Wednesday, June 24, 2009

Profit revisited

Last November, I posted an entry about profits. (see here) The basic point I tried to make was that profits are not immoral or evil and it's actually good for companies to make a profit.

Lately, I've dug up an old memory from back in the 1990's related to profit. It seemed very important to me. During that time, we were experiencing what some people called a "rolling recession". One industry would be hit with hard times for a while, then another. One of my co-worker's parents ran a fishing boat, somewhere up North. Small, family-owned business at it's best.

One day he reported a story where he asked mom & dad how the business was doing. "Hard times" they said, they had to run the business with just 3 or 4 workers. The output was higher than ever, but competition and the "rolling recession" was hitting the business hard.

He explained that in good times, they had 8-10 people working for them. "How are you able to make it with just that few people?" he asked them. "What's different?"

Their reply was that in good times, they hired more, in rough times they trimmed down. A higher gross profit allowed them to spread the wealth (at their choice).

It seems to me that when companies like this profit, it's a good thing. They hire more workers. Sure, they aren't as efficient as they could be, and the consumer ends up paying for it, but (if there is competition) the consumer doesn't really lose out.

More about profits on another day...


Cameron said...

Exactly! Without profits, a business will not survive.

For instance, I had a conversation the other day with someone speaking about a city run swimming pool. He said he wanted the pool to only break even. He didn't like the idea of the city making profits, which is another conversation entirely. But I had to explain to him that if the pool never made a profit, it wouldn't have money to update and maintain the place. Pretty soon it would fall into disrepair and no one would want to go.

Randy said...

Cameron, welcome to my blog. I hope you'll stick around and comment some more.

I like your picture. I'm kind of a closet Office fan, I watch when my wife allows.

I agree with your comments completely. Technically, you're talking about retained earnings, profits would be given to owners. I guess you could give profits back to tax payers (I think Alaska did that with oil revenues)

I'll be checking out your blog..