There is a debate in many countries about the morality of profit seeking, especially in such essential industries as energy, water, communications, education, and health care. Is it fair to profit from a necessary service and perhaps deny the service to those who can’t pay? I recently read an old article (in The Economist 12/9/95) trying to explain how profiteering fat cats are not robbing the poor but rather enriching the whole economy through their seemingly selfish actions, and this got me thinking.

In Britain and many other European countries, profit is understandably looked upon as a somewhat dirty thing. When companies announce their profits, high-minded journalists often pounce, announcing to the world the enormous sums of money (often calculated in pounds per minute to further dramatize the idea) that the lavishly rich companies have managed to pilfer from the hard-working common man. Even more disturbing to the average newspaper reader are the types of companies that are often among the top corporate thieves: companies that supply the community with water, electricity, health care, and other necessary services. Shouldn’t they be working for the best interests of the community rather than themselves?

Not necessarily. Although Americans are used to the idea of a profiteer behind every product, Europeans feel uneasy about utilities making money, and they are mortified by the idea of companies providing health care and education out of greed. As immoral as it may seem, the Americans have it right, and it all has to do with the flawed European perception of profits. A little economic reasoning shows that profits serve much greater functions than paying some tycoon’s rent for the most expensive penthouse in town. It is true that the most important aspect of profits is how they act as a reward. However, instead of the popular European perception that profits are rewards for swindling the public, Americans see profits as rewards for risk-taking, technological innovation, and efficiency. Without profits, there would be no incentive to investing money in risky propositions. There would be no reason to upgrade to faster machines or learn how to make things more cheaply. Profits push the economy in a modern, competitive, efficient direction, and allow the companies who help the economy grow to share in the reward.

Critics point out that utilities are often natural monopolies, companies that by their very nature have a monopoly. Having more than one company delivering power (which would mean having more than one set of power lines) is very inefficient. If profits are the only goal, why would the one power company go out of its way to string power lines to rural areas where maybe only a few people can pay for the service? This is why governments are so heavily involved in the operations of such companies. Governments can allow monopolies, as long as they are heavily regulated. This explains why governments need to meddle with companies that provide health care, education, power, water, and other necessary items. Without any incentive except profits, companies in these fields would most likely harm the community rather than help it. Government interference makes certain that the enterprise is both profitable for the company and the community.

Whenever possible, however, it is advantageous for the government to play as small a role as possible. When a few smaller competitive companies can replace state-sponsored monopolies, the government should make sure that the competition is encouraged and that profit is the main incentive. This is the best way to ensure that the services provided will be cheap, modern, and efficient. Whereas pricing restrictions and numerous regulations are needed for monopolies, competition and profits give the best results because they allow the natural drive to earn rewards to fuel the bettering of the economy.

Although it may seem immoral to make money by exploiting people’s needs, these needs will only be best met when someone is exploiting them.