Beating up on corporate profits has become the sport of choice for a growing number of politicians and anti-business activists. Many Americans are receptive to these attacks, but they may want to think again.
After all, Webster’s dictionary defines profit as “the excess of returns over expenditure in a transaction or series of transactions.” By that definition, companies are not the only ones seeking profits. Virtually all Americans are profit seekers, and there’s nothing wrong with it.
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Most of us try to earn as much money as possible by getting additional education and training, seeking the best available job with regular raises, and making smart decisions when we buy stocks and homes. We are working for the best possible return on our investments. America’s top companies and our more than 20 million small businesses are trying to do the exact same thing.
It may bother some idealists that the nation’s economic success is fundamentally based on self-interest. But guess what, it works! The potential to earn and keep “returns over expenditure” inspires individuals and businesses alike to work harder, take reasonable risks, and be more productive.
This profit motive has created a powerfully dynamic and innovative economy. The American economy is not without flaws, and it has its ups and downs. But no other system ever devised has created greater opportunities and higher standards of living for so many people.
Profitable companies create jobs. They develop the investment capital to expand, invent new products and technologies, and compete throughout the world. Profitable companies often pay dividends, and over time, their stock prices go up, building wealth in union pension funds and 401(k)s alike.
Some critics understand the need for profits, but they complain about profits that are “too high.” Yet who is in the best position to fairly define whether a profit is too high — politicians in Congress, activists with an ax to grind or the free marketplace?
If you are one of the many Americans selling items on eBay, when the bidding closes, you don’t take the second-highest offer because you think that the winning bid is too high. You gladly accept the best return that this freewheeling online marketplace provides.
Or think back to the halcyon days of the housing boom (and may those days someday return!) when many Americans sold their homes at extraordinary prices. On a percentage basis, their profits far exceeded those of industries that have recently been criticized for “excessive” profits. I doubt that many home sellers said to their would-be buyers, “You are offering me too much. It wouldn’t be fair. Please give me less.”
Of course, we must have clear rules and high ethical standards even in a free enterprise system. The business community understands and supports this. In our country, we have rules to control monopolies and unfair business practices. We have laws to protect workers, investors, the environment, and public health.
And we have corporate tax rates that are among the highest in the developed world to generate the revenues that help provide government services, defend the nation, and care for the less fortunate.
For companies that play by the rules, making a profit is the ultimate social responsibility — not something to be ashamed of. Profits create jobs, finance breakthrough research and development, fill government tax coffers and pay health care and pensions for tens of millions of American families.
Profit-making businesses also contribute billions of dollars annually to charitable causes and finance countless social projects in their communities.
Instead of dragging our most profitable companies down, a smarter strategy is to adopt policies that help all Americans succeed in a tough global economy. We can do this by improving our schools and training our workers for 21st century careers, and by producing more domestic energy and rebuilding our infrastructure, which would create hundreds of thousands of good-paying jobs.
While the vast majority of Americans benefit from trade, we should also provide a “hand up” for workers who have been hurt by global competition.
We must never forget just how powerful the profit motive is as a catalyst for economic growth and prosperity. It inspires hard work. It pushes us forward. It finances the future. It empowers dreams. Americans should be proud to have an economy that rewards — not punishes — success. We must never lose our drive for profits.
Thomas J. Donohue is president and chief executive officer of the U.S. Chamber of Commerce.
