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Relationship-to-Profit: A Theory of Business, Markets, and Profit for Social Ecological Economics

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How does the relationship between business and profit affect social and ecological sustainability? Many sustainability scholars have identified competition for profit in the market as a key driver of social exploitation and environmental destruction. Yet, studies rarely question whether businesses and markets have to be profit-seeking. The widespread existence of not-for-profit forms of business, which approach profit as a means to achieving social benefit, suggests that there are other ways of organizing business and markets that might be more sustainable. In this thesis, I use a critical institutional economics lens and systems thinking to synthesize existing theory and knowledge about how business, markets, and profit affect sustainability outcomes, in order to explain how alternative approaches to these institutions might produce different outcomes. The result is a new theory about how relationship-to-profit (the legal difference between for-profit and not-for-profit forms of business) plays a key role in the sustainability of an economy, due to the ways in which it guides and constrains actors’ behavior, and drives larger market dynamics. In Paper 1, I develop a conceptual framework for understanding the tradeoffs and synergies between profit and social-ecological sustainability. I show how profit-seeking strategies can be examined to assess whether they derive profit from: efficiency gains; willing and informed contributions from social stakeholders; or exploitation of social or ecological stakeholders. These bounded sources of profit imply limits to profit. Therefore, in order for businesses and markets to be sustainable, they should treat profit as a means rather than an end in itself. In Paper 2, I explain that whether profit is treated as a means or an end manifests through both voluntary objectives (i.e., if a business explicitly pursues profit as a goal) and financial rights (i.e., the right or obligation to distribute profit to private owners). Some forms of business encourage profit-as-an-end more than others. In Paper 3, I outline ideal types of for-profit and not-for-profit economies, and describe the expected dynamics of these systems based on the regulative aspects of relationship-to-profit. The legal purpose, ownership (i.e., private financial rights), and corresponding investment structures of for-profit forms of business all encourage firms to treat profit as an end. The pursuit of unlimited financial gain and the private distribution of the surplus by for-profit businesses tend to drive the growth of consumerism, environmental degradation, inequality, market concentration, and political capture. In a not-for-profit type of economy, businesses do not have a financial gain purpose or private financial rights. Profit in such a system is used as a means to achieve social benefit. This results in higher levels of equality and opens up the space for more effective sustainability interventions. Yet, relationship-to-profit is only one dimension of business that is important for sustainability. In Paper 4, I develop a framework to structure analyses and wider discussions of post-growth business around five key dimensions of business: (1) relationship-to-profit, (2) incorporation structure, (3) governance, (4) strategy, and (5) size and geographical scope. The theory developed in this thesis offers an explanation of how key institutional elements of business and markets drive social and ecological sustainability outcomes.
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... Further, it enables inquiry on the abstract level of societal structures and their transformation, while recognizing the role of agents in overcoming hegemony. 6 Both the structural considerations as well as the engagement with capitalism and political economy have largely been missing in the connection to economic organizations and degrowth thus far (Hinton, 2021a;Robra, 2021;Robra and Nesterova, 2023). ...
... In other words, there are no private financial rights, so no private individuals can receive the profit. It is worth noting that not-for-profit organizations can (and often do) generate revenue through the sale of goods and services (see Hinton 2020Hinton , 2021aHinton , and 2021b. They can also generate a financial surplus (also commonly referred to as profit). ...
... Examples of not-for-profit economic organizations include: consumer cooperatives, credit unions, mutual insurance companies, foundation-owned businesses, state-owned businesses, and associations that generate revenue through sales. Crucially, the entire economy must shift in a not-for-profit direction in order to escape the race-to-the-bottom dynamics of the for-profit economy (Hinton, 2021a). In other words, similar to the non-accumulation principle, the not-for-profit principle highlights and emphasizes the need for economic organizations to push for a wider radical transformation of society's structures away from for-profit structures. ...
Chapter
Degrowth seeks to achieve a sustainable society in the future. It implies overcoming capitalist norms and structures. Economic organizations have found little attention in degrowth scholarship. The existing literature focuses on degrowth compatibility without the wider structural and societal consideration that degrowth implies. Further, it is riddled with incoherences, such as a supposed compatibility of degrowth values with capitalist norms. We unpack these persisting tensions and incoherences by employing Gramsci's concepts of hegemony and counter-hegemony. We make the case for two key systemic principles for economic organizations that hitherto have found little attention: not-for-profit and non-accumulation. These principles are complementary to, and enabling factors for, other organizational principles commonly focused on in degrowth scholarship, such as inclusive decision-making and material sufficiency. Combined, these principles describe the kinds of economic organizations that have to emerge along with wider societal structures to make a degrowth transformation possible. As economic organizations are at the core of the economy, they must be active agents for a degrowth transformation. Our analysis contributes to organizational and degrowth scholarship alike by not only clarifying how economic organizations can be compatible with a de-growth society, but also explaining their central role in enabling transformations towards such a society.
... We use the term "post-growth economy" to refer to an ideal future type of economy that is oriented towards equitably meeting everyone's needs within environmental limits and that does not systemically drive or require constant growth (Jackson, 2017). As such, "post-growth" can also be seen as an umbrella term encompassing all perspectives that are critical of pursuing economic growth as a goal, including a-growth, degrowth and the steady state economy (Koch and Buch-Hansen, 2021;Hinton, 2021a). As an umbrella term, post-growth is characterized by its flexibility and openness to adapt economic goals and activities according to societal and environmental needs, without being bound to a predetermined economic trajectory. ...
... A post-growth economy will require new ways of doing that reduce the total amount of production and consumption in societies (Dale, 2012;Van Den Bergh and Kallis, 2012). In a post-growth economy, economic activities would therefore be repurposed to serve social and environmental goals as opposed to profit and GDP-growth (Göpel, 2016;Hinton, 2021a). The purpose of economic activity in such a system would be to promote human well-being, social benefit, equity, sufficiency, use-value, and prosperity, while minimising production and consumption (Jackson, 2017;Paech, 2017;Raworth, 2017). ...
... The purpose of economic activity in such a system would be to promote human well-being, social benefit, equity, sufficiency, use-value, and prosperity, while minimising production and consumption (Jackson, 2017;Paech, 2017;Raworth, 2017). Thus, sharing and swapping play a key role in meeting needs in a post-growth economy (Parrique, 2019;Hinton, 2021a). Importantly, a post-growth stance also suggests that already existing initiatives with social and/or environmental missions that operate at the margin of our societies (e.g., sharing networks, community gardens, and not-for-profit businesses), can be supported to replace the for-profit economy, to enable the necessary transformations (Göpel, 2016;Hinton, 2021aHinton, , 2021b. ...
... Measuring the ability to generate a company's profit can be shown by profitability. This point not only describes financial performance but is also the key to the health and success of the company according to Hinton (2021) . Profitability functions to show the ability of capital invested by investors to make a profit or gain (Setiawan, 2022) . ...
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