
Is it Immoral to Earn Attractive Profits from Poor Customers? - ph0rque
http://blog.paulpolak.com/?p=1380
======
jbermudes
In regards to the ethics of profiting from the poor, while everyone has their
own definition, one if the biggest issues I could see is if one is trying to
leverage the common lack of education to make people get into situations they
don't understand or leverage their financial situation to offer them short-
term solutions that ultimately have long-term harm.

It's also interesting to note that some cultures have codified protections
against the poor from exploitation. For example, in ancient Israel according
to the Bible, there were laws regarding excessive interest rates and a global
debt-clearing every 50 years or so. Furthermore there were also some
instructions that fallen unharvested crops be left ungathered for the poor to
come and harvest themselves.

~~~
rgarcia
Agreed. I think the biggest problem with applying free-market ideals to these
situations is that one party (the poor) is not in a position to act
rationally, i.e. there is an element of coercion in their actions, due to
hunger/sickness/etc.

~~~
ndefinite
Sorry but if you're hungry the rational thing to do is to acquire food. If
you're sick the rational thing to do is to assess your options for immediate
help. I use the word immediate here intentionally.

You're referring to difference in rationality but these are actually
differences in time preference. A starving person prefers food NOW while
someone who is well fed can wait a little longer and wait for a good deal to
come by.

If you're on death's door, then long term financial planning is not a rational
choice. Long term financial planning is probably the worst choice they can
make as they'd be dead before any dividends are paid.

The poor are not coerced into buying food, they are making a choice and their
choices meet an immediate need.

Recommending that people don't sell the poor food or that we never lend the
poor money, what in immoral thing to say.

~~~
rgarcia
> Recommending that people don't sell the poor food or that we never lend the
> poor money, what in immoral thing to say.

I never even came close to saying that...

All I was pointing out was that when one side of a transaction is coerced into
doing something, then the assumptions of a free market have been broken. Maybe
"rational" is the wrong way to describe it, but when it comes to dealing with
the poor, there are definitely issues of this kind.

Anyway, thanks for the troll!

~~~
ndefinite
Low blow.

Recommending that I don't sell food to the poor for "profit" is the same
difference. I have to feed my family too and without making a profit I have no
time to spend feeding the poor, so I don't.

The assumption of the free market that you refer to is specifically: no
coercion occurs (it's not "your" assumption I understand that, but it is the
necessary prerequisite of a free market). If that specific condition is not
met it's not a free market transaction. The free market is not some imaginary
utopia, it's what happens when two non coerced people trade. If you add
coercion, free market theories don't apply because there is no free market.

It's not a free market transaction if the poor are robbed. It's not a free
market transaction if fraud occurs. To be a free market transaction both
parties have to voluntarily execute the contract; most times a simple verbal
one like I do when I hand over my money for groceries.

Being sick does not mean coercion occurs. It's unfortunate and it would be
great if someone could help for free. But it's even better that there are
trained professionals who can make a living helping the sick as they can
refine their skill set over an entire lifetime. To do this however, they have
to turn a profit otherwise the activity is unsustainable; they too need to
feed their families and can't dedicate 100% of their time to helping others
without charge. Again this assumes no coercion, which unfortunately these
conditions do not exist in North America; government regulation in healthcare
by its very definition means coercion of healthcare providers by the
government, under penalty of force and arrest for non compliance.

------
dualogy
Easy solution: increase prices to avoid poor customers and the immorality of
charging them what you want for something they want and seem to be willing to
pay for.

Less snarky -- what's a profit? The opposite of a loss. States can run at a
deficit (in fact it's apparently the ahem, "default", case), companies can't.
You either have a deficit at the end of the year/month/week/day or a profit.
Or in extremely statistically and mathematically unlikely cases, an actual
zero (no profit / no loss). The whole "no-profit" thing has blown out of
proportion. Overwhelmingly profits are a sign of providing great value while
achieving attractive end-consumer prices ie. saving people
money/time/trouble/hassle. Profits are the reward that is empirically
overwhelming reinvested in the business, but feel free to donate it to charity
or have it halved by your government to ease the immorality you have permitted
yourself to indulge in.

------
jdietrich
Interesting example:

In the UK, we're seeing a huge increase in the number of payday lenders,
offering small loans for less than a month, for a fee of about 10% of the loan
amount. Our financial regulations require all credit products to prominently
state the effective APR, so most of these lenders are forced to advertise a
rate of circa 3000%. This is obviously a shockingly high figure, so there has
been some amount of campaigning to set a cap or outlaw payday lending
altogether.

