While most people accept that business are in the business of pursuing profits, this pursuit nevertheless prompts many complaints, In two previous posts, I outlined twenty objections to the profit motive, and I tried to counter each in turn. In this post, I offer ten more complaints that allegedly result from the pursuit of profits.
See what you think of this next set, and let me know your thoughts in the comments!
21- Manipulation of financial markets
Entrepreneurs have manipulated financial markets in the past and are likely to do so in the future. One of the more notorious examples was the Hunt brothers’ attempt to corner the silver market back in 1980. They lost over $4 billion in the attempt.
On the other hand, the Federal Reserve Bank manipulates financial markets as part of its charter. Its easy money policies contributed to the inflation of the 1970s, the Dot Com bubble, the Housing Bubble, and the current wave of bank runs.
While financial manipulation by an individual or a firm may cause serious problems, the impact of government manipulation is usually far more widespread and devastating.
22- Expansion of insider trading
Making insider trading both legal and public would be a service to investors. Company officials buying or selling large amounts of their own stock would be a useful indicator of the company’s health. While insider trading is not inherently immoral, government officials trading stocks based on their knowledge of pending votes is immoral and all too frequent.
23- Controlling government policies
Firms can’t control government policies without government acquiescence. That said, industry influence is unavoidable given government intervention in the marketplace. When an agency is created to regulate an industry, where can it go for industry expertise other than the industry itself? Who has more incentive to lobby the agency than industry leaders? When bureaucrats retire from the agency, where can they go for second careers other than the industry about which they’ve spent their professional lives learning?
24- Disregard of human rights
Companies have been accused of human rights violations by building “sweatshop” factories in developing countries. In cases in which activists have succeeded in shutting down those factories, however, the laid-off workers have often had to resort to prostitution and drug trafficking to stay alive. Working conditions that Americans find unacceptable are often the best options that people in impoverished nations have. Taking away those options doesn’t make their lives better however good it makes activists feel.
25- Ignoring consumer needs
Companies that ignore consumer needs don’t stay in business long. By contrast, governments routinely ignore consumer needs. Unlike private firms, they don’t have to cater to consumers to stay in business.
26- Incompetent distribution of funds
Companies that incompetently distribute their funds don’t stay in business long. By contrast, governments are routinely profligate with taxpayer dollars.
27- Corrupt leadership
As opposed to Obama, Trump, and Biden who routinely ignored their oaths to abide by the Constitution?
The ESG (environmental, social, governance) movement’s whole aim is to corrupt corporate leadership, redirecting their efforts away from their fiduciary and contractual responsibilities and toward “social justice” issues that are not only ill-defined but beyond both their control and competence.
28- Lack of consumer choice
What happened to Bernie Sanders’ complaint that consumers “don’t need 23 choices of deodorant”? Which is it, too much choice or too little?
29- Ignoring consumer safety
Companies whose products hurt people are subject to fines, lawsuits, and bankruptcy. By contrast, government agencies that cause harm face no such penalties. For example, what recourse does a patient have when the FDA is slow to approve a life-saving drug that has been on the market in Europe for years?
Perfection is not an option. People can be hurt by nearly any human activity. Ideally, the injured should be able to obtain restitution from those responsible. While our tort system does enable people to obtain compensation from private individuals and companies, the government often refuses to pay compensation for the damages that its actions cause.
30- Tampering with medical research results
The Food and Drug Administration (FDA) requires drug companies to conduct clinical trials to show the effectiveness and safety of their own drugs. Yes, the FDA establishes strict guidelines for drug trials, reviews the reports, analyzes trial data, and can require additional studies. However, its requirement that companies test their own drugs creates an inherent conflict of interest. Moreover, if a drug does cause harm, the fact that it has been approved by the FDA can reduce the manufacturer’s liability. The problem is less with the profit motive than with the perverse incentives that FDA regulations have created.
Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource.
READER COMMENTS
steve
Apr 20 2023 at 3:12pm
21-Seems like to some extent intent should matter. The CEO who bankrupts his company by expanding into a new product gets treated differently than a CEO who bankrupts the company while committing fraud for personal benefit. Again, with your examples I think there was a personal/corporate behavior component to some of them and government policy was not solely responsible for the outcome.
22- So the week before a company announces it is selling itself to a larger company at 50% more than the current stock price executive should be able to inside trade? We provide the officers of companies a lot of protections so must we also provide them free money? Routine insider stock transactions are already reported.
25- They do get voted out. Pay attention to local politics.
26- Sort of agree but the voters have a say. If they were truly unhappy with the spending they could vote people in to address that.
27- Still dont understand the anger at this. If you dont like companies using ESG dont invest in them. If you think ESG is a bad idea then you have a shot at free money by investing in competitors that dont use that philosophy. I like free money. You should be grateful.
28- At least in health care there is a lot of literature showing that too many choices leads to higher costs without better outcomes. Nice U shaped charts showing that not enough choices leads to higher costs and too many also does that with a sag in the middle with lower costs and medium number of choices.
