Why Production for Need is More Efficient than Production for profit

Economics, Medium Reads
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I hear all too often that the supply-and-demand money-based free market is an efficient system well-suited for resource allocation, and that the profit motive is the best way to satisfy people’s needs. This is, to put it bluntly, sour grapes. Satisfying need is only incidental; a lot of ways of maximizing profit end up ignoring, or in many cases deliberately going against human need, and in this post I want to present some examples as to why it’s the case.

I want to make it clear that those issues are not due to individual people being evil or stupid. That is something that can happen within any system. On the contrary, all the problems I present here specifically arise from the dance of incentives inside the capitalist system. All of those issues have nothing to do with people being inefficient. They are results of efficient people playing the game of capitalism perfectly — it’s the game that is problematic, not the players.

Under the profit motive, creating a purposefully inferior product often brings in more profits. One such example is planned obsolescence — deliberately building your tech, like smartphones, to break or slow down or otherwise stop working right after the release of the next model, so that people would keep buying more and more phones, even if their current phone could have been sufficient for them otherwise. Deliberately building your products to break faster is an obvious inefficiency.

Under the need motive, there is no incentive to deliberately make your products inferior. Speaking specifically about planned obsolescence, producers are instead incentivized to make their products last, because if they break often, you’ll have to replace them often, and that’s extra workload on you.

Under the profit motive, businesses are incentivized to create demand. There are many ways for this to happen, but let’s look at one tendency – making people need what they never needed in the first place. One of the biggest offenders here is Nestle’s… well, Nestle’s everything, for if I got a dollar for every good thing Nestle does, I’d never pay off the resulting debt, but let’s focus on its infamous baby formula ploy. When a mother uses Nestle’s baby formula, she loses her ability to naturally produce breast milk and has to keep buying Nestle’s formula just to keep her baby alive. The mothers never knew it; they were specifically targeted by Nestle for being uneducated. You can easily find more about this scandal, but on a smaller scale, this is happening all the time, from tobacco companies trying to make their products as addictive as possible to asthma medication companies investing money into coal factories to spread asthma. Making people need something, then charging to satisfy this need is rent-seeking behavior, which is basically an insult among economists. Creating a need to immediately satisfy it, wasting resources in the process, sounds pointless, and it is, which is an obvious inefficiency, but one well rewarded and supported by capitalism as a system.

Under the need motive, creating need is a non-sequitur. If people don’t need something, this is great, because you can now direct the labor and materials into something more useful. On the contrary, workers are incentivized to reduce need whenever possible, because it allows them to save time and effort since they no longer need to satisfy it. For example, in the medical system, instead of waiting until people are ill and desperate and ready to pay whatever price to save their lives, medical workers are incentivized to push preventative healthcare. This permeates throughout the entire society. Instead of spending resources on jails and justice, fix problems that make people become criminals in the first place. Instead of spending resources on abortions, foster homes, and STI treatments, spend a fraction of that on free contraception and sex ed. Whatever reduces the burden, saves resources, and makes lives easier is good, even if it would mean lower profits in a world where profits rule everything.

Under the profit motive, businesses are often incentivized to deliberately destroy perfectly good product in order to keep the prices high. This happens all the time with all kinds of products, from food to cars, but most prominently within the clothing and fashion industry. Artificially restricting supply to control prices is a commonplace business tactic. Producing a perfectly good product then immediately destroying it for no gain is an obvious inefficiency.

Houses are a corollary example of the above. Maybe they don’t literally destroy houses, but a lot of people just buy property and let it sit empty and collecting dust, again, to keep the supply artificially low and the rent artificially high. Houses that someone spent hours of labor and mounds of materials building are just standing there, producing no value – that’s an obvious inefficiency. There are more homeless people in the US than empty houses – that is also not characteristic of a system that claims to be good at fairly and efficiently distributing goods.

Under the need motive, there is no reason to destroy product. “Restricting supply” is not something anyone would ever want to do. Under production by need, it just makes zero sense to deliberately deprive people of what they need.

Under the profit motive, curing patients is not a sustainable business model. I am speaking from personal experience here. I’ve been struggling with a certain medical problem for years, visiting private clinics. There was barely any progress, despite how much money I spent on it. I was just told that my case was very difficult, and it will take a lot of time. At some point, I had to visit a state (tax-funded) clinic instead, and I got my problem fixed within two months. And there I was told by the doctors to never trust private clinics – they have no stake in helping you; quite the contrary, they are incentivized to keep you miserable, and thus profitable, for as long as they can. Curing you means losing a paying customer.

