The Ethics of Profits

I hadn’t intended to follow up on this week’s piece concerning the EpiPen scandal at Mylan because, as usual, I didn’t really think there were two sides to discuss. Anybody who would intentionally charge a 60,900% markup – or even a 600% markup – on a medication that could save someone’s life in an emergency is going beyond simple capitalism into a realm that might get their company (or occasionally their entire industry) placed under government price controls just to keep people from rioting. That is to say, there is no ethical justification for such a policy, according to any standard of which I’m aware. But while it seems obvious that allowing people and organizations to earn some profit is the basis for our entire economic system, the point at which something goes beyond a reasonable profit and into outright exploitation or usury is rather less clear. I thought we should take a closer look…

First off, it should be obvious that in a completely free market it makes no sense to price something at a level that no potential customers can afford, or even at a level that no one would be willing to pay. In fact, pricing strategy to a large extent deals with how many additional purchases we can generate for each increment by which we lower the price; the point at which we can’t increase revenue by lowering the price any further being the price point. If price is the only factor driving the transaction then we probably can allow the “Invisible Hand” professed by Adam Smith and beloved of conservative pundits to sort things out. Unfortunately, conditions in the real world are rarely that simple…

In any situation where the purchase decision is more complex than simply buying the product or not having one additional levels of complexity come into play. One can choose not to pay for a luxury item, but one cannot chose not to pay for food, clothing, shelter, or medical care, just to take the obvious examples. In any situation where different customers have different resources available the situation becomes more complex again, as in cases where some people can afford to purchase food, or pay for medical care, while others in the same society can’t. And when we introduce issues like social stratification, racial discrimination, gender discrimination, transportation, logistics, government regulation, crime, spoilage, and cultural importance of specific goods and services (just to name a few) the entire situation can become baffling complex…

At the same time, we should probably acknowledge that none of the large-scale experiments with command economies, whether partly or fully socialist, appear to have ended up as anything other than complete (and usually repressive) failures. The post-scarcity economies so beloved of utopian philosophers might conceivably be different, but for the moment no such system appears to be technically possible, and thus far in history no system that requires people to sell products or services for what the government says they must (as opposed to what people are willing to pay) appears to have worked. So long as people remain motivated more by personal gain than they are by the greater good, it does not appear than any of these conditions are going to change…

As business people, we know that we would like to make as much profit as possible while at the same time creating the best possible society in which to live and the healthiest world in which to live – not because business people make any claim to being saints or angels (we’re not) but because healthy, prosperous, long-lived customers have more money to spend and more years in which to spend it. And as much as we might like to make a 60,000% profit we don’t want to do so in such a way that we get sued, regulated, mocked by thousands of scruffy bloggers, used as evidence in favor of nationalizing our industry, or that involves having our factory burned to the ground around us. So I have to ask the question:

At what point does our responsibility to our society, our nation or our world supersede our responsibility to our employees, vendors, creditors, customers, and stockholders to earn the highest possible profit on a given transaction?

It’s worth thinking about…