Are the Interests of Those Who Live by Profit Ours?

As we get further away from 1776, the “Prices of Wheat” tables at the end of Book I in The Wealth of Nations aren’t as relevant as they once were, except to those with a special interest. However, Adam Smith’s concluding words of the same Book certainly are. Here, he calls our attention to the businessmen, industrialists, and investors of his day, noting “the interest of this…order…has not the same connection with the general interest of the society.” Western societies have changed immensely since the 18th century, but certain features — for better or worse — seem to be timeless. Large-scale private business interests affect the direction of the world now and for years to come. Their decisions and actions are rarely made with the public interest or good as a primary concern. Yet, these highly influential decisions are often made with approval from the state, and certain private interests can only exist with direct support from governments — institutions supposedly filled with representatives of the public interest. In the past, anyone too eager to brush aside Smith’s observations about the order of “those who live by profit” was making a grave mistake, and to not take his warnings on the subject seriously in the present would be just as much of an error. This is especially true as the world grapples with a pandemic that is radically shaking up business, politics, and public affairs — and how business people go about their political and public affairs.

It is easy to see that Smith’s call to caution when dealing with an order of people who have an incentive to “deceive” and perhaps even “oppress the public” for their own gain is not one of unchecked emotion or unnecessary assumptions. Smith is not known today for publishing flippant assertions and rushing out half-baked polemics. After all, it took him nine years to finish The Wealth of Nations, and understandably so. He was using the events of his time, his surroundings, and his study of history to form original principles (or improve on those of others) in an effort to understand the world, the people in it, and how economies and the citizens in them gained or suffered. To Smith in the 18th century, private industry — or the “merchants,” “master manufacturers,” and “dealers” — putting their interests ahead of the public was a simple tale of incentives and realities, a tale no different than the one we can see today.

The story begins with a truism: Smith reminds us that someone preoccupied with their own affairs, work, and pursuit of self-interest will naturally come to know their affairs, work, and how best to serve their self-interest more intimately than anyone else. Of course, Smith may have been thinking about pin factory owners and the transportation of goods by sea when he was writing, but we should have no problem scaling this thought process up to the present in terms of both type and size of business, and the teams of managers and executives that run them — be they airlines, hotel chains, the financial services sector, dairy farms, and so on. 

The world of commerce and the roles of industrial leadership, capital ownership, and business management are not for someone whose skills stop at personal decision-making and wealth management. Being a part of this world means making decisions that affect hundreds, if not thousands, of lives, directly within a company or outside of it. And, just like any other demanding occupation, it takes a certain kind of person with particular (natural and learned) aptitudes and attitudes to perform in these roles effectively. Continued success in such positions requires the internalization of certain values and the development of particular mindsets. In other words, “As during their wholes lives” industrial leaders and teams “are engaged in plans and projects, they have frequently more acuteness of understanding” of their own affairs, and of course develop a well-rounded comprehension of how to seize further opportunity for themselves and their businesses —to continue to “live by profit.” 

Perhaps this simply means they know their affairs as much as we know our own, but Smith pushes further to say it means more than that. Namely, that many sections of the business community in fact have “better knowledge of their own interest than [we] have of [ours].” And, some have interests that are “always in some respects different, and even opposite to, that of the public.”

Even if all that’s true, Smith’s observation may be benign, and perhaps even inconsequential — an observation without weight. That is, until we think through the implications of asymmetrical knowledge and conflicting interests.

Smith’s insights encourage us to remember that the great minds of business don’t just use their superior knowledge of industry and the pursuit of their own interests to produce the next great cell phone and deliver packages within 24 hours of an order. Indeed, it’s this same innovative and competitive spirit that naturally seeks to secure their future revenues and position in society in ways that go beyond selling their offerings via the confines and discipline of the market. Smith notes that when this order steps out of private businesses and into public relations and political affairs “it is by this superior knowledge of their own interest that they have frequently…persuaded [us] to give up both [our] own interest and that of the public.” 