What has been fascinating is that many poverty campaign groups have opposed a
ban, on the basis that it would be bad for the poor. A loan at 3000% APR may
well be cheaper than going overdrawn for a day and incurring a £30 fee, or
having their electricity disconnected for non-payment and having to pay for
reconnection. Most payday lending customers have no other access to legitimate
credit; Such high rates are the only way to lend to them and still make any
sort of profit. A ban would probably be good news for illegal loan sharks, who
would become the lender of last resort.

Idealism is all well and good, but the solutions that offer practical change
here and now often feel deeply uncomfortable. Needle exchange and supervised
injection services spring to mind - providing addicts with clean injecting
equipment seems like a really shabby band-aid, but the only alternatives are
unimaginably horrible.

~~~
Dylan16807
I think it would be simpler to regulate ridiculous overdraft fees. Plenty of
banks do just fine without charging them. There's no healthy reason for a bank
to charge a very large overdraft fee or to charge an overdraft fee more often
than once a month.

------
hugh3
This _might_ be an interesting subject worthy of a proper treatment. I was
somewhat put off by the fact that there were giant tangentially-related
pictures between every paragraph, though.

The answer is: "Depends". Though if your business model is immoral when
applied to poor folks, it's _still_ immoral when applied to rich folks.

~~~
faboo
> Though if your business model is immoral when applied to poor folks, it's
> still immoral when applied to rich folks.

The markup on drug store cotton balls is shockingly high, like 1000%. Nobody
who buys cotton balls cares though, because the $2 per bag they end up costing
is a very small fraction of their income.

But take that to a developing country, and that $2 is completely unaffordable.
You would be forcing people in need of sterile cotton swabs to pay a day's or
a week's earnings, when their manufacture costs a few pennies.

I don't think the former example is unethical (indeed, the cost of a bag of
cotton balls (in America) is probably far below what the market could truly
bear). That stupendously high markup is fine because it still keeps the final
price easily affordable.

In the latter example, that same markup makes cotton balls all but impossible
to buy, when even a "normal" retail mark up of 25% would have kept the price
in the cents and therefore at least approachable. I'd call that unethical.

~~~
true_religion
> In the latter example, that same markup makes cotton balls all but
> impossible to buy, when even a "normal" retail mark up of 25% would have
> kept the price in the cents and therefore at least approachable. I'd call
> that unethical.

If setting prices too high is unethical, then is refusing to sell at all also
unethical?

And if it is unethical, should it be _mandatory_ to sell _any_ good at a
reasonable prices? Or only a class of goods deemed "essential"?

~~~
faboo
In my personal opinion? If you are they person/company able to provide a
necessary good (a patented, life-saving medicine say), then you have a moral
obligation to sell it.

Similarly, I believe it immoral to sell a necessary good at exorbitant prices,
but fine to sell luxury goods at whatever price you like. Of course, the
question follows: What counts as "necessary"? I don't have an easy answer for
that one :)

------
sunir
I strongly believe the revolution must be profitable. The OP says the same:
profit is necessary to achieve scale and attract investment and competition to
scale even faster.

If the poor are better off by generating you a profit that is wonderful. Do
it.

------
ebiester
Wow. Nobody has mentioned that this argument is a strawman yet?

It is not profit itself that is usually attacked; rather, it is the
exploitation of the poor (whether in terms of the environment or labor) in the
name of profit. The first example I can think of is the oil companies in
Nigeria who have left environmental disaster because it was more profitable to
pay off the right people.

We can go round and round about sweatshops, but the immorality is the
disconnect between those making the money and those supplying the labor. It is
the conditions that trapped workers in a factory while it burned down that is
immoral.

I don't remember people talking about making things poor people want at a
profit as immoral, save malt liquor and pay day loans. (I should mention that
it is the exploitation of the situation of the poor that is the problem, not
the product itself. It's the poor person paying a quarter of the wages to keep
current on the loan while the principal isn't touched that is the problem --
the cycle rather than the profit itself.)

------
rcthompson
The simple argument made here: if helping the poor cannot be made profitable,
it will never be done on a large scale. Therefore, the best (only?) way to
help the poor on a large scale is to find a way to do it profitably.

(Of course, you also need to make sure that your profitable poverty-helping
business cannot be co-opted by an even more profitable poverty-exploiting
business.)

