The E.F. Schumacher Society is a left-wing, anti-capitalist advocacy group that radically exploits the cause of environmental sustainability to advance a decidedly socialist agenda. Recently, it changed its name to the New Economics Institute.
One of its leaders, Gar Alperovitz, author of “America Beyond Capitalism,” has outlined his vision of the new-economy movement, “one that is based on rethinking the nature of ownership and the growth paradigm that guides conventional policies.” In his judgment, “new-economy efforts will ultimately pose much more radical systemic challenges than many have contemplated.”
This is the way these people talk, but you get the idea.
Alperovitz heralds the creation of so-called “B Corporations, “allowing a company to subordinate profits to social and environmental goals.” Initially, Alperovitz and his ilk would “allow” companies to organize as non-profits. Later, they’d likely hope to mandate it. An Alperovitz colleague at the New Economics Institute, Gus Speth, has indicted our market economy as incompatible with “ecological imperatives.” In their “new economy,” private enterprise capitalism would be transitioned to state capitalism, an oxymoron that’s the practical equivalent of socialism.
Unfortunately, given the feeble state of today’s economy and the high level of unemployment, many for-profit companies find themselves mired in an unintended and involuntary non-profit condition. We don’t need more non-profits; we need fewer.
There are about 1.5 million non-profit organizations currently registered with the IRS, representing less than one-tenth of our market economy. They include churches; charities; hospitals; think tanks on the right and left; trade associations; labor unions; foundations; and advocacy groups like the ACLU, NAACP and NRA. Organizations are sometimes formed as non-profit enterprises to perform public services outside the scope of what would be provided by investors seeking economic returns.
Organizing as a non-profit also confers numerous tax advantages and exemptions. Some non-profits do good things. Others, in my view, don’t, although they believe they do. “Good,” in this case, is subjective.
But let’s not lose sight of the reality that, in our capitalist system, all of the capital invested in non-profit organizations is initially derived from the profit and wealth created in the for-profit sector, the source of benevolence and what drives the engine. It all begins with entrepreneurs and investors who risk their capital in a profit-seeking venture. If it’s not for profit, it’s not a business; it’s a charity.
In a market economy, profits are an instrument of the price mechanism, providing market feedback from customers about which products or services are desired, how they should be priced, and what their production costs must be limited to in order to deliver them at a market-clearing price. In a competitive market, companies are price-takers, not price-setters. Thus, cost is determined by selling price, not the other way around. Only companies that meet the test of competition will survive. Profits are like a report card.
On average, profits are about 5 percent of sales. Profitable businesses flourish, unprofitable ones perish (as they should), and their assets are put to better use by others. This is what Joseph Schumpeter called the “creative destruction” of capitalism. Most of a successful, growing business’ profits are reinvested in that business. Of the remainder, payments to shareholders or creditors are the cost of capital.
The self-anointed geniuses at the New Economics Institute aren’t smart enough to override the trillions of economic decisions now made every day by millions of individual participants in our market economy. No one is, especially a panel of government central-controllers. That was the grand conceit of the failed, former Soviet Union.
By the way, if all businesses were organized as non-profits, how would liberals collect the corporate income tax?
Freelance columnist Mike Rosen’s radio show airs weekdays from 9 a.m. to noon on 850-KOA.