Here we see again how the profit motive is deliberately acting against people’s best interests. Profit-motivated private clinics kept me miserable for years because their profit depended on it. Tax-funded clinics don’t operate for profit and are thus motivated to cure you as quickly and permanently as possible.

Under the profit motive, the people who produce goods and services care about people proportionate to how much money they have. Whenever people vote with their dollars, people with more dollars get more votes, and the slightest whims of rich people outweigh life-and-death situations that poor people face. This is the reason why the global market for curing baldness is bigger than the global market for curing malaria, despite malaria being a much, much bigger burden for the world’s economy. This is a glaring global inefficiency that no individual actor within the capitalist system has any incentive to solve.

Under the need motive, people in need get their needs satisfied first, which ends up better both in terms of quality of life gain and in terms of the economy at large’s ability to sustain and grow production.

I believe I have made my case. I could keep talking about other places where the profit motive cuts against human need — about one-time power banks made out of regular power banks by removing the charging circuit, about social media’s obsession with clicks over facts, about free-to-play game developers researching ways to make the players as frustrated as possible, about barriers to cooperation and idea-sharing that slow down technological progress for everyone, about deceitful design… the affected area of capitalism’s endless destruction is vast. But I hope that this handful of examples works as a proof of concept; as a way to show that the fact that you are making a profit doesn’t mean that you are providing useful service. Too many people take a look at the supply-demand curve and just assume that this solves everything. It doesn’t. It really, really doesn’t.

2 comments

  • I am curious — what do you think of the argument that profit motives encourage technological progress? This is not to say that it counters your points; your thesis was proved rather well. However, the implied greater claim that a need motive is superior to a profit motive is very much unproven. One could argue that the inefficiency of the profit-based system is a price worth paying for the technological advancement made possible by it. The manufactured demand you mentioned is not always as bad as its worst case scenario; sometimes, it is AOL and Netscape manufacturing demand for internet or Apple manufacturing demand for smartphones. Profit can sometimes incentivize the obsoletion of current products, but it also incentivizes the invention of new products, which benefit society in unneeded yet helpful ways. Do you think a need-motivated economy can provide the same technological advancement as a profit-motivated one? If not, do you think that the efficiency of a need-based economy offsets the opportunity cost of the technological advancement?

    • Victor,

      Profit-motivated economies are a very recent invention. For most of human history, technological progress was motivated either by direct need, or by pure curiosity, and we managed to ascend from monkeys to Mars missions just fine.

      Historically, there had been two rough “avenues” of innovation. You can look at medieval feudalism or the Roman Empire for an example. Some innovation was done “from the ground up” by workers trying to improve their working conditions, giving us mundane things like the iron horseshoe. Some innovation was done “from the top down” by whatever counted as ‘elites’ in that society. Neither was motivated by profit. Peasants, smiths, etc in fiefs did not have a money-based economy in between them (at least until mercantilism came around). Money was used to pay dues to the lords and\or the church, but rarely to mediate trade between, say, a blacksmith and a farmer living near each other; and yet we could still see innovation. The ‘top down’ type of innovation was what gave us things like philosophy or science, and almost all of that was given to us by the elites, like lords, or, later, by rentiers, who had all their needs met regardless of labor, and who didn’t stand to gain any profit from their inventions.

      You can trace the same trend into capitalist societies as well. You have mentioned the Internet, and this is really a great example. The open-source community is notable for developing software for their needs purely on the can-do basis, without the profit motive. Most of the technological innovations come from them, and then merely get adopted by for-profit companies. The internet as a whole is very “from each according to their abilities, to each according to their need” – where was the last time you paid for a web browser or got paid for leaving a comment on a fledgling news site? At the same time, for-profit “innovation”, including by Apple or Microsoft, was more aimed at “conquering” and retarding segments of the market, such as the famous “embrace-extend-extinguish” tactic. Bill Gates was a ruthless, cutthroat businessman who held the entire industry hostage for quite a while. This deserves its own post, and I will likely write one in the future, but I believe that both Apple and Microsoft were actually highly detrimental to the development of the Internet and computing technology as a whole. I didn’t research Google as well as I did those, but I suspect foul play there, too.

      And, I have to say from experience here, I’ve innovated quite a few things in my life! All of them were completely useless in the large scheme of things, but very profitable. My last job was as a game designer for a free-to-play video game, where I was inventing new, better, more covert ways to make the players just the right amount of frustrated to make it easier to con them into buying lootboxes. Needless to say, I didn’t feel like I’m contributing to humanity’s overall technological progress.

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