T H E P R O F I T M O T I V E I N
E D U C AT I O N
James Stanfieldecaf_1906 90
It is not often that we find the Conservative
Party jumping into bed with the notorious
National Union of Teachers (NUT), but on the
question of combining the profit motive with
children’s education, both subscribe to the
NUT’s mantra of ‘Education is for children –
not for profit’.
Writing in 1949, Henry Hazlitt suggested
that ‘[t]he indignation shown by many people
today at the mention of the very word profits
indicates how little understanding there is of
the vital function that profits play in our
economy’. Thankfully, over half a century
later there is now much more understanding
about the importance of the profit motive in
our daily lives – except of course in education.
In fact, even attempting to relate education to
money is still viewed by some with deep
suspicion.
As such, Hazlitt’s brief description of the
function of profits is perhaps worth revisiting.
Firstly, according to Hazlitt the prospect of
profits helps to decide what will be produced
and in what quantities, and if there is no
profit in producing a product or service, it is a
sign that the labour and capital devoted to its
production are misdirected: the value of the
resources that must be used up in providing a
product or service is greater than the value of
the product or service. Secondly, the profit
motive also helps to put constant and
unremitting pressure on business managers to
improve and innovate. For-profit organisations
don’t have to be told to improve or innovate.
Instead they have an inbuilt incentive to do so
automatically. Hazlitt also challenges a
common misconception which claims that
profits can be increased simply by raising
prices. Instead, it is by introducing economies
and efficiencies that cut costs of production
that helps to generate profits. Therefore, it
will be those who have achieved the lowest
costs of production that generate the highest
profits. In short, ‘profits not only tell us which
goods it is most economical to make, but
which are the most economical ways to make
them’.
Ludwig von Mises has also helped to
explain why businessmen and big business are
not irresponsible tyrants, as many still claim
them to be, because it is ‘the necessity of
making profits and avoiding losses that gives
to the consumers a firm hold over the
entrepreneurs and forces them to comply with
the wishes of the people’. As a result there is
no problem when a businessman attempts to
enrich himself by increasing his profits,
because large profits are simply proof of
supplying customers with what they want,
while losses are the proof of blunders
committed. As Mises concludes, ‘[t]he riches
of successful entrepreneurs is not the cause of
anybody’s poverty; it is the consequence of
the fact that the consumers are better
supplied than they would have been in the
absence of the entrepreneur’s effort’.
From the above comments, it is clear that
the profit motive plays an important role both
within individual organisations and in the
economy as a whole. They also suggest that
while there has been much debate about the
ethics of the profit motive itself, less attention
has perhaps been given to the actual process
of calculating profit and loss and how this
influences how organisations operate and
perform. For example, it is clear that if an
organisation is driven by profits, then there
appears to be an inbuilt incentive to record
and monitor all costs. This is because if costs
and revenues cannot be compared, then the
calculation of profit becomes impossible. The
ongoing calculation of profit and loss also
provides an organisation with a continual
flow of information about the quality of its
products and services and if they are
succeeding in meeting customer needs and
expectations. The calculation of profit and
loss therefore provides an essential link
between what the customers want and what
the organisation produces. Eureka! Could the
profit motive prove to be the missing link in
education?
In their 2003 publication Education and
Capitalism, Walberg and Bast suggest that
unless popular myths about capitalism are
challenged, school reform in the USA will stall
well short of success. I agree, but wouldn’t
it be nice if we had some Members of
Parliament who were prepared to lead the
debate and challenge such popular myths.
Having some politicians who were
prepared to enter the debate would be
a good start.
James Stanfield is based at the University of
Newcastle upon Tyne (j.stanfield@ncl.ac.uk).
