Is Profit Healthy?


Kurt Bouwhuis, Mackinac Center Intern

Here is a letter I recently sent to the Midland Daily News:

Fran Hamburg stated in a recent letter that: “The primary mission of insurance companies is not to improve overall health care but to make a profit” (Indebted?, Aug. 5).  I agree!  What is often overlooked, however, is in their pursuit of profit, companies do great things for society.

I, for example, am sitting in a chair typing on my laptop in an air conditioned place where I have access to food, clean drinking water, lights, etc…  All these things are provided to me not because the producers personally know me and want me to feel good, but rather, because the producers are themselves seeking a wage or profit.  This point was clearly articulated by Adam Smith in The Wealth of Nations in 1776 when he said: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest.”

Fran then stated: “It would seem reasonable to expect that eliminating an extra layer of administration and profit taking would save money.”  It seems plausible at first, but what purpose does profit serve?  Aside from encouraging entrepreneurship and risk taking, it tells producers what people want.  For example, suppose I am a profitable producer of horse buggies.  Additionally, suppose an entrepreneur creates a new invention coined the automobile to compete directly with horse buggies.  Consumers will likely choose to buy less horse buggies and more automobiles.  These consumer choices become translated into a loss for horse buggy producers and a profit for automobile producers.  This economic activity is dynamic and guides the production of goods and the elimination of others.

Unfortunately, it is impossible to eliminate profits without eliminating the vital role it plays in conveying information between producers and consumers.  The health care industry is a trophy example – Lobbyist and insurance companies have used government to shield themselves from competition resulting in massive amounts of regulation and 23% of all federal spending being spent on Medicare and Medicaid alone.

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