------
ndefinite
"To the grumbler who complains about the unfairness of the market system only
one piece of advice can be given: If you want to acquire wealth, then try to
satisfy the public by offering them something that is cheaper or which they
like better. Try to supersede Pinkapinka by mixing another beverage. Equality
under the law gives you the power to challenge every millionaire. In a market
not sabotaged by government-imposed restrictions it is exclusively your fault
if you do not outstrip the chocolate king, the movie star and the boxing
champion." - Ludwig von Mises, The Anti-Capitalistic Mentality

Giving the poor something better and cheaper cannot be immoral by any
definition of the word. If you are charging "too much" then why can't a
competitor come in and undercut your outrageously high prices?

------
jronkone
Anyone who answers yes, should really think about this.

Consider that you're going to meet a successful business man with billions of
dollars. You represent to him the idea of helping the poor via technological
advances that require money to implement. He seems interested, until you say
that you want your ideas to be implemented by a non-profit organization. Then
he loses his interest in your ideas. Wouldn't it be better for everyone
involved to operate for profit, when the alternative is to let things be?

~~~
bnegreve
I disagree, the fact that there exist a particular scenario that does not lead
to the optimal situation does not legitimate the fact that it's ok to profit
from poor people in general.

~~~
jronkone
I'll have to admit that that was a stupid example, but my point is still that
entrepreneurial people are often profit driven, and when one takes this
incentive away, they tend to direct their efforts towards more profitable
things. So if we deny the possibility of profit from helping the poor, we are
effectively denying them any/most advances made possible by entrepreneurial
people.

------
lukev
> the viewpoint I like best defines sin as the failure to reach your
> potential.

Even if you do think morality is subjective, this is a remarkably poor
standard. I know anyone reading this board is at least somewhat
entrepreneurial, but elevating the acquisition of wealth and power to a virtue
in its own right is completely backward.

Also, those who are the _most_ immoral are often those who have reached a very
high potential of wealth and power.

------
dspeyer
What's immoral is to abuse pricing leverage.

A proper exchange generates value. The value gets divided between the parties.
Divided how? Usually the richer party makes an offer and the poorer party can
take or leave it. Taking the lion's share of the value this way is immoral.

To be concrete, if a man is starving and has a mountain of gold, offering a
scrap of stale bread for the entire mountain is immoral.

~~~
dualogy
Absolutely not. Value is measured by both parties, among other factors, in
terms of scarcity: in the default case, food is relatively abundant and gold
is relatively scarce: hence the situation that a man with a mountain of gold
is starving is typically extremely unlikely. Should the situation you describe
ever realistically occur, then food must be so scarce that finally the old
trite "you cannot eat gold" does indeed become true, and the offerer of a
scrap of stale bread must in such a context and situation indeed be offering a
tremendous sacrifice, which both seem to agree the gold is a cheap enough
price to pay for.

How's that immoral in such an extreme food-deprived and relative gold-abundant
environment you're describing? I'm assuming a mutually voluntary exchange of
course.

------
majani
If tons of poor people are willing to cough up cash for your product/service,
that's a sign that whatever you're selling is incredibly useful to some
extent, probably essential.

Only essentials make it into a 2 dollar daily budget.

------
jpdoctor
Before the housing meltdown, the #1 reason for bankruptcy was medical bills.
Yet for some reason, there is no question that doctors profiting (and
bankrupting!) their clients is "immoral". The usual defense is something like
"they earned it".

------
tripzilch
> There are at least 7 billion different perspectives on morality

... and only a few of them define it in terms of "sin".

------
Swizec
I'm not sure morality really cares about this, I've certainly never noticed
society to have qualms about making shiny profits off the backs of poor
people.

But it certainly doesn't feel ethical.

~~~
Alex3917
Why not? Earning money from poor people could be either ethical or unethical,
there is no way to tell by only looking at the amount of money you're making
and how poor the people are. The correct answer is that there isn't enough
information to say.

------
pitdesi
Far from being immoral, it is REQUIRED for the benefit of the poor. 6 years
ago, I left a 6-figure job in the states and spent a year living on $2 a day
in India (I was an early employee at <http://kiva.org> trying to understand
the plight of those we served)... It was hard as hell... but a lot of
companies served those markets tremendously well and made a lot of money. I
ended up writing business school cases about a couple of things I learned in
that regard here are some briefs-

1) Mobile phones. Super cliche, but they use mobile phones in every aspect of
their lives now, and it has made a tremendous difference. Something that used
to require an hour bus ride to the nearest city and then waiting in line for
an hour, ruining a days worth of work in the fields can now be accomplished in
5 minutes via SMS.

