PROFIT IS NOT A DIRTY WORD

Hey millennials, there is such a thing as an honest profit

The segment of Americans under 30 years of age who own businesses is at a 24-year low, according to a recent analysis of Federal Reserve data. Nearly 11% of young people had stakes in a business in 1989; fewer than 4% do today.

A separate 2012 analysis of US Census Bureau data by the University of Maryland also shows a decline in entrepreneurship. In the 1980s, start-ups and young firms created 4% of all US jobs. By 1990 the rate had dropped to 3%. By 2010 it was down to 2%.

This is worrisome. We need people who will imagine and generate the goods and services that society wants to make lives better. Those are the jobs of the future, and the necessary key to innovation that continuing prosperity requires. There is such a thing as honest profit, and it happens all the time.  

This suggests that young people avoid entrepreneurship because they don’t have money and lending is tight. Some also think that the millennial generation has a low appetite for risk. Both factors could play a role.

There might be another cause, however. Perhaps more millennials need to be convinced that there is such a thing as honest profit. Profit has a dodgy reputation for many. Why?

Consider the business person and the physician. Both are engaged in professions by several definitions of that term. Yet when a physician makes a lot of money, he or she is rarely asked to “give back” to the community. When the business person succeeds, however, he or she is always expected to “give back.” The assumption seems to be that the business person’s profit was gained at the expense of other individuals, or society.

But there is such a thing as honest profit, and it happens all the time. When you go to Starbucks and hand over your money for a latte, both you and Starbucks gain. You get a latte and Starbucks gets a few of your dollars. It’s a positive-sum game, a win-win. That’s honorable business and honest profit. The overwhelming majority of transactions in our market economy result in honest profit because they are wins for both sides.

The erroneous concept that business creators succeed by causing others to diminish is not only persistent but pernicious. In a market economy, the enterprises that prosper in the long term are those that create benefits for both buyer and seller. There is still enormous room for that to happen and it is a shame that more young adults don’t seem to see it.

Is a lack of trust at the root of this? In 1974, around 46% of American adults reported that they trusted most people. By 2012 that figure was down to 33%, according to the General Social Survey administered by the University of Chicago.

One might think that that should not encourage individuals to work for others—who they don’t trust—but to create their own businesses. Yet I think the larger issue may be that young people are not getting the proper education about market economies and honest profit.

Historically, honest profit is a relatively recent innovation. For most of human history, the dominant way goods were exchanged was through “extractive behavior.” Put simply, that means you have something that I want, so I take it from you. Through the ages, extractive behavior has been employed far more often than has honorable business. The Roman Empire was built on extractive behavior. Vladimir Putin is a modern-day disciple. The enterprises that prosper in the long term are those that create benefits for both buyer and seller.  

The rise of capitalism around the world, uneven as it has been, has changed this equation. Concepts that succeed in the marketplace have superseded—even if not banished completely—extractive behavior as the dominant mover of goods and services.

But it is also true that not all profit is honest. When companies successfully lobby lawmakers for special regulations or protections, they are doing an end-run on their customers. This crony capitalism erodes trust. Confidence in the system is critically important to spur participation in it.

What needs to happen? Young people need to learn about the remarkable benefits—to everyone—of honest profit. And they need to understand that anything that is not honest profit is just another form of extractive behavior that needs to be rooted out.

Genuine prosperity requires honest profit. And young people need to see that honorable business not only generates benefit, but is an inspiring, even noble, activity worth dedicating one’s life to.

Follow James on Twitter @jroii. We welcome your comments at ideas@qz.com.

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