“Never talk to me about profit,” Jawaharlal Nehru once said to an industrialist friend of his. “It is a dirty word.”
Nehru’s sentiments were understandable in those times. India had just rid itself of the British, who had come here ostensibly to do business and had left us impoverished. Nehru, who had played a notable role in the fight for freedom, had spent his formative years in England learning from the Fabian socialists, as well as from Harold Laski, the Marxist professor at LSE who, through students such as Nehru himself and VK Krishna Menon, arguably had a greater influence on modern India than Mahatma Gandhi . The Soviet Union seemed to be a model to admire, America itself vastly expanded the role of the state after the Great Depression, and the top-down command-and-control economy must have seemed incredibly attractive to Nehru. The centre had to hold. The profit motive was evil. And those exploitative capitalists had to be kept in check.
It is not fair to judge Nehru in hindsight, and he was right about other things that mattered. But he was wrong about this. Profit is the secret behind all prosperity. And it is a distrust of the profit motive that has kept this country poor.
The fundamental fallacy that Nehru committed was of looking at the economy as a zero-sum game. By that thinking, if someone is winning, someone else must be losing. If the industrialist makes a profit, someone else is getting exploited. But this is not the way the world works. All trade is a positive-sum game; and indeed, it is not possible for one person alone to make a profit in a transaction.
I am fond of illustrating this by citing what the writer John Stossel calls the ‘Double Thank-You Moment’. When you place an order at, say, a Cafe Coffee Day, you say ‘thank you’ when you are handed your cup of coffee. And the cashier says ‘thank you’ when you hand over your money. This double ‘thank-you’ illustrates that both of you benefit from the transaction. Both of you profit.
This is, simply put, the root cause of prosperity. Every single voluntary transaction that takes place makes both parties better off, and increases the sum total of value in the world. Equally, every impediment that anyone places on the ability of consenting adults to trade freely with each other reduces the notional value in the world, and is an impediment to growth. It stands to reason, then, that trade should lead to prosperity, and that economic freedom should be correlated with a nation’s wealth. Does the data bear this out? You bet it does.
Go online and Google ‘The Hockey Stick of Human Prosperity’, and you will come across an astonishing chart. It shows world GDP through the centuries, and right from 500BC to the 18th century, it’s a flat line, with hardly any growth to speak of. And then it explodes upwards, almost vertically, like the head of a hockey stick. This dramatic growth in prosperity was caused by the explosion of trade, of markets around the world, of quickly proliferating ‘Double-Thank-You Moments’.
This prosperity was correlated with economic freedom. Every year the Heritage Foundation brings out an Index of Economic Freedom. Go online and look it up, and you will find that economic freedom and wealth go hand in hand. The freer you are, the wealthier you tend to be. Also, the freer you are, the faster you grow. The data is conclusive.
Forget the data, you say. Capitalists are exploitative. What about the low wages paid by Walmart? What about sweatshops run by large MNCs in third-world countries like Bangladesh, where workers toil in inhumane conditions? Isn’t that the profit motive at work?
Yes, it is. And I deeply admire Walmart and every company that runs a sweatshop in a poor country. That is because the people who work in Walmart and in those sweatshops do so because it is the best option open to them. They are not fools. They are choosing to work where they do because they deem all other alternatives to be worse, and those evil capitalist behemoths should actually be thanked for actually providing them an option that is better than the best option otherwise available to them. We condescend to those workers when we say they are being exploited. (Indeed, it is possible that we are exploiting them by using them to feed our sanctimony.)
This doesn’t apply to slavery and trafficking, of course, for by ‘free markets’ I mean markets where consenting adults trade freely under the rule of law. Also, let us not conflate rent-seeking and profit-seeking. Many large companies get together with government to put restrictions on markets so that their marketshare is protected from competition. Such protectionism hurts the common consumer, and amounts to a redistribution of wealth from the poor at large to rich special-interest groups. Big companies are often the biggest enemies of free markets, and capitalism often unfairly gets a bad name because it is confused with crony capitalism — or ‘crapitalism’ as some call it.
To sum up, the profit motive is not something nefarious, but is actually noble. You can only profit in a free market by improving someone else’s life. And the more you profit, the greater the good you do, the higher the value you create. Profit, indeed, is the purest form of philanthropy.
I must admit here the very slight, teeny-weeny possibility that I am being unjust to Nehru. Maybe he had a mischievous glint in his eye when he said that profit was a ‘dirty word’. I can imagine him sidling up to Edwina Mountbatten at a party, gently putting his hand on her waist, and whispering to her, ‘Edwina, my dear, would you like to, ahem, profit with me?’ That certainly could have led to a double thank-you moment.
Amit Varma is a novelist. He blogs at indiauncut.com
Follow Amit on Twitter @amitvarma