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Related Categories: U.S. | Labor & Workers
There is an alternative to maximizing profits
by Peter Ulrich
Monday Oct 18th, 2021 1:28 PM
In a new encyclical, the Pope denounces the pursuit of profit. The Sonntagszeitung spoke about this with the business ethicist Peter Ulrich. He defends the Holy Father, criticizes the managers and calls for economy for fifth graders... Ultimately, the essence of these products is to make money out of money, without taking the inconvenient detour via the real economy.
BUSINESS ETHICS:
"There is an alternative to maximizing profits"

By Peter Ulrich, emeritus professor of economic ethics at the Univ of St. Gallen

[This article published on 7/12/2009 is translated from the German on the Internet, Business ethics: "There is an alternative to profit maximization" - Wirtschaftswissen - FAZ.]

In a new encyclical, the Pope denounces the pursuit of profit. The Sonntagszeitung spoke about this with the business ethicist Peter Ulrich. He defends the Holy Father, criticizes the managers and calls for economy for fifth graders.

Professor Ulrich, the Pope has written in his new encyclical that money should not be speculated. Is that really bad?

Generally not. But if the speculative mentality detaches itself from any consideration of practical consequences, then this is irresponsible.

In addition, as a lesson from the crisis, Benedict calls for not to strive for the highest possible short-term profits, but to pay attention to the long-term benefits of an investment for the real economy. What does that mean?

Basically, it demands that the financial sector, i.e. all banks and investment companies, be put back at the service of the national and global economy and thus reverse a relationship that has contributed significantly to the current problems.

..., which, when even the Pope explicitly comments on the crisis, apparently also include morality.

Certain. If one tries to bring this crisis to the central point, then it probably expresses the tip of an overly radically independent monetary thinking.

Does it have anything to do with the complicated financial products that many buyers seem not to have understood?

Such so-called financial products - basically nothing is produced there - are a typical symptom of this profit maximization doctrine. In them, risks have been disguised, securitized and scattered around the world. Ultimately, the essence of these products is to make money out of money, without taking the inconvenient detour via the real economy.
And that's bad?

The principle of making more money and more and more money by almost any means is not the solution, it is the core of the problem.

But economics books say that if everyone tries to make the biggest killing possible, even if it's by investing money, it must be good for everyone.

We are just beginning to notice that behind this idea of harmony lies an ideology that tries to sell particular interests as the common good or "prosperity for all."

What do you mean by this?

That some benefit particularly from the market economy and at the same time tell us that we all have something to gain from it.

But the banks' high returns contributed to growth before the crisis and thus increased general prosperity, which is a good thing.

I disagree. The high returns are a consequence of one-dimensional thinking. Profit maximization means subordinating all conflicting value considerations to this one dimension, without regard for the consequences for the people affected. For too long, the billions in profits of the big banks were cheered in a simple-minded way, and no one really wanted to know how they came about.

Is there an alternative to profit maximization?

I think so. A fair, balanced economic approach would always begin by asking what legitimate claims are affected by economic activity.

The pope also urges this. He criticizes that there is a "cosmopolitan class of managers who often only follow the instructions of the main shareholders."

Yes, and he rightly writes that good corporate governance must also show consideration for employees, customers and suppliers, for example.

Is it reckless for a bank manager to set a target of 25 percent return for his institution?

I think this goal is indeed open to attack. One of the minimum insights is that the excessive pursuit of returns is a major mental cause of the mess. In this respect, it is a fatal signal when figures such as a 25 percent return on investment are once again issued as the only binding target for the company's targeted success. This indicates that a change in thinking has not taken place.

Don't managers - whose families also want to be fed - have to aim for high profits because otherwise the owners will throw them out the door?

This is exactly what I call "material compulsion rhetoric". It's strange: the same people who want us to believe in Sunday speeches that the market is the epitome of freedom are constantly talking in this mode of necessity - someone, usually the anonymous competition, forces them to do this or that.

But this competitive pressure is not imaginary.

Not so, but behind the constraints are self-imposed constraints of thought! It is the profit maximization doctrine itself that ultimately creates the compulsion to operate recklessly. We citizens can expect more from real leaders.

Namely?

At the top of influential companies belong people who are credible because they have integrity and do not split their economic thinking from their self-image as decent citizens.

What would they do better?

They would never only talk about returns, but at the same time always demand of themselves to serve all claimants, and thus not only the owners, in a fair manner.

Don't we also need better incentive structures that make such behavior possible in the first place?

Deterministic thinking in incentive structures is itself a problem. Mentally, we are all degraded to puppets. Then you would not need expensive executives, because they would have almost nothing to decide and justify. Of course, it is not like that.
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