Saturday, May 21, 2016

Is Profit-Seeking At Odds With Consumer Value?

In the comments section of Linda Stamato’s for-profit hit piece The predatory for-profit college industry and its enablers in Congress, which I covered in my post of 5/19/16, a correspondent ironically calling himself thinkerbell wrote,

. . . once you've gone for-profit, it's pretty much axiomatic that your final concern will be the generating profit rather than the development of wise and committed citizens who can envision and enact a better future.

I left this reply:

This makes no sense. The idea that the path to profitability is to disregard the good of or do bad things to your own customers can be easily debunked by a little personal introspection: When was the last time you sought out the lowest quality, highest price, worst service, or most dishonest provider in deciding how you spend your own money? If you seek maximum value for your dollars, you’ve disproved your own statement. For a private business that must depend on voluntary exchange, providing value greater to the consumer than the cost of the goods offered is the only path to profits. And that demands a long-term commitment to value creation, which requires principled business policies and actions. The opposite leads to bankruptcy. The school that puts profit over educational value is not a profit-seeking business but a quick-buck artist seeking to appropriate money, not earn profits. And money appropriators can exist among nonprofits or public colleges as well as schools organized as for-profit.

The evidence is all around us. Without satisfied customers, there are no sales. No sales, no profits. The basic principle of voluntary trade—producers seeking to increase sales and thus profits by competing for consumers seeking maximum value for their money—is win-win; self-interests are aligned, not antagonistic. There is no conflict between profit-seeking and the good of consumers, so long as all exchanges are voluntary.

Unfortunately, higher education is an unfree market corrupted by a flood of money supplied by the government’s coercive taxing powers. This creates perverse incentives and feeds the rise of quick-buck artists.

Related Reading:

The Choice is Not Principles or Profits, Because There are No Profits Without Principles

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