The classic economic argument for why business is good for the world rests on the notion of consumer surplus.
Acme Corp. sells widgets for $10 each. It pays workers $3 per widget, spends $4 on materials, and $2 on advertising, leaving it with $1 of profit per widget.
All of the people involved in this system are happy according to economic theory. The workers are happy with their pay, or they would stop working; same for the material suppliers and the advertisers. The consumers are paying $10 for something, and they wouldn’t buy it if they didn’t want it. So the total value Acme has contributed to the world is equal to its profit, which gets shared with the rest of society via taxes, plus the difficult-to-measure but definitely non-negative value that its activity is providing to the people involved.
Here are some common objections to this model:
- It’s hard for workers to change jobs, so they might end up stuck working at jobs that make them unhappy.
- Acme might be causing negative externalities, like polluting the environment.
- Consumers might buy products that are bad for them, like cigarettes.
- Welfare isn’t linear over money, both because money isn’t everything and because rich people need money less than the poor.
These are all important depending on the context, and for some industries it’s hard to determine the sign of their overall impact on the world, while others seem (to my eyes) clearly negative. Nonetheless, it appears to me that in aggregate business is clearly good for the world — the profit motive has coordinated (if not necessarily inspired) the development of many important medical and agricultural advances, more prosaic businesses both small and big play important roles within communities, and taxes fund the government which does lots of good things. If you agree with the position held by Industrial Society and Its Future, find a more exciting blog.
However, this doesn’t imply that more business activity is always better for the world, on the margin. Here are some things you might try to earn a living through business:
- Invent a cure for cancer.
- Create a fun and addicting iPhone game.
- Open the first Thai restaurant in a 20,000 person town.
- Open the seventh pizza restaurant in a 20,000 person town.
- Join a big law firm and work your way to the top.
- Work as a barista at a local coffee shop.
- Develop a viral marketing campaign to sell beer.
- Develop a robot that automates welding for car manufacturers.
- Buy a local dentist’s office and cut costs through aggressive negotiation with suppliers.
- Mine gold.
My personal ordering, going purely on gut feel, is
\(1 > 3 > 8 > 6 > 5 > 7 > 2 > 4 > 9 > 10\)
Your opinion will vary, due to different perception of the cost-benefit analysis but also aesthetic preference. Ultimately, there is no objective social welfare function. That said, here are some heuristics about welfare on the margin that I used to make the ranking above and feel comfortable defending in most situations:
- Innovative deep tech is by far the highest in magnitude impact thing you can be working on, although the impact is occasionally negative.
- If you are working at a job, and you’re happy, it’s good for the world. If you’re running a business, and your workers are happy, it’s very good for the world.
- Providing better service or quality is good for the world.
- Using resources more efficiently is good for the world.
- Charging more for providing the same quality of service, or paying less for the same inputs, is not good for the world.
- Barely-profitable businesses in highly competitive industries are only as good on the margin as the jobs they create, even if the industry as a whole is very beneficial to society. Unique businesses are often much more valuable on the margin.
- Competition for eyeballs is bad for the world, unless you are really that much better than the others.
- Automation is great when the machine is much better / cheaper than the human, and is bad if the machine is about as good / expensive as the human.
- Price improvement matters most when consumers are elastic and/or poor.
- Most jobs will get filled by someone else if you don’t take them, so choosing a job you aren’t well suited for is generally bad.
What else?