Why Do Businesses Exist?

Why Do Businesses Exist?

This past summer I had two very bright and eager student rotate through my office.  One was a health administration student in the School of Business at Winthrop University.  The other was a 3rd year medical student, who obtained an MBA prior to entering medical school.  I asked both of these students the question:  Why do businesses exist?  They both gave me the answers that they have been educated to believe are the correct answers, but neither of these students, educated in university schools of business could give me the correct and very simple answer.

As a physician, I am often told by patients that they do not want medicine to cover the symptoms, but an answer as to the cause of the symptoms.  Until one knows the cause of the symptoms, it is impossible to prescribe the proper treatment.  We are currently living in a day where widespread unemployment, economic stagnation, out of control debt and mutually exclusive political philosophies are the symptoms of a serious and life threatening disease.   If we want a solution to all of the symptoms, we need to know the underlying disease process.

Economic activity occurs as people exchange money for goods and services.  The money that people use to purchase goods and services come from one of two places.  They either earn it through their employment or it is given to them through charity or government programs.  In the first case businesses employ people and pay them for their work.  In the second case, money is given to charities and government by businesses and employed individuals in order to be distributed to those who are not employed adequately to meet their needs.  In both cases, the bottom line is that money originates with businesses.  Those business may be multibillion dollar conglomerates or a child’s lemonade stand.

If we have a sick economy, it is because there is an inadequate amount of business to generate the money required for all of the needs.  This brings us back to the original question, “why do businesses exist” for if we do not know why they exist we will be unable to create the environment in which they can prosper.

Businesses do not exist to employ people.  They do not exist to provide health insurance or other benefits to their employees.   They do not even exist to pay taxes, so the government can fund its programs.  Businesses do not even exist to produce goods and services.  Large or small, businesses exist so the owner of the business can MAKE MONEY.  Employment, benefits, taxes, charity, production of goods and services all happen on the way to a business making a profit.

When the regulatory environment becomes too onerous or fear of litigation too great or labor too expensive or tax burden too high or demand for the output too low for the owners of the businesses to make an acceptable profit, the business will disappear.  When this begins to occur on a large scale the entire economy suffer and that is what is happening in our economy today.

For a variety of reasons, it has become socially unacceptable to pursue profit in our country.  Even our business students do not want to admit it.  At one time, our country was the best place in the world for a business to prosper, but that is no longer the case.  Until we once again create an environment where making a profit is laudable and doable we will continue to have a failing economy and we will ALL be poorer for it.

That is my diagnosis and treatment for the problems plaguing our economy.

Keith Stafford, MD

November 16, 2011 Uncategorized