Profit is a social signal. It’s the signal that people send to those who design, make and offer goods and services for them that they are using society’s resources in a way that society approves of.
People’s well-being is achieved through exchange. They want to exchange the circumstances that they are currently experiencing for some that they perceive may be preferable to them. They’re looking for things to be better. They examine all the goods and services and experiences that are available to them, and they make their choices based on their own preferences. They exchange their earnings, or their savings, or their credit, or their time, or other personal resources for the new ones they think will make their lives better. All human and civilizational advance is achieved through this mechanism.
Who offers them new and potentially better goods and services and experiences? Entrepreneurs do. They are the ones who play the role in society of perceiving when their fellow citizens are feeling some current dissatisfaction and looking for something better, and take on the task of designing and selling that “something”. The citizenry is not usually terribly articulate about describing the “something”, and they can’t invent it themselves, so the entrepreneur does it for them, working largely in the dark, eventually getting to the point of offering the new thing and waiting anxiously for the citizen’s verdict. That verdict is expressed through profit. If the citizens are willing to exchange more with the entrepreneur than it cost to bring the innovation to them, that’s good value to the citizen (they expressed the feeling that “this is worth it”) and a profit to the entrepreneur. Profit encourages the entrepreneur to continue producing, in the knowledge that all the citizens doing business with him or her approve of doing so.
If the citizens don’t buy, or they haggle the price down to a point that makes the endeavor unprofitable for the entrepreneur, then the entrepreneur can not continue. The business is unsustainable. The citizens are saying, in effect, I do not want you to continue using resources in that way. Find another.
Today, we are told that the citizens want entrepreneurs to use energy resources differently today than has been the historic norm. Don’t use coal to generate electricity, don’t drill for oil, don’t transport natural gas in pipelines. Why are we told that this new form of demand for “clean energy” has arisen? Because the citizens want to experience a better lifestyle, one that is unthreatened by the side effects of burning coal, oil and gas: long term damage to the planet and its ecosystem.
That sounds reasonable as a hypothesis. It sounds like citizens might very well find value in removing a so-called threat to their future lifestyle. They want a better quality of life. And they are pretty savvy about time preference – the notion that one may have to sacrifice or defer a little bit of comfort today in order to gain the opportunity for something better in the future.
But to make that judgment that the citizens should prefer clean energy and its cost structure requires an objective assessment of what they should be valuing. Such judgments are often made by experts, intellectuals, scientists, bureaucrats, and commentators. Citizens’ perception of value is entirely subjective. It’s idiosyncratic, emotional, and changeable. Which means that it might be different than the experts’ perception. Markets are smarter than experts.
Experts say that there is no higher value than saving the planet. The individual citizens review their own personal value scale and decide that, right now, they disagree. There are some considerations on which they place higher value. There are other ways they prefer to exchange their earnings for value.
Who can change people’s perceptions and get them to ascribe more value to saving the planet? Entrepreneurs – especially those who are good marketers. That’s what entrepreneurs do – they persuade people to readjust their value scales.
Will the installation of solar panels on private home rooftops save the planet? It might help. In Drawdown.org’s list of the 80 most effective solutions for reducing atmospheric CO2, rooftop solar is in the top 10. And rooftop solar is increasingly becoming a consumer choice, because smart entrepreneurial marketers are making it easier and more affordable, and smart entrepreneurial engineers are rapidly bringing down the cost of panels and the cost of generation, so that the value proposition to the citizen is becoming more and more attractive. There are probably over 1 million private homes now with rooftop solar, reflecting good entrepreneurial marketing by profitable companies.
Also appearing in Drawdown’s Top 10 list are reduced food waste and a plant-rich diet. The food we waste, often willfully, accounts for 8% of global emissions. Who might fix that? Sounds like a job for an entrepreneur who can find a profit in picking it up and recycling it, or devising profit-making methods for cutting out the waste in the first place. Who might persuade consumers to reduce meat consumption and adopt a plant-rich diet? Perhaps great entrepreneurial marketers like those at Beyond Meat, who have found that investors are clamoring to get a piece of the profitable action in meat replacement.
Slightly lower down on the Drawdown list, we find Alternative Cement – Drawdown estimates that there are 6.69 gigatons of atmospheric CO2 reduction available by 2050 with some simple innovations in cement manufacture and ingredients. Sounds like another job for entrepreneurs.
Way down at the bottom of the list are the solutions the experts are pressing on us, like electric cars (not in the Top 25) and retrofitting of buildings and cities (last on the list at number 80). These are the central planners’ solutions, the ones to which they direct their regulations and subsidies and grand plans. They want to impose their bad and unworkable and uneconomic ideas on an uncomprehending public – a public far better placed to make intelligent decisions based on their individual value scales. The planners’ values are collectivist – good for “us”, good for “the earth”, good for “society”.
Entrepreneurs take a different approach: what do the citizens really want? The only way to tell is by experimenting and innovating to discover which initiatives will be rewarded by the citizen with a profit.