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Group #1: Analysis of Issue
The desire of corporations to maximize profits creates conflict with the general welfare of the nation at large.
Discuss the extent to which you agree or disagree with the opinion stated above. Support your views with reasons and/or examples from your own experience, observations or reading.
The issue of whether corporations’ objective of maximizing profits benefits society as a whole is very divisive. This issue plays a major role in every political debate around the world today, as governments wrestle with how to treat corporations. On one hand, when corporations maximize profits, there is usually a trickle down effect, with these corporations re-investing their profits thereby creating jobs and providing benefits to society at large. On the other hand, those opposed to this theory argue that profits are hoarded by shareholders and owners of corporations and there is very little benefit received by society from these profits. The desire of corporations to maximize profits creates conflict with the general welfare of the nation at large in numerous ways.
The prevailing argument put forward by economists in favor of helping corporations maximize their profits is the tricke-down theory. President Reagan is credited with implementing a plan to provide corporations with tax breaks and other incentives to carry on with their businesses, and subsequently bolster the economy through increased job creation and investment in new businesses. There have been numerous studies that discredit this hypothesis, and the validity of the claim that corporations are apt to re-invest their profits is questionable. Moreover, there is not strong enough evidence to convincingly prove that the propensity of investors to spend profits remains constant with increasing profits; if this propensity is decreasing as profits rise, then the benefit received by society as a whole as profits are maximized is marginally lower. In today’s economy, with the shift towards a more technology-based and service-based economy, profits can be maximized more efficiently than in the past. Corporations need fewer employees and lower investment to generate higher returns, and as such, even if corporations re-invest their profits, the corresponding benefit to society in today’s economy is lower than it would have been under President Reagan. All of these factors combined indicate that there is not much credit to trickle-down economics or “Reaganomics” as they are often referred to, and that corporations maximizing profits does not necessarily equal increased benefit to society as a whole.
For decades, economists and philosophers have argued that when corporations are successful, there is less scarcity of resources and thus the success of corporations is directly correlated to increased benefits for society. There is a popular theory, called the “Boiler Room Theory”, which refutes this argument. The theory analogizes corporations maximizing profits to a boiler room operator. The goal of the boiler room operator is to maintain the temperature of a given building within a specific range. This temperature is measured by the gauge on the boiler. If the boiler room operator is judged solely on the gauge, then he can accomplish great results by simply breaking the gauge so it is always within the specified range, and not have to deal with the consequences. Similarly, if corporations are judged solely on their profits, which are merely a gauge of performance and not indicative of the entire story, then they can work outside the system to inflate profits while not necessarily creating benefits for all their stakeholders. This phenomenon has occurred numerous times in history, through accounting and financial frauds, and other types of white collar crime. Therefore, judging corporations solely on their profits can lead to conflict with the general welfare of the nation at large.
Another example of how corporations maximizing profits can lead to conflict with the welfare of society is seen with the rise of corporate lobbying. Often, these lobbyists are able to corral the support needed to quell the passage of bills that would be detrimental to profits of the companies paying them. This phenomenon is seen with tobacco and oil lobbyists in particular, who have a history of being able to beat bills which would pass stricter environmental regulations that would eat into the profits received by their respective industries. Clearly, in such instances, the power of these lobbyists is an advantage for the corporations, and their success comes at the expense of laws that would benefit society as a whole.
The existing economy and legal structure creates an environment where the desire of corporations to maximize profits creates conflict with the general welfare of the nation at large. There are ways in which profits can be re-invested in today’s economy which would negate the impact of trickle-down economics. Profits are merely a gauge on which corporations can be judged and do not reflect the big picture; as such, judging corporations on profits alone can lead to perceptions of success while creating little benefit for society. Lastly, the rise of corporate lobbying in government has lead to an environment where regulations that might benefit society at the expense of corporate profits are regularly defeated. All of these factors demonstrate that the desire of corporations to maximize profits creates conflict with the general welfare of the nation at large in today’s American economy.