Concentrated Philosophies

The following essay will appear in a forthcoming issue of Ideas on Liberty, the monthly journal of the Foundation for Economic Education in Irvington, New York.

It was some years ago, while visiting the University of Michigan in Ann Arbor, that I saw a bumper sticker that got my attention. The sticker was on the back bumper of an old Volkswagen “Bug.” It read: PEOPLE NOT PROFITS.

In one important respect, the words on this sticker remind me of concentrated frozen orange juice. For these three simple words are also a concentrate. They are a concentrated philosophy—a very highly concentrated philosophy.

In another important respect, the words on the sticker are different from the orange juice. The frozen concentrate comes with instructions: “To serve: Mix with 3 cans cold water. Stir or shake briskly.” There’s little chance of the user making a mistake as he reconstitutes the juice.

The bumper sticker, however, didn’t come with instructions. It’s left to each of us to decide how to interpret the wording on it, how to reconstitute the few words into a more detailed message, and then to infer a philosophy. So there’s a risk with the bumper sticker. Maybe we reconstitute the words the way the car owner intended. And maybe we don’t.

What did the Volkswagen owner intend?

Once each term, in a philosophy of business course I teach, I ask my students to tell me what they think is the message conveyed by this bumper sticker. And what they think is the philosophy implied by that message. Here are several examples that they recently gave me. They’re fairly typical.

"I think this message says we are putting too much emphasis on making a profit. People almost don’t care any more who they hurt because they are so money-hungry and greedy. They feel as long as they are making money, that’s all that matters."

"The message that the owner of the vehicle is trying to express is that companies need to focus on jobs and hiring people, not downsizing and cutting costs to increase profits."

"I think that the message being communicated by this bumper sticker is that corporations should not be so concerned about profits. This person feels that profits and money are corporations’ main concerns and he feels that this is wrong."

Generally, my students focus on current workers—the workers who assemble Buicks, the workers who take your pizza order over the phone at Domino’s, the workers who change your oil in 10 minutes or less at Pennzoil stores. This is logical. We often see these people, in their roles as employees. We interact with them. It’s clear how they serve us and that they serve us. I agree with my students. I, too, suspect that the PEOPLE the Volkswagen owner had in mind are people who are currently employed.

Further, my students speculate that the message intended in the NOT PROFITS is simply that profits should be sacrificed for the benefit of the current workers. Current workers should get more pay. And the workers’ gains should come out of profits. My students think this is simply a philosophy that advocates a particular redistribution of wealth. I think this is also a reasonable interpretation.

After giving them an opportunity to reconstitute the message and likely philosophy conveyed by PEOPLE NOT PROFITS, my students always want to know how I reconstitute the three words.

The first thing I do is point out that PEOPLE are animate and PROFITS are inanimate. That, in itself, introduces a subtle bias—against profits. (Of course the negative NOT serves explicitly to strengthen that bias.)

Workers are people. People who have hearts and consciences. People who have children to feed. People who have mortgages to pay. So readers of the bumper sticker, being people and animate themselves, are likely to readily empathize with current workers.

But profits, being inanimate, don’t have hearts and consciences. Neither do profits have children to feed or mortgages to pay. So it’s much more difficult, maybe even impossible, for animate readers of bumper stickers to have sympathy for profits. For when it comes to generating sympathy, it’s no contest between the animate and the inanimate. So at least on the surface, it seems positively humane to give more to animate PEOPLE and to sacrifice inanimate PROFITS.

But what if we dig a little deeper? What if we look below the surface?

After calling their attention to that animate/inanimate distinction, I then explain to my students how, whenever I see the word profit, I picture in my mind a simple profit and loss statement. It looks like this:

Revenues – Expenses = Taxable income – Taxes = Profit

I proceed to tell them what comes to my mind when I reflect on key components of this statement.

When I see the word “revenues,” I think of people, viz., a company’s customers. The people who buy Buicks, who buy Domino’s pizza, and who get their oil changed at Pennzoil stores. For it’s from the people to whom a business makes sales that it gets its revenues.

When I see the word “expenses,” I think of people. These are the people who GM currently employs to assemble Buicks, who Domino’s currently employs to make pizzas, and the people who currently work in Pennzoil stores. These are the only people my students and I surmise are the PEOPLE the bumper sticker is referring to. Surely these people are important.

