Profitability Preferred

Friedman was right. Ponnuru is wrong (“Not (Necessarily) for Profit Alone,” September 7).

As a manufacturing executive for the past 30 years, I learned the necessity of staying focused on profitability and positive cash flows in order to keep U.S. factories open and operating. When I talk to employees at every level of the company, I remind them that we all want job security, and job security comes from making money.

Mr. Ponnuru’s article is written from a well-intentioned but poorly conceived perspective.

First, at no point does he address the realities of capital creation. Profits create returns to investors. Higher returns attract more investment. Diverting earnings to social and political causes diminishes capital available for growth and competitive advantage.

Second, in regard to the debate about environmental laws and corporate responsibility, it is absolutely the government’s responsibility to establish a level playing field for business competition by promulgating and enforcing rational environmental rules and regulations. If a company decides to greatly exceed those standards, and its competitors do not, that company will go out of business, leaving the worst actors in existence. The standards must be established and enforced by the government.

Third, leaving decisions on charitable spending and social causes to corporate boards and executives limits my investment choices as an individual. What if, as is distressingly common these days, business leaders decide that their corporate “stakeholders” somehow include the SPLC or MoveOn.org? CEOs are obviously free to support such causes with their individual funds, but why should I, as an investor, also be forced to scour corporate reports and nonprofit filings to make sure I am not supporting odious causes with my investment dollars? I sense that the real purpose of Mr. Ponnuru’s article is to address the fear that, if corporations don’t act “woke” enough, liberal politicians will do it for them. That’s an understandable fear, but the “wokeness” in large-corporation boardrooms is already more apparent than ever (as evidenced by the leftward drift of the Business Roundtable, the U.S. Chamber of Commerce, et al.), and we shouldn’t encourage it more.

The proper course is a business model that is energetically focused on long-term maximization of profitability while following a reasonable set of basic rules. Market competition and profit-seeking, bounded by Friedman’s “basic rules of society,” are the most effective disinfectants in a world prone to corruption and rent-seeking. Dilution of these healthy motives is not the answer, and such dilution is precisely what Mr. Ponnuru proposes.

Lee Orr Via email

Ramesh Ponnuru responds: General Motors runs a “First Responder Discount,” which it opened to frontline health-care workers during the COVID-19 pandemic. On Friedman’s argument, this program is either a very clever way to increase long-run profits by buying goodwill, or it is an illegitimate act of theft from shareholders (or employees, or other customers). If GM executives were to say they instituted the program because it’s a nice thing to do, they would at best be lying and at worst preaching “pure, unadulterated socialism.”

I think that even if it costs GM a little money, it’s a nice thing to do and not an act of theft. Mr. Orr, whose letter includes some sensible comments, may agree with me. But then he disagrees with Friedman.