March 28, 2024

Liberal Vs. Conservative On the Profit Motive

It all started with my Media Curmudgeon blog post titled “Murdoch: Liar, Liar, Pants on Fire!” in which I accused Rupert Murdoch of caring more about profits than that “a free and open press should be a positive force in society,” as he claimed in a cynical ad that ran in British newspapers. Here’s the blog post.

According to Advertising Age

Rupert Murdoch is keeping the throttle wide open on crisis-control efforts in an attempt to limit the damage from the News of the World’s hacking scandal…
Now he is apologizing to Britain via a newspaper ad headlined “We are sorry” — perhaps foreshadowing what he will say when he testifies before Parliament next week.
The ad read:

We Are Sorry

The News of the World was in the business of holding others to account.

It failed when it came to itself.

We are sorry for the wrongdoing that occurred.

We are deeply sorry for the hurt suffered by the individuals affected.

We regret not acting faster to sort things out.

I realise that simply apologizing is not enough.

Our business was founded on the idea that a free and open press should be a positive force in society. We need to live up to this.

In the coming days, as we take concrete steps to resolve these issues and make amends for the damage they have caused, you will hear more from us.

Sincerely,
Rupert Murdoch

Do you honestly believe one word of this ad? Do you believe that Murdoch’s News Corp., which includes Fox News, the Fox Business Network, and the NY Post, believes it is “in the business of holding others accountable?” News Corp. is in the entertainment business for the sole purpose of making a profit.

Do you honestly believe that Murdoch or News Corp. “are sorry for the wrongdoing that occurred,” or “are deeply sorry for the hurt suffered by the individuals affected?” Can you imagine that Bill O’Reilly or Sean Hannity or Don Imus are deeply sorry for the nasty insults and mud they sling? That’s why Murdoch hired them.

Can you imagine in your wildest dreams that Murdoch regrets “not acting sooner to sort things out.”
Is it conceivable to you in your most generous moments that Murdoch actually believes that “a free and open press should be a positive force in society?” Do you believe that he really is committed in his soul to “live up to this” concept? Will Murdoch force Roger Ailes to make Fox News “a positive force in society” and make “fair and balanced” a reality rather than a cynical marketing slogan?

Looking at this newspaper ad and Murdoch’s interview in the Wall Street Journal July 14, in which he is quoted as saying News Corp. has handled the crisis “extremely well in every way possible,” making just “minor mistakes,” you wonder what the 80-year-old Murdoch has been smoking or how senile he is.

The corporate suits and scores of MBAs at News Corp. who understand Excel spreadsheets and bottom lines but not journalism are probably advising and prepping Murdoch in this ultimate form of cynical spin, but it’s not working.

The dirty chickens are coming home to roost. Everyone knows Murdoch is lying … bigger than ever. What hair he has left is aflame and his pants are on fire.

A dear friend of mine from St. Albans and Dartmouth, Jim Rill, is an avowed conservative, a graduate of the Harvard Law School, a very successful lawyer, and a former Assistant Attorney General for the Anti-Trust Division of the Justice Department in the George H. W. Bush administration. In other words, he’s smart, articulate, and informed.

Jim responded via email to my Murdoch post, to which, I responded, then he responded … and so on. Below is the email exchange, which I believe you will enjoy:

Charlie,
Most interesting article. I continue to ponder your denigration of the "profit motive,” however, apparent in this article as well as others. I have always thought that profits were earned by firms' serving public demand, subject of course to prohibitions against deception and illegal restraint on competition. One may, of course, have a personal disagreement with what the public demands (my view of the attraction of Lady Gaga, for example), but the market should decide the outcome, not some elite observer or government agency. To paraphrase Adam Smith, the invisible hand will most often produce the best result for consumer welfare through market participants' fairly competing to enhance their own advantage. Thus, your criticism of e.g., Hannity, with which I agree to some extent, should, I respectfully submit, be founded on your disagreement with his substance, not with Fox's profit motive. Presumably Fox airs some of the commentators with whom you disagree because there's a viewer demand for the content. The market is a better arbiter of the profit motive than you or I, in the long run. I haven't seen Glen Beck on Fox News lately.
Best as always.
Jim.

Jim,
You are an expert on history, especially the history of wars. The wonderful thing about history is that the facts don’t change, so you can hold on to them, feel secure in them. But the Chicago, Milton Freedman theory of the efficiency of the free markets, which is based primarily on the theory of man as a rational economic actor, is old theory that has been proven wrong and hopelessly naïve not only by Nobel-Prize-winning economists such as Joseph Stiglitz and Paul Krugman and economists such as Robert Schiller, but also by Nobel-Prize-winning behavioral economists such as Kahneman and Tversky and behavioral economists such as Daniel Airely. All agree that neither man nor markets are rational and that free markets don’t work efficiently.