These people are not, however, the only people who come to my mind even when I reflect on the word “expenses” in a corporation’s income statement. There are many others. These others include the people who make the tires that go on the Buicks, the people in the dairy industry who make the cheese that goes on Domino’s pizzas, and the people who are employed in the refineries that make the oil that the employees in the Pennzoil stores use. In short, “expenses” also reminds me of the employees of suppliers to Buick, Domino’s, and Pennzoil.

These others also include the creditors of all of these businesses. These are the people who have worked, saved, and loaned their savings (probably through financial intermediaries such as banks) to these businesses to help finance the equipment that their current workers use—robots, ovens, hydraulic pumps. To these creditors, corporations pay interest. Interest is an expense.

When we get to the last word in the income statement, “profit,” yet another group of people comes to my mind. These people are stockholders. They are the people who own corporations. They contribute to business in a roundabout way. They don’t show up for work day in and day out in person. They don’t have marked or unmarked spaces in the parking lots. Yet, they perform a vital role. It is they, along with businesses’ creditors, who finance the plant and equipment that current workers use. These tools multiply what current workers can accomplish with their brains and their brawn.

True, some of these stockholders might be currently working themselves. Others might not be. But most of them became stockholders by working at some time in their lives. It’s likely that many of them had to work harder than current workers, because they had less advanced tools at their disposal. They made sacrifices. They didn’t spend everything they earned. They chose to buy stock with some of their savings. And it’s profits that compensate them for their vital role.

So, with just a little probing, we find that profits are fundamentally animate, too! Reasoning this way, we eliminate the more subtle bias against profits that I alerted my students to in PEOPLE NOT PROFITS. Just as corporations pay wages and salaries to workers for their current contributions to business, corporations “pay” profits to stockholders (in the form of cash dividends or retained earnings that may fuel capital gains) for their contributions to business. Workers and stockholders simply make different contributions. The former more direct and more obvious; the latter less direct and a bit less obvious.

So, in my mind, the bumper sticker reads PEOPLE NOT PEOPLE or WAGES NOT PROFITS. Translated either way, the philosophy it implies becomes clearer. We can now be even more confident that the owner of the Volkswagen was advocating a different—and what he probably considered a more just—allocation of revenue dollars, more for some people (viz., current workers) and fewer for some other people (viz., stockholders).

But would that redistribution be wise? Would that redistribution be more just?

Attracting revenues in business is quite a challenge. Just ask anyone still employed in the U.S. airline industry, for a recent dramatic example. Or ask the people who are no longer employed at Kmart. We don’t have to look very hard to find a myriad of dramatic, or less dramatic, examples.

At one time, buyers wanted shag carpets. Now they want berber. At least in our neighborhood, the floor covering of choice for kitchens is currently hardwood. Not too long ago, it was ceramic tile. I remember when there were no “light” salad dressings. But judging from what you’ll find in our refrigerator door at this moment, you might wonder if there is currently any other kind. Buyers are fickle. It’s tough for sellers accurately to anticipate what buyers want.

Then, as if consistently anticipating what buyers want weren’t challenge enough, there’s a second big challenge. That’s pricing. Pricing is a challenge because sellers like higher prices at the same time buyers like lower prices.

Once business owners and managers have revenues in hand, they face still other challenges. Employees and suppliers would like a higher percentage of those revenues, but that would leave a lower percentage for the stockholders. Stockholders also would like a higher percentage of those revenues. But that would leave a lower percentage for the employees and suppliers. However, as we have seen, customers, employees, suppliers, and shareholders are all PEOPLE. And they are all important to a viable business.

The men and women in business who set prices and who control the disposition of revenues must perform an extraordinary balancing act. They must simultaneously and harmoniously balance the interests of all of these stakeholders—for the benefit of all of them over the long run. I think the message in a bumper sticker that reads PEOPLE NOT PROFITS and the philosophy it implies are destabilizing and counterproductive. They fuel an adversarial relationship between two vital groups of people. They foster a “them” (stockholders) versus “us” (current workers) mentality. This is not useful. This is positively harmful.

In concluding my response to my students who want to know how I construe PEOPLE NOT PROFITS, I recommend an alternative. I recommend a bumper sticker that reads PEOPLE AND PROFITS. For, in a highly concentrated form, I believe my three words communicate a much sounder message and a much sounder philosophy. My bumper sticker would contribute to a clearer understanding of the roles of profits and stockholders in business. Mine would contribute to a more complete and accurate understanding of the philosophy of private enterprise. I think my bumper sticker would be positively helpful.

My students think so, too.

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(Dr. Dale M. Haywood is professor of business at Northwood University and an adjunct scholar with the Mackinac Center for Public Policy, both in Midland, Mich.)