Of course, the only way to figure out whether your interests are in line or opposed to that of the business world (or certain sections of it) on a given issue is to understand both their interests and yours to a relatively detailed degree. Furthermore, one needs to understand the interaction of those interests in, and with, the public sphere. For reasons already discussed, most people are already at a disadvantage in this at the best of times. It’s even more challenging in harder times. 

The COVID-19 pandemic is a great example of Smith’s notes on all of these incentives and interests and their interplay with the public and politics. When the virus was novel and spreading, while some governments were still figuring out what to do for public health and others jumped right into lockdown measures, the economic shakeup that resulted meant most of us were worried about simply keeping our jobs and keeping ourselves and our families safe. To be sure, the captains of industry were worried about their families and their health too, but they also had concerns beyond that during the public turmoil: What to do about losses of revenue, halted investment opportunities, potentially disrupted government funding or aid, and the threat to their economic and political leverage — all of which could cost billions. Again, they live by profit, not losses.

For most, the beginning of the pandemic was probably a blur of worry and busywork as everyone adjusted to the new normal. Knowledge of public affairs and politics beyond what affected one directly was probably equally blurry. A lot of the decision-making in the public sphere was left completely to the political and industrial classes without much input from the general public. Where there was input from the masses, it was largely reactive in nature — after-the-fact commentary. With this kind of scenario at play, decisions are made with even less regard to the public interest than they already would be, and rest upon foundations, intentions, incentives, and assumptions the public has little time to evaluate. 

In the U.S., for instance, the idea that bailing out airlines was “probably a necessary evil” was seemingly accepted by some of the business press and many politicians in theory. Of course, theory is cheap, but action isn’t. These particular bailouts did come, and with a price tag of billions of dollars — some of it suspected to be designed exclusively for one player or another. Take other examples from Canada where many industries also received special attention to the tune of millions or billions of dollars. By early May, the agriculture industry knew millions of dollars of benefits were coming their way, and of course, “critics warn[ed],” and the public was told, “it’s not enough.” These two examples represent a fraction of present and future taxpayer dollars already packaged up and handed to particular private interests in the business world, or earmarked for later. And, COVID-19 is but one crisis on a list of many where corporations and the business world have approached government with open hands, supposedly empty wallets, waving their nation’s flags, and claiming it is their interests that represent the general interest, and greater good.

In any case, the purpose here is not to explore or evaluate whether all or any of these measures were in line with the general or public interest. The point is  to note that the troubles of business and industry, and the solutions (most often from government) that follow, are almost always and everywhere presented to the public by government and industry as instances where private and public interest obviously overlap, or even directly reflect each other. As we move into the future, our new normal will be influenced by the ongoing discussions, decisions, and programs that were created during this crisis. Where we go from here will be heavily influenced by messaging that always positions various private interests as directly in line with everyone else’s. Whether that presentation is valid is a question that should be determined by the facts and the “countrymen” who evaluate them, not narratives from the public relations industry and government departments.

All of this isn’t to say that the business world and industrial leaders rub their hands together every time a crisis is on the horizon that can be leveraged to benefit them narrowly. Perhaps that is true, but perhaps it isn’t. I happen to believe that it is not the malevolence of those who live by profit that can lead them to deceive or oppress the public interest, but rather the simple pursuit of their own interests can sometimes lead them to do so. As Smith says, it may indeed in the best of cases even come from “a very simple but honest conviction that their interest, and not [ours], was the interest of the public.” [Emphasis mine]

The wrong inference from Smith’s thoughts on this matter would be to conclude that the particular interests of the order of merchants, master manufactures, and dealers ever being in line with that of the general interest is a cosmic impossibility. The right approach is to take Smith’s words at face value, and to approach claims from this order about the general interest and public good with skepticism as a starting point. In other words:

Also by Alex Aragona: Adam Smith and the Costs of the Division of Labor