The current recession and economic disaster was brought on by the excess in greed that is the result of free market thinking – let the markets regulate themselves, keep government out of it. And look what happened. Books such as 13 Bankers, The Big Short, To Big to Fail, and Reckless Endangerment all lay out in great detail the utter failure of free markets to contain the unbridled and unregulated greed of Wall Street and big banks.

As far as the free market system working in the media, it is brought us not only Lady Gaga, but the top-rated reality show, “Jersey Shore,” and cable’s top-rated non-football program WWE Wrestling. If you look at media history, the government underwrote, subsidized, newspapers at the birth of our nation by giving publications free postage. The Founding Fathers wanted a free press and information to be disseminated freely in support of democracy – serve society first, make a profit in order to survive second.

Adam Smith’s invisible hand is an anachronistic concept that works only in the sense that the hand of the market goes into the pockets of the greedy – those only interested in short-term profit and not in serving the needs of the community. What the free market has become is the tragedy of the commons – everyone out for their own self-interest and the common good be dammed.

The less government, less regulation model has not worked. The world is too complicated, economies too complex for there to be no rules – laissez faire. Just like there are rules, laws, and regulations involving how we should treat each other – no rape or murder – there need to be rules, laws, and regulations about how we treat each other financially – we can’t rape, steal, and pillage.
Charlie

Charlie,
Well said. Do not classify me as unbridled laissez faire, however. The issue is not regulation vs. no regulation, but the extent and nature of regulation. I could not have served my time managing the antitrust laws of the US if I didn't believe in laws and enforcement that prohibited the inefficient acquisition and abuse of market power. Clearly, securities regulation was sadly deficient in the run up to the bubble burst.

That flaw can be remedied without turning the economy over to the government. The failure of socialism throughout time and space cries out against that policy. I know Joe Stiglitz and can assure you that he abjures excessive regulation, at the same time he's skeptical of the Chicago School.

Please concede that entrepreneurs often seek to make a profit by inventing, manufacturing, and distributing a better product or service.
Jim.

Jim,
We got into this discussion because you were pondering my “denigration of the profit motive” and your assertion that “profits were earned by firm’s serving public demand.” Just as you indicated that based on your experience “I could not have served my time managing the antitrust laws of the US if I didn't believe in laws and enforcement that prohibited the inefficient acquisition and abuse of market power,” so I could not have spent 20 years as a salesman generating revenue, being a sales manager maximizing revenue, and a general manager controlling expenses to subtract from revenue, which creates profits, if I did not believe in profits to some degree. I was totally into profits, because, as I said in the previous email, profits are necessary to remain in business, to grow.

Therefore, to imply, however tangentially, that I am suggesting turning the economy over to the government or am against entrepreneurs is a stretch and not germane to our argument. First, it’s not accurate, and, second, I was an entrepreneur in 2006. I started a business on the web called Daily Comedy. It failed because it wasn’t funny. But I tried.

The point is that I understand and believe in profits. But, as Peter Drucker said, the only purpose of a business is to create a customer. It is not primarily to make a profit; it is to create a customer, which, as you indicate, means meeting customer needs, wants, and demand. I think we are conceptually in line so far. However, today’s businesses have many stakeholders, have many purposes, and, therefore, profit for the benefit of shareholders is not the only purpose. Stakeholders include customers, employees, suppliers, the government, the public, and shareholders.

More and more American companies are intent on creating shared value, as stated in the Michael Porter Harvard Business Review article, “Creating Shared Value,” and of doing good while doing well. Serving the public interest and making a profit are not mutually exclusive. Many firms have realized that if they put customers and society first (avoid the tragedy of the commons) before profits, they are often more successful than if they are driven solely by profit. Google is an example of this service-first business concept. Google is now the most profitable media company in the world, but the founders, Page and Brin, did not start out thinking about profits above all else.

The moguls in charge of large media companies that have put profit first (Time Warner, Viacom, News Corp.) have destroyed over $200 billion in shareholder value over the last decade, as exceptionally well documented in the book The Curse of the Moguls by Knee, Greenwald, and Seave (Columbia Business School Professors).

Which brings us to my point that News Corp., led by the greedy Murdoch, has consistently put profits first and has not considered the media as a public trust, merely as a profit generating machine, and has never considered serving the public interest, convenience, and necessity if it did not directly lead to profits. The public demand for crap, trash, celebrity news, reality TV shows, and outrageous, uninformed opinion pandering to the uneducated and extremists has increased. And greedy entertainment profiteers – media carpetbaggers – will take advantage of the situation, but that doesn’t mean that we can’t expect and demand better.

If the media is not greedy to maximize profits as a sole rationale for its existence and attempts to be profitable while simultaneously serving the public interest (avoiding the tragedy of the commons), it can have its cake and eat it too. And we, as responsible media consumers, should demand both from the media – profits and responsibility.

Murdoch is a greedy media profiteer, pirate, and power broker. He lies when he talks about social responsibility and being a positive force in society. He has a track record to show that all he cares about is profit. It’s time he got his comeuppance. It’s time all media consumers, especially those who have the advantage of a good education, demand that the media serve the public interest as well as make a profit.

