Profit and other motives

koenfucius

Sep 30

(featured image: Province of British Columbia/Flickr CC BY NC ND 2.0)

Is the care sector incompatible with profit motives?

Some people take a dim view of profit. It evokes images of fat, top-hatted men raking it in. In the UK, that concept cannot provoke more outrage than if it is linked to the National Health Service (NHS), an institution only marginally less sacred than the Church of England. If health or social care are delivered by organizations that must make a profit, the idea that trade-offs will need to be made between profit and quality is not far-fetched. So, do those who oppose commercialization or privatization have a point? Should care be kept out of the hands of profit-seeking capitalists?

Motive needed

Very few people are able to meet their needs without any help from others. We cannot possibly grow all the food we need, make our own clothing, shelter and tools from scratch, let alone entertain or cure ourselves. So, what motivates these others to do something for us? In The Wealth of Nations, Adam Smith, widely regarded as the father of modern economics, put it thus: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages".

According to Smith, other people do something for us (and, by the same token, we do something for others) out of self-interest. There is something in it for us. That can be the money received from the sale of meat, beer or bread, but other, non-material instances of self-interest too may motivate us to do something for someone else. We may help out colleagues at work to establish a good reputation and build status; we may do a friend a favour because doing so reinforces a social bond of reciprocity; we may act as a coach for the junior soccer team because, directly or indirectly, it simply gives us pleasure. Even if there is a material, extrinsic motive like money, there is often also an intrinsic motive. Not everything butchers, brewers and bakers do directly provides them with more profit. They might put in extra effort because they want to do a good job and be proud of the result.

Is this what you think of when you hear about the 'profit motive'? (photo: the author via DALL·E)

But when it comes to providing care, the profit motive seems to be inappropriate. Perhaps this is in part because care-giving is something that has, for ages, been taking place within the family (mum and dad looking after their offspring, or children looking after their own elderly parents). Pretty much the only motive here is intrinsic: we do it because we feel it is right.

Profit for thee = loss for me

Yet, despite the misgivings about money for care, few people seem to oppose individuals being remunerated for providing social or nursing care, or for treating people who are sick or injured. We don't expect doctors, nurses and home helpers to work for free – on the contrary, many people feel they should be paid more. But if a private company makes a profit providing care, some see this as money for nothing (it is in addition to the pay of the staff who do the work), going straight into its pockets. If the service was provided by the state, there would be no profit, and hence it would be cheaper. This perspective overlooks the fact that the profit is in effect the return on the capital that the shareholders invested in order to be able to provide the service. The state must also provide that capital, and that comes either from taxes, or from borrowing (on which interest must be paid – out of taxes). State-provided care may look cheaper, but that is because part of the cost is covered through taxes. This is an option not available to private companies, which must instead attract capital from investors, who are expecting a return on their investment.

More even than this misconception of profit, perhaps the most important reason why people might be averse to profit-seeking companies delivering care is rooted in zero-sum thinking ***. The profit motive would mean that, in any trade-off, enhancing profit is favoured to the detriment of the quality of the care. The existence of high-quality goods and services in every other market delivered private companies suggests, however, that this is by no means inevitable. Might care provision be an exception, and if so, why? And would public provision (or absence of a profit motive) assure maximum quality?

Inevitable trade-offs

Trade-offs are unavoidable whenever resources are scarce, and indeed, companies do, strictly speaking, face a trade-off between spending money on the quality of its goods or services, and keeping it as profit to distribute it to the shareholders. Why might they favour the former? Adam Smith provides the answer: because it is in their self-interest to do so. They can only make a profit if customers buy their products or services. If spending and investing is strengthening the long-term income stream from happy customers, then it is worth doing so, even if it means less profit in the short-term. Customers value good quality at a reasonable price, and will come back if that is what they get. While it is harder, alongside the extrinsic profit motive, to conceive of intrinsic motives for a company, some may well cultivate a culture that emphasizes customer satisfaction, and that encourages managers and staff to take it into account in their activities and decisions. But this is only relevant if the business is sustainably profitable.

It's easier to change hairdressers than to change care homes (photo: Casas Rodriguez collection/Flickr CC BY NC ND 2.0)

The basic principles are the same for a care provider as for a biscuit manufacturer or a chain of hairdressers, but the practicalities differ. While it is easy to switch biscuit brands or hair salons, with care in general, and particularly concerning residential care homes, that is not so easy. Patients or residents typically do not have the same power to walk away and choose another provider as a consumer who buys biscuits or wants their hair cut. In many cases they are not even the paying customer: it is insurance companies or the state that buy the service. This complicates matters, and the incentive to make the right trade-offs for patients or residents is not so strong as when customers can easily and freely opt for a different supplier if the present one is unsatisfactory. Unless there is robust oversight, less scrupulous providers may well be able to get away with offering inferior services, while squeezing the last bit of profit out of the operation.

Individual staff, too, must make trade-offs – not with money and profit, but with time, effort, attention and diligence. It is their intrinsic motivation to do well by the people in their care that counterbalances any innate tendencies to be (too) frugal with scarce resources like time and effort. Arguably, the choices they make many times every day determine the quality of the care as much as, if not more than, management decisions.

Who does it better?

Would public provision be a better option? The absence of the extrinsic profit motive evidently eliminates the risk that profit is prioritized over quality of service. But there is also no incentive to provide high-quality care, and hence to invest in appropriate facilities, to update and enhance procedures, to train staff and so on, in order to attract and retain customers. When we care for our nearest and dearest, we may well do so entirely out of intrinsic motives, but would this automatically apply to staff and managers in public care institutions? Would they necessarily attract carers with more intrinsic motivation to do well by the people in their care? Are public sector workers more dedicated than their private sector colleagues? That is not so sure. (One study by Paulo Monte, an economist at the university of Paraiba, Brazil, suggests that public sector workers do less unpaid overtime and are more likely to be absent than their private sector counterparts.)

Self-interest is a formidable force, which living organisms have been honing for billions of years. It can be a formidable force for good service to others, especially combined with intrinsic motivation. But it requires the right circumstances to prevent it degenerating into greed – such as a competitive market in which customers keep providers on their toes, and can turn away from those that fail to deliver. If the actual customers of care providers (the state and insurers) can assure such a set-up, then the profit motive can work to its advantage.