Are Businesses Hard-Hearted?

The incentive to make a profit harmonizes with normal human decency.

By David R. Henderson.

"How often have you heard a line something like the following: “Because businesses care only about making money, they and their executives are hard-hearted towards their customers and employees.” Even some people who think that, on net, businesses are good for our economy, often characterize them as being hard-hearted because of their profit motive.

I don’t defend all businesses. That would be silly. But I want to point out a recent case and a case about twenty-three years ago, about businesses going above and beyond. While these two cases are probably outliers, anyone who has been around businesses much can probably vouch for my claim that businesses are more caring than the above quote claims. Moreover, because people who make the hard-hearted claims often want government to regulate, we should realize that governments are typically much worse.

Citigroup in Ukraine

Here’s a segment from an April 23 Wall Street Journal report about Citigroup’s continuing presence in war-torn Ukraine:

When Russia invaded in February 2022, McWhorter [Citigroup’s top executive in Ukraine] and [Amy-Anne] Fairhurst [head of Citi’s Global Crisis Management Program] were both woken in the middle of the night. 

Their first priority was the staff. They realized they had to ensure the safety of more people than they were planning for.  

While they knew how many employees they had, about 240, Citi suddenly felt responsible for wider families, support staff who weren’t direct employees and others. The count ballooned to 850. 

The report is titled, “Turning a Vault Into a Bomb Shelter: How Citigroup Has Kept Its Bank Running Inside Ukraine.”

The report goes on to tell of measures that Citigroup took to keep its employees relatively safe and to compensate them for the added risk. Also, in a section titled, “Don’t worry about paying us,” the Journal reporter quotes Alexander McWhorter telling the bank’s clients, “Look, don’t worry about paying us; worry about your own employees and your own operations.” 

Why would Citigroup go to such lengths? David Benoit makes the answer clear: the executives at Citigroup are betting that when the war is resolved, however it’s resolved, people in Ukraine will want to deal with banks and Citi will be there. Moreover, although reporter Benoit doesn’t say it explicitly, Citi is also betting that with the goodwill it is now creating in Ukraine, it will be one of the banks that Ukrainians are pretty sure they can trust.

Back to Citi in a few paragraphs, but first another story from the horrible week following 9/11.

A commitment after 9/11

After terrorists brought down the two main World Trade Center buildings on September 11, 2001, the head of the firm that maintained those buildings wanted to get back to be with his employees. The problem was that he and his firm were based in San Francisco and the federal government had banned travel by commercial airline. What could he do? He got creative. He drove up to Vancouver, British Columbia, flew from Vancouver to Montreal, and then drove from Montreal to New York. Although I can’t find the story online, I remember it well because it made such an impression.

This CEO’s commitment to his employees almost certainly went above and beyond what most CEOs would do. But it shows the extent to which some heads of companies care for their employees.

The profit motive

Does either of the above stories show that heads of companies do well for their employees solely out of the goodness of their hearts? No. As the Citi story makes clear, Citi wants to position itself to make beaucoup bucks once the Russia/Ukraine war ends. And the executives at Citi have figured out that a way to raise the probability that the firm will be around is to stay around during the war. That means treating their employees well and cutting some slack for their current debtors. 

The case of the CEO who spent over twenty-four hours getting from San Francisco to New York to see his employees is less clear. The odds are high, though, that his main motive was to show his employees that he cared. That could be because he knew that showing he cared was a way to make them care. Or it could be that he simply cared, full stop, as the British say.

From profit motive to human motive

That brings me to a basic fact about employers. If employers want to succeed, they have to care about employees and about customers. Those who ignore employees and customers will fail. The profit motive does wonders for causing them to care. But then something happens that is very natural. Many employers who, because of the profit motive, start by caring about their employees in order to succeed, end up actually caring about their employees almost independent of the profit motive. Employers are humans who regard their employees as humans.

An extreme example is the case of the Oskar Schindler, whom many of us got to know about from the movie Schindler’s List. Schindler began not caring about his employees except as producers of pots and pans that he could sell to the German government. He did not care about his employees as people. But he was around them every workday. So Schindler started caring deeply about his employees.

Here’s what I wrote about his transformation in my book The Joy of Freedom: An Economist’s Odyssey:

This transformation made some movie critics call Schindler “complicated” (San Francisco Chronicle) and “puzzling” and “contradictory” (Atlanta Journal and Constitution). But Schindler’s growing humanity is about as hard to understand as cold weather in January and should surprise only those people who think about Marxist cardboard characters—“workers” and “capitalists”—rather than real human beings. Schindler had started to like the people he worked with. Commerce does that. Schindler’s actions were heroic because he took a big risk. But what led to his heroic actions was his caring for his employees, something that is quite normal. Almost all of us care for the people we work with, whether they are our employees, our employers, or our fellow workers. Virtually all of us would be willing to take some risks to help those around us, and the bigger the threat to their well-being, death obviously being the biggest threat, the bigger the risk we’re willing to take. We think of fellow workers who don’t care about anyone else as being odd, troubled, unusual. And anyone who knows employers knows that the part of the job many of them hate most is firing somebody. So the transformation in Schindler, though heroic, was entirely normal. Markets created an environment in which Schindler learned to value people; in a sense, markets taught Schindler morality. 

Bonus: markets tend to make people better

An old saying goes, “Fake it ’til you make it.” I think of that when I think of how in a free market, the profit motive, and incentives generally, cause people to act as if they care and, then, to actually care.

This applies to more than employers. It also applies to employees. From the early 1990s to the early 2000s, I coached girls’ basketball for the Pacific Grove Recreation Department. One year, when I was coaching girls in seventh and eighth grade, I had one girl who was hard to work with. She wouldn’t listen, she had attitude, and she didn’t get along well with a number of her teammates.

About five or six years later, I was in a local Safeway and the young woman behind the counter was very pleasant to me. She seemed to be doing quite a professional job. It suddenly dawned on me that she was the same person I described above, but her attitude was completely different.

What changed? Her incentives. I would bet that when she started that job, assuming it was her first job, she had a tougher time. But then she learned that she would do better if she had a more positive attitude. She probably faked it until she made it. Did she become virtuous? I don’t know. But she acted as if she did. And just by treating customers well, whatever her motives, she’s more virtuous than if she treated them badly.

How about the government?

And let’s remember what people who think businesses are hard-hearted often propose: more government regulation of business. Getting into the details would require looking at specific proposals for government regulation, and I can’t, in this short space, do that, although I’ve done so extensively in my previous writing.

What we can do is consider the incentives of government officials. When they make mistakes, even big ones, are they fired? Not often. Do they take a pay cut of even 10 percent? Virtually never. So don’t be surprised if, when you avoid ideological blinders and consider government officials’ actions, you conclude that many of them act as if they’re hard-hearted."