Let’s hope this News Corp. hacking scandal will wind up making the media more responsible and less sensational and celebrity oriented – less profit fixated and more considerate of the public and the public interest.
Charlie.

Charlie,
Well written, again. I suppose if there's any gap between us it's that you believe profits are a necessary, and possibly somewhat regrettable, factor in permitting firms to engage in socially beneficial enterprise, but should not be a primary motivating factor. I believe that the profit motivation is a primary driving engine for output and innovation that serves the public, principally consumer, welfare. Obviously, neither of us endorses the result of the profit motive in all cases; eg, Lady Gaga, Glenn Beck. On the other hand, can you doubt that, for example, Thos Edison, Henry Ford, and, yes, Bill Gates were out to make a profit as at least one end in itself? That does not make them, or me, apostles of Ayn Rand or Jacob Marley, ante mortem.

In time, the market can address some of the output you find objectionable; e.g., Beck, is no longer on Fox News. It doesn't always work, but that may merely reflect consumer choice. The government certainly has a role to ensure that choice is not influenced by deception, collusion, or monopolization.

But what to do about hysterical rants and simply bad taste offerings? I gather we agree that the government has no business regulating that conduct. I submit the fairness doctrine is an excrescence on the Constitution.

At the least, we can not contribute to the demand stimulus. In addition, we can speak out and offer our opinion on the state of the business. You are taking this course and I sincerely admire you for doing so.
Jim.

Jim,
I think the gap between us is not primarily about the necessity of profits or their being a primary motivating factor. I think our basic gap is in our view of human nature and an individual’s place in society.

I think you take a conservative, individualistic view of human nature – that individual rights are primary, above the rights of society, or as Ayn Rand would claim, above the right of the collective. I take a liberal, collaborative view of human nature – that the collective, societal (even tribal) rights are primary, above the rights of the individual.

In the classic economic dilemma, The Tragedy of the Commons, those who put individual rights as primary, tend to believe that it is OK for individuals to look out for their individual self-interest and over-graze the common with more cows than others have because that is the nature of competition. Those who put the collective rights as primary believe that the collective (all of the farmers acting as a group) have the right to regulate grazing so that no one individual is able to benefit unduly at the expense of the collective.

I believe this gap in views of human nature is at the heart of the current debate between Republicans and Democrats over the debt ceiling, the deficit, and income taxes. Conservatives and Republicans tend to favor what is in the interest of individuals (especially rich or well-off individuals) and liberals and Democrats tend to favor what is in the interest of society as whole, including the poor and elderly.

I don’t see this gap being bridged soon.

As far as the profit motive being the primary driving force behind Thomas Edison, Henry Ford, and Bill Gates, I’m afraid history, the facts, and management literature do no support this view. I’ll skip Edison and Ford, but if you’re interested, I can send you specific references that they had other motives that primarily profit for their efforts. It has been well documented in management literature that Bill Gates was primarily motivated by creating great software, not by profit. In fact, in classic management books such as Built to Last by Collins and Porrass, How the Mighty Fall by Jim Collins, Good to Great by Jim Collins, In Search of Excellence by Peters and Waterman, Drive by Daniel Pink, In the Plex (about Google) by Steve Levy, The Facebook Effect by David Kirkpatrick, and What Really Works: The 4+2 Formula for Sustained Business Success by William Joyce, Nitin Nohria, and Bruce Robertson, all point out that the most successful companies that have been started in the last 50 years, including Microsoft, were started by entrepreneurs who wanted to build great companies, build great products, write great software, organize the world’s information, and serve customers better than anyone else – and on and on about benefits for society, not primarily about their individual greed for profit.

In Julia Angwin’s book, Stealing My Space, she shows that the founders of MySpace were individualists who were interested primarily in two things, getting rich and getting laid. They made a lot of money by selling MySpace to Rupert Murdoch. However, MySpace failed to grow and to innovate and was destroyed by Facebook, whose founder Mark Zuckrberg was not interested in profit, but in organizing friendships. Sergy Brin and Larry Page, the founders of Google, the most profitable media business in the world, founded Google because they wanted a great search engine, and had no idea how to make a profit.

Newspapers that have survived are those who have a passion for public service that is in their DNA – The New York Times (the Ochs and Sulzbergers), the Washington Post (the Myers and Grahams). The newspaper that was interested only in profit, News of the World, has been folded.

Also, I think, that the gap in our world view is widened by the psychological phenomenon called projection. Thieves think everyone is trying to steal from them. Greedy people think everyone is greedy because they are. Individualists think everyone acts in their own self-interest first and foremost. Do-gooders think everyone is interested in the collective good.

We have different world views, different views of human nature, different basic personality traits and characteristics and, thus, we project differently.

We also have intellectual curiosity that compels us to listen to and try to understand each other’s point of view, which is much more than I can say about the stupid venal politicians of both parties that are making America the laughing stock of the world. It’s a shame that they can’t enjoy each other’s company and listen, as we do.