If It’s Profitable, Is It Really Sustainable?
by Gunnar Rundgren
That an economic activity has to be profitable is considered a truism, something taken for granted and not reflected upon. But what if the opposite is the case?
When I first took up small-scale organic farming in the 1970s, I spent a lot of energy on developing new methods and machinery to increase my productive efficiency. The early organic advocates went a long way to assure growers, farmers, businesses, and politicians that organic farming could be profitable, even within the prevailing economic system. (Even more so if externalities like enhanced soil quality would be factored into the price, which is not the case.) I see a similar discourse surrounding regenerative agriculture, permaculture, market gardening, and artisanal bakeries. But perhaps this assurance of profitability has been misguided all along. What if profit is not desirable?
There is an ethical perspective on profit that questions if it is fair that capital owners get richer while workers don’t. That question is justified, and could be the subject of another essay, but fairness is outside of the scope of this article. My focus instead is on what implications profit has for the economy and the ever-growing use of resources.
Profit in the Sustainability Narrative
In the world of business, an enterprise is considered viable only if it is profitable. The prevailing sustainability discourse tells us that there is no contradiction between profitability and environmental or social progress. Profitability, believe it or not, is seen as a prerequisite for sustainable development. Environmental politics is full of concepts like “triple bottom line” and “people, planet, profit.” But, by and large, this is misleading. Profitability is incompatible with sustainability.
Profit derives from a surplus created by economic activities, a surplus after the costs, including capital costs, have been paid. Profit can be generated through trade, lending, patents (and other forms of royalties), or production of goods and services.
Some profits created by trade or rents are essentially about redistribution of wealth. If I buy cheaply and sell dear, I can make a profit but have not created any additional value for the economy. My supplier and the buyer simply paid me to facilitate their exchange. Similarly, lending by banks redistributes capital from the borrower to the bank, which, in turn, shares some of the capital with those that deposited their capital in bank accounts. My focus here, rather, is on the kind of profit generated in the production of goods or services.
Profit is not the same as making ends meet. It is quite apparent that you can’t run a business that is constantly losing money. Profit is also not about being able to maintain buildings and replace machinery that is worn out. Profit is about surplus, which will be invested in new enterprises and, consequently, generate new profits. Profit can, of course, also be used to increase consumption. But one person’s increase of consumption, means another person’s increase of production. If that other production also is profit-driven, it will lead to the same result.
Pyramids, War, and Investment — Or Simply Less Work?
We can’t shun profit altogether. An economic surplus has been a pre-condition of all kinds of material progress. Through previous increases in farming productivity, our ancestors were able to invest more work in opening up new fields, making irrigation systems, and developing other industries. Meanwhile, surpluses in societies were historically often directed into purposes other than increased production, such as pyramids, cathedrals, sacrifices, festivals, lavish parties, or great works of art. And, unless there is no hint of capitalism, some of the economic surplus in modern economies will take the form of profits.
The most tragic option is to destroy accumulated surplus capital in the act of war. Yet there is a far more peaceful alternative, too. If production is more efficient and productivity increases, it could simply result in less work instead of an economic surplus.
The problem we face in the capitalist market economy—and a primary reason for its “success” as well—is that under the twin masters of profit and competition, increased productivity must be invested in ever increasing production. Because of competition, neither multinational firms nor little family farms have the option to turn increased productivity and profit into cultural expressions or less work.
Profit, then, is intrinsically linked to economic growth; there can be no economic growth without profit and there can be no profit without economic growth. This mirrors the finding that it takes research and development (R&D) to maintain profits, yet it takes profits to maintain R&D. At first it seems like a catch-22, but the catalyst for this ongoing cycle of R&D and profits turns out to be economies of scale. In other words, economic growth based on pre-existing levels of technology is a prerequisite for technological progress. This prerequisite eliminates any technological prospects for reconciling economic growth with environmental protection.
You Can’t Beat Capitalism on its Own Turf
Because profit is connected to economic growth, and economic growth is intrinsically linked to ever increasing demands on natural resources, the business sector cannot become sustainable through a process where “sustainable” businesses outcompete others in the capitalist market. Take, for example, the experiences of the cooperative movement. Many cooperatives, to avoid going out of business, have been forced to emulate the model of limited companies rather than changing the prevailing business model.
While it may be possible for profiting firms to exist in a steady state economy, it certainly couldn’t be the norm. Furthermore, at any given time, the profiting of some firms would have to be countervailed by the demise of others.
Instead of pursuing “sustainable” business models dependent on profits, we need to establish alternative markets and networks where consumers and producers are motivated by socially beneficial purposes. The choice of what to do with surplus, then, is determined according to the needs, values, and priorities of those involved. Such networks should not be forced to compete with capitalist firms, but gradually replace the profit-laced capitalist turf with new playing fields.
There are many such initiatives already. Some are based on individual lifestyle changes, where people opt to live through simplicity and self-sufficiency. Others are based on co-production and shared interests instead of the producer-consumer divide. Community-supported agriculture, housing cooperatives, and many civil society institutions operate more or less outside the capitalist market.
Obviously, public policy will play a major role for paving the way for such models while simultaneously reigning in the worst excesses of capitalism. Redistribution of wealth, reduced working hours, and environmental and social regulations already play important roles in this respect, while public services keep some of our basic needs outside of the logic of the market. Legislation such as the Full and Sustainable Employment Act can acknowledge limits to growth and define sustainable—truly sustainable—ways to organize our economic activities.
I love this article for its clarity and vision. I chosen to work less as an employee, and perhaps more in doing what I love to do (with much less income). But I’ve found no way to completely avoid the overwhelming culture of competition. In my grandson’s school in California, I see, more than any other subject, that competition itself is what is being taught. For the public policy in the last paragraph of this text to be implemented, we’d need an overhaul, something coming from perhaps Montessori methods or ideas from Ivan Illich’s Deschooling Society. I’ve seen in France where reducing the workweek without changing the competitive nature of education has resulted in a contradictory social system.
Thanks Gunnar for a thought provoking article! I think you capture the essence of the transformation to sustainability. All good initiatives, from circular economy and wind power to organic farming have been hijacked by the competitive profit seeking growth economy. Fostering NotForProfit economic enterprises in schools, health care and other service- intensive sectors may be a way to govern a transition to NFP society. Jennifer Hinton recently published her PhD at Stockholm Resilience Centre on this issue.
This is a great essay.
I was reminded many times while reading of one of my favorite passages from Weber’s Protestant Ethic and the Spirit of Capitalism:
“[R]aising the piece rates has often had the result that not more but less has been accomplished in the same time, because the worker reacted to the increase not by increasing but by decreasing the amount of his work. A man, for instance, who at the rate of 1 mark per acre mowed 2½ acres per day and earned 2½ marks, when the rate was raised to 1¼ marks per acre mowed, not 3 acres, as be might easily have done, thus earning 3¾ marks, but only 2 acres, so that he could still earn the 2½ marks to which he was accustomed.
“The opportunity of earning more was less attractive than that of working less. He did not ask: how much can I earn in a day if I do as much work as possible? but: how much must I work in order to earn the wage, 2½ marks, which I earned before and which takes care of my traditional needs? …
“A man does not ‘by nature’ wish to cam more and more money, but simply to live as he is accustomed to live and to earn as much as is necessary for that purpose.”