Monday, July 30, 2012

The Ethics of Industries

Something that has concerned me lately as we have a Presidential election year and debate the value of regulation or de-regulation of industries, is that there are so many industries that have a mission that is fundamentally opposed to making profit. Or at least there is a severe ethical clash with the profit motive. Consider these industries:

  • health care
  • education
  • journalism
  • retirement services

We’ve had issues in the financial sectors, and it could be argued that many industries should put product quality, customer service, etc. ahead of profits, but in many cases that’s a choice the consumer, and the producer, can make together. If I want a lower quality car or software or tool, I can pay less and get one. Or pay more and get a better one. Quality doesn’t always rise with price, but in many cases there is a correlation.

Consider healthcare. In many cases, the primary mission is to improve the health of the body. Unlike a car or tool, if there’s an error made, this can be rectified. Not always true with health. There’s also the matter of poor care, which may not be discovered, can have a dramatic long term effect on a person. If profit is your primary goal, then you have reason to cut care if it will increase profit. Especially when you get to make decisions about volumes of care (meaning lots of patients). A savings of $10 a person doesn’t necessarily help the family practice doctor who see 100 patients a month ($1000). However the leader of a hospital, or an insurance company that might oversea 10,000 has a much different incentive. He/she can changes the profits of the company by $100,000, which might translate into a bonus of $10k, or even $100k for themselves.

Why would they get $100k for saving $100k? Executives sometimes have these big bonuses on metrics. Perhaps $10/patient is a metric or maybe profitability is a metric. Support you could lose $90k or make $10k with this $100k swing? Your bonus might be $100k to do this. Crazy, I know.

If you look at education, it’s similar. It’s a long term effect, that can be affected by short term swings. There’s also the effect of colleges that need to make short term impacts on students (for enrollment) or staff (for marketing). Easy to see how these groups might sacrifice the goal of education effectiveness for profitability. This isn’t a great example, and the study is poorly done (but not necessarily wrong in its conclusions).

Journalism is worse because people compromise the truth. There’s a bit of journalism in education as well, and in health care, since we get information from those groups, but ultimately we’d like to think that our reporters are looking to provide the truth, or at least the truth from their perspective. However as we see so many media companies struggling financially, at least to their investors, they cut corners. Reporters worry about their jobs, and sensationalize or make up facts to gain attention, at the expense or reporting something more accurate, but perhaps less exciting. Too many examples to link, but ThinkProgress is a good example. Despite the fact I think they want to make the world better, at least from a liberal point of view, I find headlines on the site that bear little relation to the facts of the story. One items is highlighted or even distorted in a headline or short abstract to get eyeballs.

It’s horrible.

I add retirement services in because even though I believe in the Libertarian viewpoint overall, it breaks down in places. Retirement is one of these. If you can’t trust these services, and many of them have an incentive to get you to be happy with their services in the short term, not the long term (for their payroll and bonuses), then what do you do? How can you invest for the long term without good information? How can you recover from someone that’s intentionally steering you to investments that will benefit themselves, but not necessarily you? When you figure this out, it may be too late. After all, retirement is a lifelong thing, not one you recover from at 50 if you realize you’ve made mistakes for 30 years.

In all of these cases you can say the market weeds out the frauds or the poor performers, and you’d be right. However in many of these cases, the fraudulent people can do substantial damage to the long term success of many individuals in society. To me, that’s a fundamental problem, and it makes me seriously question whether we should allow these industries to operate as pure profit entities. It also makes me worry the MBA explosion of the last 20 or so years needs serious reform, not just in the curriculum, but also in culture.

I don’t have a great solution, but I worry as I see so many businesses, and entire industries, driven to be profit at all expense, without regard to the ethical and social impacts these decisions have. I see the wanton excess of worship of wealth and dollars in large (and ever larger corporations) over the steady hand of business owners who want to earn a decent profit, but aren’t driven to “exceed” expectations in a cycle of never ending growth.

Limits on growth aren’t all bad. If Wal-Mart were limited to one store in each city, they’d still be hugely successful. Perhaps not a runaway stock, but then again, there would be a bunch of other companies doing similar business and instead of the Wal-Mart/Target duopoly ruling the US, we might have dozens of similarly sized entities, all turning a profit, providing a steady return on investment, and likely employing more people in aggregate.

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