as a Trade Union Leader, has to pretend there are conflicting classes in order; to create the atmosphere of conflict. Authentic Trade Union Leaders concerned with the well-being of the workers they represent, have nothing in common with these skilled traffickers in trouble. The attempt to deal in the bulk votes of whole sections of the workers without prior individual consent is typical of the "big-boss" methods more familiar in the U.S. than in Canada. But somehow I do not see any considerable number of our sovereign Canadian citizens giving proxies for their votes to carpet-bag, power-hungry agitators.
The Place of Veterans
I have heard it claimed that the veterans of the two wars, of whom there will be more than a million men and women, desire to resume their peacetime work with the profit motive abolished. As a veteran of World War I, and having had the chance of seeing a good deal of those serving in the present war as well, I have yet to encounter a veteran or a serving member of one of the armed forces who entertains any such idea. Next to having a chance to make a decent living and to get on in life, veterans are anxious to have their own businesses or farms or to set up for themselves in a profession, or skilled trade. Most veterans have seen quite enough of red tape and regimentation and discipline for one lifetime. They yearn for as little Government interference as possible in the future. In the post-war period the veterans will be a powerful factor in the community. They will, of course, co-operate in fundamentals but they are unlikely to take joint political action through separate veterans' organization. Such separate political action would be a mistake unless all other measures failed to secure them the treatment to which they are entitled. I would much prefer to see veterans strongly represented in the leadership and active membership of all political parties, business management, and trade union organization. A generous injection of veterans would be a splendid tonic all around. These men who have become familiar with death and destruction where delay and doubt imperil the lives of comrades—these men, impatient of unnecessary chatter, will insist on action both rapid and effective. This is the attitude likely to preserve our freedom and encourage the kind of co-operation essential to the prosperity and welfare of all of us.
Some Basic Truths
The interaction of individuals possessing different knowledge and different views is what constitutes the life of thought. The growth of reason is a social process based on the existence of such differences.
To "plan" or organize the growth of mind or, for that matter, progress in general, is a contradiction in terms. The attempt at such control must sooner or later produce stagnation of thought and a decline of reason. Individualism is an attitude of humility before the social process and of tolerance of other opinions and is the exact opposite of that intellectual arrogance which is at the root of the demand for comprehensive direction of the social process. There always has been a conflict between progress and security. The conflict, however, is not irreconcilable. Indeed the very preservation of our economy and of our way of life depend upon this reconciliation.
Complete economic stability can be obtained only at the price of complete regimentation, and this remedy, at least to a typical North American, would be worse than the disease.
Perfect social security is obtainable. The formula is simple: Pick a place where there is no capital punishment and kill a policeman in cold blood. You will achieve food, clothing and shelter for the rest of your natural life; you will also learn the inescapable truth, that the price of complete social security is complete loss of freedom.
Earning power based on productiveness, not yearning power based on dreams is the ultimate test of the individual living standard. Plans for social security in the post-war period, such as those outlined in the recent White Paper of the United Kingdom Government, and those contemplated in Canada, depend upon profits for their success. Substantial national income is the only safe source of substantial public expenditures; taxes cannot be collected unless there is something to tax. Our ability to absorb a measure of collectivism depends upon the increasing strength and success of our enterprise system.
Business, Big and Little
The opponents of Responsible Enterprise try to misrepresent it as being a "front" for private monopolies and cartels. The suggestion is false. Responsible Enterprise has lost no opportunity of exposing the baneful effects of cartels and private monopolies, incidentally revealing not only their German origin, but also the danger of their reappearance in suitable disguise after the war. Responsible Enterprise opposes regimentation and bureaucracy under private auspices just as much as regimentation and bureaucracy under the aegis of government agencies. Indeed, the only thing that is worse than state bureaucracy is private bureaucracy. Small business is the bulwark of the Responsible Enterprise system. Provided that the power that comes with size is not permitted to stifle competition and is not permitted in other ways to be abused, big businesses can serve the Common Good. Likewise big unions can serve the Common Good provided they are not permitted to stifle progress or unduly to limit access to jobs or in other ways to admit abuses and inefficiency. It is sometimes argued that monopolies and cartels achieve a praiseworthy element of stability. Whatever stability monopoly establishes is offset by the stagnation which generally ensues. This encourages under-employment. Competitive business is essential to the working of our economy and it has to be really competitive.
My conclusion therefore, is that the profit motive is not inherently anti-social, that it is an expedient, no doubt imperfect as are all human expedients, but one which, if properly controlled and properly applied, is indispensable to our freedom and general prosperity; I suggest also that, in the circumstances and conditions that make up our characteristic way of life in Canada—there is no practicable alternative to the profit motive, working through the competitive price system, appropriately regulated—no alternative to which the objections are not vastly greater than to the profit motive.
Despite the loss and strain of war, despite the tremendous effort being made by Canada—an effort which would have been creditable to a nation of twice our population—we face a future of unparalleled development if we prove worthy of our birthright. The challenge is to high adventure. It will require the revival of the qualities of the pioneers—self-reliance, courage, intelligence, strength of mind and body, and above all—faith. For the great tasks that lie ahead we must have enlightened methods and we must have freedom.