Profit vs. Society

By on February 23rd, 2018 in Articles, Societal Impact

There is a curious juxtaposition of opinion items in the Wall Street Journal of Feb. 5, 2018. One discusses the challenge that Facebook has meeting the stockholder and Wall Street expectations for growth of profits. The second outlines the Growth Delusion, a new book that challenges the concept of Gross Domestic Product (GDP) as an economic measure. So in one page we have the micro and macro economic views of profit vs. society.

Facebook has over two billion monthly users with the average view time of 20 minutes capturing 20% of the page views on the Web! There is an argument that they are approaching 100% penetration of their available market. China blocks Facebook,  and some people don’t have appropriate devices or connectivity. So the user-base growth has some limits. There are also concerns that Facebook is addictive, and/or otherwise has adverse social impact on users. Mark Zuckerberg has indicated a shift in focus from advertising to community building, in part to reduce the “fake news” concerns that have been raised. This is having some impact on the company’s stock price, as shareholders are concerned about profit vs. society.

There are many scenarios that might allow Facebook to grow profits without growing their user base. All of these have some eventual limit, and for a company with about a third of the world’s population as regular contacts, it is clear that advertisers and other revenue sources need to utilize Facebook as a channel if not their major channel of communications. But with 4.3 billion dollars in profit, the company is doing fairly well. Imagine how disturbing it must be for shareholders to have a company that only generates 4 billion dollars a year of profits and doesn’t grow. After all, this is only one tenth of Apple’s 2017 profits. The author asserts that growth is tied to innovation, implying that innovation, and often technology tied to that inevitably leads to growth. While there are clear examples, it seems that some innovation, for example towards sustainable, long-life products, might reduce growth for the benefit of users and society.

Which leads to the Growth Delusion (book by David Pilling.) He argues that GDP is no longer a valid measure of the economic health of a country. His concerns include the failure to measure environmental, externalized costs or contributions that do not appear on an annual report (housekeeping, caregiving, volunteer contributions, etc.) From a society perspective, I also see “waste” and “conspicuous consumption” as negative impact factors that show up on the profit side of the balance sheet. It irks me that “housing starts” is a measure of economic growth. If housing starts exceed population growth then you have a level of waste — evident in abandoned buildings and residences in some areas. The U.S. GDP got a boost from hurricane and fire damage this last year, real profits there, but not the basis for a healthy society. The book review asks “is it terrible to be a rich, contented, safe country, where people have long life expectancy, a magnificent culture and high quality service, simply because the chosen measure of total economic output is static?

Some cultures and many corporations have relinquished non-financial objectives to the sacred bottom line. Yet there are values beyond profit that tend to dominate our satisfaction as humans. It would be nice if some of these could become the measure of corporate return-on-investment, or the benefits of a given country. Bhutan has adopted Gross National Happiness as a constitutional objective for the country, along with appropriate metrics. That is clearly taking sides in the profit vs. society trade-offs that emerge at the corporate and nation-state levels.