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The purpose of business

I noted in an earlier post that Judith Warner said that one could not fault the pharmaceutical companies from selling inappropriate drugs to children because they were in the business of “making money.” I bewailed that fact then — and do again. Surely the purpose of business is to serve their customers — and making money is the reward for doing that. Today George Akerlof & Rachel Kranton bring a nice riposte in the form of “identity economics,” claiming that “In organisations that work well, employees identify with their work and their organisations. People want to do a good job because they think they should and because it is the right thing to do. In organisations that function effectively, the goals of the workers and of the organisation are aligned. There is little conflict of interest and little need for performance pay.” In other words, a pharmaceutical company that is run well should be full of people who desire to do right by their customers. Their primary reward is personal satisfaction; their secondary satisfaction is pay for a job well done. As they note, Captain Sully Sullenberger performed heroics because he saw it as his job, not because he thought that it would lead to some oversized bonus or because he thought that he was in the flying business to make money. Sadly, I think that our business schools have focused far too much attention on the making money bit and far too little on the just doing one’s job bit.

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