A Theory of Business

On occasion, I like to submit a comment on an op-ed that I've read in The New York Times. On Friday, I felt so motivated to comment on Paul Krugman's piece "Don't Cry for Wall Street." Here's what I had to say:

I have a theory about business, including the banking business. Here it is: Businesses do not exist to make a profit; they exist to serve the needs of their customers and the larger society of which they are a part.

To the degree they do that, they will earn the means to be around tomorrow to continue doing it. When businesses exploit their customers and ignore the good of society, they ultimately undermine their own viability. In other words, I see profit for what it really is: as the way to measure the quality of a business's service to others--and so are its losses. When Toyota was making money and GM was losing money, what do you think that said about the two companies and what they were doing for their customers?

With that said, a lot of banking businesses have made tremendous profits by ignoring this idea, especially the part about paying attention to the good of society. By doing this, they certainly brought the economy to its knees a couple of years ago—and we still have a long way to go to recover.

Even now some banks remain overly profitable. I sincerely doubt that Goldman Sachs’ profits are a measure of the quality of its service to others. Those folks know how to game the system, and as long as they and others like them have the ability to do that, we will all pay the price. And by all, I'm including the banks themselves, as they will come tumbling down just like the rest of us eventually.

That's why regulation and rules are important. They give us a level playing field and help balance the clear asymmetry of information and power that exists today. In reality, it's not Wall Street vs. Main Street; it's Wall Street and Main Street, and we're all in this together.

Keep raising your voice of sanity, Paul. I for one greatly appreciate it.