04 February 2010

Ruskin's Critique of Capitalism

An interesting article in today's FT quotes John Ruskin on the idea that the role of a business is the provision of goods:
“it is no more [the merchant’s] function to get profit for himself out of that provision than it is a clergyman’s function to get his stipend.”
It expresses something I have been trying to say. The purpose of a business is to provide a product or a service; "to provide for the nation" in Ruskin's words. The dominant idea of our time is that the purpose of a business is to generate shareholder value. The job of an executive in any business, whether it makes software or cleans offices or whatever, is to maximise the profit returned to shareholders.

John Kay, says something along these lines in The Truth About Markets. He claims that the idea that profit is the objective and business the means is wrong; doing business is the objective and profit the motive. (I'll check the quote when I get a chance).

This is on my mind because I'm wondering about what happens when the owners of firms no longer have control of them and the only measure of a firm's behaviour is its return on equity. I'll write more on this soon.

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