The purpose of business is not what you think…


The modern world wasn’t planned. It wasn’t designed. It came to be from billions of little decisions plus a few thousand big decisions, most of which were solving short-term problems, few of which ever questioning the core assumptions of society and economics.

From this we have a world today where business is about making money, and where the press and elite will tell you that the sole purpose of business is to maximize shareholder values.

Turns out that phrase is less than a hundred years old, and turns out it wasn’t the popular view of business before Milton Friedman published an article spouting that idea in the New York Times Magazine in 1970.

Turns out that the true purpose of business is to solve a problem (or two) for customers. To stay in business, the business needs to charge more for the solution than it costs to create and deliver.

To do that at any scale, a business needs to hire employees. Those employees need to be paid. If the business doesn’t pay their employees well, then they leave. Compare the attrition rates of Walmart and Costco to see the difference. See Ford’s $5/day.

Also turns out those employees must work somewhere on the planet. Pollute that neighborhood or otherwise harm the community, and the business won’t stay in business for long. Support the local community, and everyone will think the business a hero.

So… when you are done pleasing the customers, keeping your employees employed, and serving the community, whatever is left can be used to either grow the business or be given to the shareholders.

Thus in reality, shareholders come last, not first, and the true purpose of business has very little to do with shareholder value.

By "Luni"


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