29-Just read a nice review paper on the topic this morning. Rarely does Europe have a drug we dont have and its usually the other way around. Sometimes there are legitimate concerns. What is needed is an acknowledgment that money is one of the greatest incentives that exists. Its such a good motivation that people/companies will knowingly compromise safety to make more money. The remedies that we have through the courts are slow and imperfect, and if you are dead or sufficiently damaged dont adequately make up for it. While we are quick to jail, or demand death sentences for people who kill others, even if accidentally, when business does that the people making those decisions benefit personally, at least sometimes, from more income and the ensuing punishments happen many years later and are never in proportion. At worst its the shareholders taking the hit.
30- There is inherent conflict but there are some checks. The company does the early stage research but the final stage while financed by the company is usually done by clinical practitioners. They can and have been influenced by company money but many of those involved in studies are not being paid so there is opportunity to catch problems. Promising drugs will also usually have studies done by people not being paid. Its also one of the reasons it takes a while for FDA to approve things. None of this works when a company deliberately hides or does not make available info that should have been made available. No matter what you do something will slip past which is why you need post please monitoring. That’s largely not required in the US but thankfully we have the countries with socialist medical systems who do monitor and catch stuff for us.
Steve
Richard W Fulmer
Apr 20 2023 at 5:20pm
21- The Hunt brothers faced charges of racketeering, price manipulation, and antitrust violations. They paid millions in damages and fines and went bankrupt. So, at least in that case, the system worked.
22- Yes.
25- Very few government officials face voters.
26- Elections are a poor check on government abuse. Politicians represent a “bundle” of policy positions. I can go to the grocery store and fill my shopping cart with exactly what I want in exactly the quantities I want. A politician is like a pre-filled shopping cart. To get policy A that I want, I may have to give up policy B that I also want or get policy C that I don’t want.
27- Fair enough provided the government doesn’t force either ESG or stakeholder governance on all corporations.
28- At least some of the “oversupply” of choices is due to our dysfunctional intellectual property laws, which allow drug companies to extend their patents by making insignificant changes to dosages, delivery systems, and drug molecules.
As for the “undersupply” of choices, perhaps we could streamline the FDA’s approval process, allow more competition in the U.S. (e.g., stop giving the AMA the ability to limit the number of doctors and eliminate certificate-of-need requirements), allow more competition from abroad, increase price transparency, and allow nurse practitioners and physician assistants broader scope.
29- First, the threat of crippling lawsuits and the potential the loss of customers and of corporate reputation are big incentives for drug companies to provide safe and effective products.
Second, no drug is completely safe. Every time I turn on the TV, I’m presented with countless drug ads that provide horrifying lists of possible side effects. When I take medicine for the proverbial hangnail, I want it to be very very safe. When I take medicine for a condition that is likely to kill me, I’m willing to accept a higher level of risk.
Finally, when someone is hurt, what other than “slow and imperfect” courts do you suggest? Do you want to bypass due process of law that requires that evidence be presented and subjected to scrutiny before a judge and/or jury? Do we just summarily throw drug company officials into prison every time someone dies?
30- According to the National Library of Medicine, between 1992 and 2004, “The United States… was responsible for the development of 43.7% of the NMEs [new molecular entities].” So, thankfully for the socialist medical systems, the U.S. provides the lion’s share of promising new drugs.
BS
Apr 20 2023 at 3:49pm
#24 – a useful thing I have learned from economists is to ask “compared to what?”, particularly in response to a qualitative claim (a common one being about the circumstances of workers).
vince
Apr 20 2023 at 5:47pm
Bernie Saunders has a political science degree. Doesn’t that require econ 101? I wonder if he believes there are too few choices of hair brushes.
steve
Apr 21 2023 at 12:09pm
Accidentally deleted longer response so will do a shorter one concentrating health care.
In spite of the incentives drugs companies, and their salespeople, do continue to occasionally lie, hide data, bias results because there is so much money to be made. More broadly, since I think costs is where we need to focus, we should also have concerns about drugs that just dont work even if not harmful or are inferior to current drugs. This goes beyond drugs to devices.
If I were emperor of health, I would propose that we work jointly with some other first world countries to approve drugs with the goal of cutting costs and maybe speeding approval. Would put more emphasis on post approval monitoring. The fact is that practitioners are pretty sensitive to pattern changes. We usually, not always, notice pretty quickly when some drug or device has issues, but we still need to compile and confirm the data to be sure we are correct. If we have real time monitoring we complete that process faster and probably catch problems faster. Those drugs/devices should pulled administratively not needing to go to court, with the drug companies having the option of taking it to court in appeal.
30- I think the important part of the paper I presume you are citing is looking at NME as function of GDP or drug spending. From that POV there are a number of other countries like the UK, Switzerland and Germany which perform better. Still, lets grant that we make a lot of new drugs. Our costs for doing so are huge. Drug (and device) costs are just part of health care but they are a big part and our health care costs need to be addressed.
Steve
Richard W Fulmer
Apr 22 2023 at 4:08pm
Here’s a link to an article about generic drug shortages. Among the causes the author cites are:
– FDA bans on advertising
– FDA restrictions on market entry
– Price controls
We could try to solve the shortages by adding more layers to the regulatory “onion,” but my bias is to peel back the existing layers and let the free market work. As the author observes:
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