Marguerite Orane, Contributor

Marguerite Orane

Whenever we start to speak about transformation, one of the first topics to be raised is that of funding. For example, most, if not all, Jamaicans see the need for the transformation of the education system, and support the plan developed over two years ago. But nearly all are stymied by the price tag! Where is the money to come from? Who will pay?

My short answer is that the money will come from profit. When we examine the possible sources of funding for transformation, we will realise that they all emanate from someone's profit. If the money comes from government coffers, it really is coming from taxes generated by profit; if it comes from overseas donors, it is coming from the taxes of citizens in those countries; if it comes from the private sector, it is coming from their profit, and if it comes from individuals, it is coming from their personal surplus.

Let's get back to the basics of what profit means. What is profit? It is the surplus left over after a business has deducted from its revenue all its costs. In other words, it is the wealth created by the provision and delivery of goods and services to those who demand them.

Returns

From profit the business pays returns to society (taxes, philanthropy) and returns to shareholders (dividends). More fundamentally, the word comes from the Latin 'proficere', which means to make progress. Interestingly, it is from the same root as proficiency, so profit is therefore simply a measure of business proficiency and is fundamental and critical to progress.

Profit can be viewed from two different perspectives - from the capitalist's point of view, it is the return on an investment made in a business; from a leftist point of view, it is the outcome of exploitation of one class of people by another. In Jamaica, we seem to take the latter view. Profit seems to be a 'four-letter' word. Many of us speak negatively about profit. We criticise businesses for making too much profit; for not sharing their profit as others wish or dictate. Interestingly, those who say they abhor profit usually want to spend the profits generated by others.

What is the value of profit to society?

For example, we have had experiences with NGOs asking for donations from commercial enterprises, yet speaking of them with disdain and contempt. Jamaicans seem to have a love/hate relationship with profit - we hate the concept, but we love to spend it!

Firstly, profit is the incentive for people to invest in businesses. The promise of profit is what keeps the entrepreneur working 18 hour days, toiling through the night, taking risks. It is fair return for high risk, hard work and sacrifice. Always remember that nine out of 10 start-up businesses fail, so the risk is significant.

The more people see the possibility of profit, the more people will be willing to invest, thereby setting in train a cycle of investment, profit and reinvestment.

Profit is important for the sustainability of business. It is the reinvestment of profit that fuels expansion and growth of the business. Even where growth and expansion are financed by other people's profits (debt or external equity), this only happens where those making the loan or the investment are convinced of the possibility of profit.

But profit is not just for shareholders. The Government loves profit, for this is the foundation for taxation. In a way, taxation can be considered the payment by the business for use of societal resources or the public good. Profit also benefits the society in terms of employment, reinvestment in other businesses, and philanthropic efforts.

Corporate philanthropy

There is no major business organisation that does not have a foundation devoted to corporate philanthropy. Indeed, our experience in facilitating strategy formulation with private businesses is that they are all very committed to impacting society as a key component of their business strategy. As one well-known business leader in Jamaica says, "Do well and do good". Note that to do good (philanthropy) the business has to do well (make profit).

Since governments love profit, it should be in their best interests to provide enabling environments for profit. This is best exhibited by the Anguillan Minister of Finance, Victor Banks, in his 2007 budget address a few days ago, on December 12: "It is especially satisfying to share with those who have helped to make our success possible. It is our responsibility to reward our public servants directly ...We also believe that we have been able to provide the profitable environment to enable private sector employers to be also generous."

What about the hoarders of profit? Even they benefit the society, for unless the profit is literally placed under their mattress, it goes into circulation in the economy, for use to consume, to invest, and to produce. It goes into the banking system for on-lending; it is reinvested in other businesses.

When we in Jamaica develop a healthy view of profit, issues of the funding of transformation will be clear. Such a view would see the organisation of an economy that is supportive of profit and of profit-makers; that allows and facilitates growth and expansion of business; that does not crowd out private investment; that holds entrepreneurs as heroes and that employs taxation collected from hard-earned profit with a high level of accountability.

Marguerite Orane is a partner in the firm Growth Facilitators, a management consultancy firm. She may be contacted at mo@cwjamaica.com.