If It’s Profitable, Is It Really Sustainable?

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 in developing new methods and machinery to increase efficiency in production. The early organic advocates went a long way to assure other growers, farmers, businesses and politicians that organic farming could be profitable, even within the prevailing economic system. Even more so, if externalities would be factored into the price (which they still are not). I see a similar discourse surrounding regenerative agriculture, permaculture, market gardening or artisanal bakery. But perhaps this assurance of profitability was misguided all along. What if profit is not desirable? What if the pursuit of profit is at the core of the ills of society?

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 to be viable only if it is profitable. In the prevailing sustainability discourse, we are told that there is no contradiction between profitability and environmental or social progress. On the contrary, profitability is seen a prerequisite for sustainable development. Environmental politics is full of concepts such as “triple-bottom-line” and “people, planet, profit”. But, by and large, this is simply not correct. Profitability is incompatible with sustainability. Let me explain why.

Profit derives from a surplus created by economic activities, a surplus after the costs, including capital costs, have been paid. Profit can be generated in different ways, through trade, trough lending, through patents (and other forms of royalties) or through production of goods or 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 I have not created any additional value for the economy. My supplier and the buyer just paid me to facilitate their exchange (whether they need me or not is another story). Similarly, lending by banks redistributes capital from the borrower to the bank, which, in turn, share some of that capital (the rent or profit) with those that deposited their capital in their bank accounts (the borrower may or may not invest the money in some profit-making venture). My focus here is rather by the kind of profit generated in the production of goods or services.

On the floor of Chicago Board of Trade, photo: Gunnar Rundgren

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, feasts, war, investment or simply less work?

Clearly, we can’t shun “profit” altogether. An economic surplus has been a pre-condition of all kinds of desirable material progress of humanity. Through increased productivity in farming, more work could be invested in opening up new fields, making irrigation systems and developing other industries. Meanwhile, surpluses in societies were historically often directed into other purposes than increased production, such as the building of pyramids or cathedrals or expended in sacrifices, festivals, lavish parties or great works of art. The ultimate, and tragic, way to destroy accumulated surplus capital was by warfare.

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. It appears that this was a favored option in many egalitarian societies, while in hierarchical societies the elite will try to extract as much as possible from the dominated classes. The poor work ethics of the peasantry or colonized people often commented upon by their rulers was an expression of this propensity to work less rather than contributing to the accumulation of capital (mostly the capital of someone else).

Sorting tomatoes in the Netherlands, Photo: Gunnar Rundgren

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, less work or investment in machinery with the main purpose to make the work more pleasant instead of more productive.

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. In the aggregate, the total profit of all economic agents will be zero if there is no increase to the output of products and services. Economic growth, in turn, is intrinsically linked to ever increasing demands on natural resources. Therefore, in essence, profits equals increasing claims on natural resources. 

You can’t beat capitalism on its own turf

This also implies that 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 (if any), then, is determined according to the needs, values, and priorities of those involved. Such networks should not be forced to or try 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, political action and regulations 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 maximum working hours and environmental and social regulations already play important roles in this respect. Not privatizing public services and extending public services (or civil society services) into new domains keeps big parts of our lives and necessities outside of the logic of the market. Legislation should be passed to define and facilitate other ways organizing human cooperation, such as the ones discussed above. 

First published in the Steady State Herald 20 May 2021, the version above is slightly different. 

 

Further reading on the link between growth and profit:

A not-for-profit world beyond capitalism and economic growth? Organizing for the post-growth economy by Jennifer Hinton and Donnie Maclurcan

Profit and Economic Growth by Gennady Bilych