THE COMING NON-PROFIT REVOLUTION

December 31st, 2011

What if consumers decide not to buy stuff from corporations that make profits?

Over the past few months, there have been some high-profile climb-downs by Verizon, Bank of America, and other companies who had sought to nickel-and-dime their customers with one fee too many.

It reminds me of a question I’ve long pondered: What if consumers take this trend to its logical conclusion, by signaling that they won’t buy from corporations that make and declare profits?

The idea here is that entrepreneurs will try (en masse - a few do it already) to build their businesses by framing them as non-profits, and that this will catch on in many areas of the economy, so that consumers will come to see “profit” — a bedrock principle of capitalism — as a bad and intolerable thing. In other words, the “non-profit” or “NP” label on goods or services will have a function similar to that of “organic” and “green” and (Anita Roddick’s masterpiece) “against animal testing” — except that its appeal probably will be much broader.

Part of this sea-change in business practice might also (should also) be a dramatic lowering of executive compensation, which as everyone knows has exploded, relative to average salaries, in recent years.

This presents two fairly obvious hurdles, and two less obvious hurdles:

The first obvious hurdle has to do with the difficulty of raising capital. If you intend to make no profit, then you have to raise initial capital from personal funds, from philanthropies, from lenders, or from some combination thereof.

This could be particularly difficult for businesses that require a lot of initial capital and don’t expect to see significant revenues for a while, e.g., pharma companies. The NP model thus might be limited initially to companies that can generate revenue fairly quickly. But possibly the spread of NP would eventually loosen up credit markets (investment money having fewer other places to go) to the extent needed to sustain virtually any viable-seeming NP venture. In any case, after an NP venture gets going, it would be able to plow its excess revenue into the expansion of the business, or — perhaps preferably — build quickly to a sustainable size and then let others copy the model in unexploited market areas.

The second obvious hurdle has to do with motivating your upper management, when you can’t offer multimillion-dollar salaries and stock options. Your managers effectively would have to be significantly motivated by the challenge of changing the world, serving people better, eradicating the old profit paradigm, and so forth.

Then again, many clever people today are motivated that way!

As to the two less obvious hurdles;

One is that your profit-oriented competitors would probably try to use their moneyed sway with politicians to bend the laws and shut you out. The good news here is that you and consumers are voters too, and would be able to use the web and other means to fight back.

The other less obvious hurdle — and more of a long-term than an immediate issue — is that the widespread adoption of the non-profit principle would shrink and perhaps eliminate the stock market. Arguably that would be a splendid outcome in itself, given equity traders’ bloated and inequitable roles in society. But those who rely on the equity markets for investment returns, including many retirees and people nearing retirement age, might fight back, to the extent that they see themselves as net beneficiaries of the “profit” principle. On the other hand, investors might not mind shifting entirely to lending rather than stock-buying, particularly if interest rates are high enough — and NP businesses presumably would not engage in the accounting frauds that one sees so often in public for-profits, so they would be less risky to lend to, in that sense.

The adoption of the “NP” principle wouldn’t necessarily extend to all business activities. People would continue to buy and sell assets for profit if possible. There would still be home-buying, for example. Banks and private lenders would still put money out at interest. Only where the NP model — and label — gives businesses a decisive advantage in the marketplace will it be expected to take hold.

My guess is that the “NP” principle eventually will take hold quite widely, and will have so much power (by keeping prices down and by making for-profit companies look bad) that its obstacles prove to be surmountable. If that happens, the NP model will expand not just through new NP startups but by the conversion to NP (probably only simulated in some cases) of existing for-profit companies. As BoA and Verizon have shown, corporations can be very quick to adjust when their climate changes.

The advantages of a more “NP” world would include lower costs and lower socioeconomic inequalities, and hopefully there would be less, too, of the aggressive, expansionist, profit-driven attitude that makes corporations such as Wal-Mart want to take over ever-larger market areas, to the detriment of workers and communities. (In principle, a no-margin NP market would sustain more businesses and workers, including community-based enterprises, than a for-profit market.)

But perhaps the most important of the positive outcomes in an “NP” world would be that people, as individuals and in corporate groups, start to look beyond the selfish principle at the heart of market societies, and recognize that the “pursuit of happiness” can and should be something other than a life of greedy profit-chasing.

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POSTSCRIPT (1/19/12): “With new law, profits take a back seat.” (WSJ)

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