Morals vs. Incentives

17 May 2006

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Last winter I read Freakonomics which was an intriguing and eye opening read. Prior to this the depth of my knowledge of economics was stalled at a freshmen intro course that completely baffled me. Today it fascinates me. The line that really sticks out apparently is an old adage about what economics means beyond just numbers: morality is the way we'd like life to work and economics explains the way it does work out.
Huh?
My friend and biggest antagonist of my business strategy just made his way though a consumer level book about economics around the same time and he highly recommended I read it. Seems he was lead to believe the majority of consumers are driven by incentives, i.e. what's in it for me. Again, it is a phenomena that relies on the passivity of the consumer: give them a lower price or a better value and you've got a business. Thank you Wal-Mart for showing us how it's done.
There's ostensible growth in corporate responsibility with amazing stories such as Wal-Mart claiming they will double the efficiency of their tractor-trailer fleet in the next several years. It's worth noting that this is pretty much impossible, but any business that can make a huge jar of pickles cost $1.97, they can do anything, right? What is driving this? Is Wal-Mart trying to do what is right or are there costs to be saved? Are they morally driven or incentive driven?
It's not Tugboat's place to block these efforts. It is our place to figure out how they work and why. Our clients strive to match their pursuit of profit with their commitment to society and the environment. Rarely do they have to make a compromise in their mission because that's just not how they think. The fact that it serves as a competitive advantage is coincidental, not strategic. They are morally-based operations and it doesn't have to hinder their success or profitability.
I know you'll never get a businessman to condone this, but there are successful business plans that do not include a focus on making a profit. Patagonia and Dogfish Head Brewing are two of my favorite examples of this. Their business plans revolve primarily around high quality product. They are not driven by economics. Obviously, economics drive some pretty strict parameters, but they figure out how to make a product and serve their mission and make the numbers work accordingly.
So Wal-Mart is still and always will be driven by the almighty dollar. They are leveraging their green innovations as responsible business practices to appeal to consumers who don't dig very deep. It cannot possibly cancel out their legacy of destruction on local economies and society.
When it comes to making better societies and cleaning up the planet, incentive based decision making doesn't do us much good.

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1 Comments:

By Shel Horowitz, author, Principled Profit, at 6:38 AM:  

I agree...Wal-Mart and others are trying to position themselves as Green while continuing to deplete local economies both here and abroad. These are definitely economic/marketing-driven decisions.

Still--and I write this as we continue to battle to block the permitting of a Super Wal-Mart in my own town--I would rather see Wal-Marts with Green building and trucking practices than those without, not that I'll shop there i any case.

And I think you raise a great point that other businesses can use W-M as the laboratory, to figure out and adopt the pieces that actually work, as long as they're not done by exploiting the labor force and suppliers, etc.

W-M is absolutely brilliant at logistics and has pioneered a very innovative inventory management. If they can pioneer Greener shopping centers, those techniques become more available to others.

But the company's labor, supplier, and siting practices, not to mention its impact on local economies, remain shameful.

--
Shel Horowitz, award-winning author of Principled Profit: Marketing That Puts People First and founder of the international Business Ethics Pledge, http://www.business-ethics-pledge.org

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