Oct 13, 2010

GUEST ENTRY

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Most people would find the claim that government officials, priests, journalists and people working in aid organizations are only motivated by their will to serve the public good rather naive and simplifying. Cultural prestige, financial gain a personal passion for finding solutions to problems also have a role to play. Unfortunately, there are no pure angels walking the earth. But when it comes to market entrepreneurs it is often assumed that they work only for the profit motive. The “devil figure” is more accepted. But this too is simplifying and naive.

Market entrepreneurs are also motivated by a desire to solve a problem, and works out this desire with passion and energy. This “entrepreneurial energy” is an important resource of society to be nurtured and allocated efficiently just as all other important resources.

When talking about “sustainability”, entrepreneurs are often forgotten or even scolded. But the entrepreneur’s quest for market profit is actually a key to sustainability.

How do we know we have a sustainable solution to a problem?

If you have solved a problem and at the same time makes market profit, this implies that you have designed a process where people voluntarily pay for something that solves the problem.

Market profit is not only good as a financial reward to the entrepreneur, but also as a signal that here we have a solution that rests in itself without forcing or bribing anyone to participate and without help from the outside (such as foreign aid or industry subsidies).

If you are passionate about finding a sustainable solution to a problem, use market profit as your guideline. Find out how to make the relevant parties pay for your service/solution out of their free will (this excludes tax money). This focus will help you mature and develop your concept and ideas in the right direction and possibly lead to a solution where people voluntarily pay for it. This will not only make it sustainable, but also make it possible to scale it up so that it creates a massive impact. An example of such solutions is the extensive use of mobile phones in developing countries. 

This notion of sustainability is different from the one used by ecologists. But “market sustainability” is not irreconcilable with ecological sustainability as long as ecological sustainability is pursued by making equal rules for everyone, setting the frame within which market entrepreneurs can work on equal ground.

Too often social entrepreneurs and politicians with the best intentions fail to understand the power of this guiding star of the capitalist system, the market profit. The result is that the search for sustainability is pursued by strategies such as “pick the winner” where the bureaucratic elite chooses a few industries that are deemed “sustainable” and lavish them with subsidies. The windmill industry in Europe or primitive handicraft in India are examples. Or by giving money to specific NGO’s, government programs etc that work to create solutions dictated by the political or bureaucratic process.

The influential economist William J. Baumol has suggested that entrepreneurial energy/activities can take more forms than just the quest for market profit *. That rent seeking or warfare are also sorts of entrepreneurial effort, just unproductive ones. It’s the incentive pattern that determines what activities the entrepreneurial forces of society are directed at.

If we want to exploit the entrepreneurial forces of society in a productive way, if we want to use the entrepreneurs to find sustainable solutions to our problems, it is crucial that we recognize the fundamental, long term importance of market profit.

So don’t feel guilty over making profits and congratulate others when they do – you just made the world a better place to live. Profit is not only the signal that people are willing to trade their money for something they value higher, your product, but also a signal you haven’t wasted another important resource of society, your time and energy.

*William J. Baumol, The Journal of Political Economy Vol. 98, No. 5, Part 1. (Oct., 1990), pp. 893-921.


/Kresten Buch, Founder and CEO HumanIPO.com