Problem

Short-term profit maximization

Other Names:
Distortion of profit-making motive
Profit over-emphasis in use of national resources
Business profit-making
Short-term revenue maximization
Financial short-termism
Short-term professional gain
Short term cash purchase
Short-range business ventures
Short term share holders
Short-range financing image
Short range scheme
Short-term gain
Nature:

Profit is a device which society uses both to measure and to reward enterprise efficiency and productivity in meeting market demand. Profits may be pocketed by a single owner, by several hundred thousand shareholders in the case of giant corporations, or by one or several institutional investors whose portfolio sizes in some cases make them significant, policy influencing, shareholders. The demand by shareholders for dividends that are 300 to 500% the rate of inflation is routine, so that in 5% inflation, 15 to 20%, or speculatively (that is with greater risk), even a higher dividend return on capital (common equity) may be expected. Corporations are not valued for the services they provide society, but are considered as money machines with the often remote investor disinterested in how or why this money is being made. The result is the generally amoral atmosphere in which business, international trade and development is conducted.

The most effective use of natural resources is reduced when an overemphasis on profit leads to uneven development of these resources. Development based on policies which promote monopolistic control further reduces use of natural resources. Reduction and ineffective use also occurs when resources are most accessible and are extracted without any responsibility being assumed for their depletion.

Incidence:

Loans provided to developing countries by international banks 'for development' are at the highest possible interest that can be obtained, which sometimes exceeds commercial prime rates by a significant spread. For example, one quarter or one half a percent on milliards means hundreds thousands, if not millions, of currency units over time. The banks behind these loans make their profits, regardless of the success of development projects.

The capitalist profit motive necessitates an excess demand bolstered by advertising. The excess demand will only be promoted for certain goods (those which return the fastest profit) so that some goods which are necessary may be in short supply. In the USA, for example, all-industry returns have recorded average of 11.5%, with the top performers including Chrysler (69.7) and Subaru of America (35.8), but also the Student Loan Marketing Association (43.0), and Pulter Home (36.5). Cars, education, homes and food (Diversifoods, 68.2) are priced to extract every cent of possible profit. The profit motive does not take account of the long-term availability of resources, which may be ruthlessly exploited while they remain at a low price, later creating scarcity and economic instability. Speculation by investors and financiers may create artificial shortages to increase profits, thereby causing inflation.

Claim:

To allow the profit motive to be the overwhelming determinant of development is to guarantee that mostly inappropriate development will result. The drive to maximize output, sales and return on investment inevitably leads to the orientation of productive capacity to serve the interests of the wealthy, namely those most able to pay the highest prices and to maximize consumption of increased output. Production of luxuries for them is much more likely to increase return on investment than producing necessities for destitute people.

 

Problem Type:
F: Fuzzy exceptional problems
Date of last update
13.11.2017 – 16:21 CET