Greed is NOT good

“Bususinesses and individuals without a strong sense of morality would be encouraged to cut corners and invent ways of creating profit without having to work as hard for it”

By Kevin Kang, Editor in Chief

gordon gecko

In the famous words of Wall Street’s Gordon Gecko, “greed is good.”  According to free-market economists, the incentive of profit is what drives efficiency and innovation in the modern world.

Why work hard if you do not get paid for it?

Who would share a new idea or invention with the world if there was no payment in return?

The opportunity for profit pushes businesses to produce efficiently and constantly create new ways of improving our lives.  For supporters of the profit incentive, money is truly what makes the world go round.

However, greed is also known to provoke unethical and illegal behaviour.  So the question must be asked: is money making the world turn the wrong way?  Does your paycheque always reflect the value you have added to society?

Countless examples of controversial compensation can be drawn from the recent global financial crisis.  Often, those who were to blame for the economy’s troubles were those who reaped the most rewards.

At the height of the crisis, AIG Inc. distributed millions of dollars of government bailout money as executive bonuses.  Major investment banks were taking executives to expensive corporate retreats, while middle-class Americans were evicted from their homes.  The realization of this growing disparity even led the Obama administration to place a salary cap on CEOs.  These events make it clear that the laissez-faire pursuit of profit leads to inefficient outcomes.

The unrestrained profit incentive can be examined at a micro level in China, where small village farmers have stopped growing crops to “grow” houses instead.

This strange phenomenon started years ago when the Chinese government began buying large plots of farmland for urban development.  To do so, farmers were reimbursed for the fair value of their land.  However, farmers saw that profit was to be made: if they constructed buildings on their plots, the value of their land would increase.

Soon, poorly built brick-and-mud houses sprung up all over the countryside, crowding out fields of crops.  Although some are built illegally without permits, they quickly grow into communities and homes, making it difficult for the government to step in and demolish them.  Even if the houses were demolished, crowds of farmers would illegally build them again overnight.

The result?

The Chinese government has no choice but to pay farmers more than what their land was originally worth.  In the end, regardless of what happens in the buying process, all of the houses that are “grown” will be torn down by the government for development.  Thus, all construction and demolition that occurs is completely pointless.

When more money can be made without actually having to create value for society, the profit incentive leads to inefficiency.  Like the farmers, businesses and individuals without a strong sense of morality would be encouraged to cut corners and invent ways of creating profit without having to work as hard for it.  The Chinese government is in the process of creating further legislation and boosting law enforcement, but the legal process is always two steps behind.

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