The “Right” Concept of Profit

The German business community intensively discusses what the right concept of profit is. In a recent article, published in Frankfurter Allgemeine Zeitung, Professor Hutzschenreuter contributes to this debate by clarifying three important points.

First, profit of an individual firm cannot include externalities, but has to correspond to the boundaries of the firm. Currently, this is very often overlooked which has led to substantial confusion in the debate.

Second, if externalities of collective firm actions should be internalized, this requires institutions that influence how firms can achieve individual goals. Appeals and self bonding typically don’t work.

Third, ESG (ecological, social, governance) criteria are packed with downsides which leads to serious doubts that a self regulation via investors’ pressure to follow-up to ESG criteria will really lead to (more) real sustainability. Instead, opportunities of regulation via tax, competition, capital market, labor market, codetermination, and consumer protection law should seriously be taken into account. The reporting on the fulfilment of ESG criteria is a story that has to be believed. To see sustainable actions of firms is only possible in their individual value chain processes. Therefore, everyone has to decide by oneself whether or not to believe that the report on fulfillment of ESG criteria ensures sustainable corporate actions.

Find the complete article (in German) here.

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