Dogma Premise # 18

The profit motive ensures that owners will command maximum productivity from non-owners whom they control.

One of the most tenuous links in the entire chain of reasoning embodied by the Myths of Capitalism is the idea that because owners are motivated by profits to maximize the effectiveness of the business, the owner will somehow be able to cause all of the workers in the enterprise to behave as if they were motivated by profits, even if they do not actually share in the profits.

Early theorists might have assumed that owners would simply discharge any workers who did not perform to the maximum not only of their own abilities, but to the maximum that could be purchased on the market for a comparable wage.  However, it became clear in the 20th century that extracting maximum productivity from employees was a more subtle problem.  The century began with strikes, slowdowns, and worker sabotage, and ended with participatory management, self-governing work teams, and a fully developed science of “human resources” focused on the psychology of motivation.

Other businesses have tried to expand the pool of workers with a direct stake in the fortunes of the business by providing senior management with stock options, and encouraging all employees to purchase the company’s stock.  Other firms went further an provided an “all employee bonus” of perhaps 2% of salary if the company met its financial targets.

These approaches proved of limited effectiveness.  A general economic downturn might destroy the value of stock options through no fault of the manager’s, and few but senior managers participated anyway.  The illusion of profit-sharing at 2% of wages fooled very few.  A $50K/year worker who gets a $1K bonus at year’s end (2%) might be glad to have the money, but it hardly provides the same kind of incentive felt by senior managers driving expensive cars and enjoying island vacations based on the same economic performance.  The same could be said of a few shares of stock resulting from an Employee Stock Ownership Plan, which in most instances did not result in windfalls that could not be attained through any other investment vehicle.

Although a significant number of employees try to participate in the pyramid scheme sometimes called a “career ladder” to upper management, the majority typically do not try for it, and most of the remainder become disillusioned when their early failed attempts at promotion convince them that the game is rigged.

Indeed, a multitude of schemes and psychological ploys, from promises to threats to electronic surveillance have been dreamt up over time to solve this problem, but it stubbornly persists.  CEOs who tell their senior managers to do whatever it takes to make the workforce behave as if they were as dedicated to the firm’s success as those who would profit from it might as well tell them to transform lead into gold.

To the extent that the profit motive is considered a strong motivation, no amount effort can discover that motivation in people who do not in fact share much in the profits or significantly influence the outcome.  Nor can that motive be synthesized from vague suggestions that if the business does poorly then people will be laid off, and if it does well then the business will be able to fund better working conditions.  The connections are notoriously tenuous, and in truth the workers often feel as fungible as they are viewed, and know they will be able to get a job elsewhere.

The economic model that assumes a profit motive will incent efficiency and conscientiousness only applies in the case of a sole proprietorship or very small partnership.  As the enterprise grows in size, the profit motive becomes less relevant in guiding the behavior of those who do the work.  Large organizations seem to universally become Dilbert-like workplaces, where the goal is not to be productive, but to avoid being seen as unproductive -- a far easier task.

In short, the profit motive does not and cannot assure efficiency and effectiveness in an economy dominated by medium- or large-sized enterprises staffed by people who do not share in the profits.  An impressive science of workplace motivation and manipulation has developed, but to the extent that it is effective, it could be applied instead of the profit motive, rather than in service to the profit motive.  The profit motive itself has only a modest effect -- certainly not enough to consider it the strongest motivating force in the economy, as compared, for example, to worker-owned businesses that really do align the success of the business with the fates of its stakeholders, but not necessarily based on profits.

Dogma Premise 19

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