Airtel (one of the largest mobile providers in the world, one of the biggest
companies in India) has made a tremendous amount of money by focusing not on
ARPU (Avg. Revenue per user) like every other mobile company, but rather
focusing on how much profit they can make per minute sold... they are happy to
serve tons of farmers that only use their phone for 100 minutes a month (~$2 a
month). If it was not profitable for Airtel, the poor would never have access
to cellphones, something that has DRASTICALLY upgraded their lives. Nokia
sells amazing phones tailored to that market for $20... they have radios,
flashlights, and batteries that last a week (all crucial to rural India), and
Nokia is able to maintain fantastic margins on those products. Airtel has an
ARPU of $4 (contrast to US carriers ARPU of ~$55)... yet they have a $30Bn
market cap

I actually co-wrote a case on this topic with professor CK Prahalad (the
founder of base of the pyramid thought - you should read up on him. if this
topic interests you at all read his books, particularly "the fortune at the
base of the pyramid" <http://en.wikipedia.org/wiki/C._K._Prahalad>) If you're
interested in reading my case
(<http://www.globalens.com/casedetail.aspx?cid=1428834>) give me a shout.

2) Clean water. A lot of villages don't have it. There are both for-profit and
non-profits trying to tackle this situation, but regardless they've found that
the only way to scalably get clean water to the masses is to charge for it...
to "profit on the backs of the poor" I co-wrote a case on that topic here:
<http://www.globalens.com/casedetail.aspx?cid=1428987>

~~~
PakG1
I think you're making a blanket assumption that all businesses that have poor
people as customers benefit the poor. This isn't always the case. The thing
is, it's not always the case for rich customers either. The simple fact may be
that richer people are usually more educated and capable of determining
whether or not they would be better off. So the question for me isn't whether
it's OK for a business to be making money off of poor people. The question for
me is whether poor people will be more negatively affected by immoral
businesses. After we understand the question in that context, then we can
clarify that yes, it's not right for these businesses to make money off of
poor people.

I agree with you for the most part. But I don't think we should say it's
REQUIRED. I think we should be careful about making such a blanket statement
because such blanket statements make for easy cop-out justifications for bad
and unethical business practices. We unfortunately usually don't figure out
that someone's getting hurt until it's too late.

~~~
true_religion
They benefit the poor customers in so far as the customers were in a voluntary
transaction.

It's not up to anyone except the buyer to determine how much utility they gain
from a given transaction.

An examples of what would make the transaction involuntary are blackmail,
deceitful advertising, and chemical addiction on the part of the buyer.

\-----

Though.... whilst I don't believe this, a case could be made that it is
unethical to _knowingly_ protect a monopoly, or run one over the long-term if
your profits are maximized.

~~~
PakG1
I'd have to disagree. Perceived vendor lock-in makes it very easy to
manipulate customers into transactions that they'd not prefer, but to which
they still agree because they don't see any other choice. Note that I say
"perceived", because the vendor lock-in doesn't need to be real for this to
happen. Of course, there are many cases where the vendor lock-in is real too.
Subprime loans sounded like a great idea, but the homeowners never realized
that they couldn't afford them. And then once they had them, they couldn't get
out.

You may place all of this kind of stuff under deceitful advertising. But
nobody is forcing customers to agree to transactions that are based on
deceitful advertising. The transaction is completely voluntary, if perhaps
misleading or fraudulent.

If 3rd parties could not determine how much utility was gained from a
transaction, doesn't it follow that 3rd parties also cannot determine how much
damage was done from a transaction, if the damage is not easily materially
quantifiable? Because if so, that throws out the whole basis for legitimate
class action lawsuits, etc, where judgments for punitive damages and the like
are determined by people who were not involved in the transaction.

------
dextorious
Morality is what you should already feel it is. I.e if you have to ask, you
will never know.

Or, perhaps, asking is the way that you show you already know it is wrong.

~~~
true_religion
I don't know. I do tend to ask a lot of questions.

Is it immoral to cut in line?

is it immoral to cut in line if my need is greater than those ahead of me?

How about if the line isn't a physical one, but one enforced by society (e.g.
seniority clauses, or rationing)?

Ethics---at least for me---must be an independently justifiable thing. To rely
on feelings is problematic because feelings of guilt are dependent on your
social upbringing.

During the slave days of America, there were slaves who thought it was immoral
to run away from their masters because after all the master provided
faithfully for them, didn't beat them unreasonably, and gave them the entirety
of life they knew. Additionally, even if you didn't care about your master---
you should care about your family who you'd have to leave to escape into
freedom.

We consider that example extreme only because our society has diverged so far
from that point. In those times, it would be a perfectly reasonable argument
and the guilt felt would be real.

~~~
dextorious
"We consider that example extreme only because our society has diverged so far
from that point. In those times, it would be a perfectly reasonable argument
and the guilt felt would be real."

Which only proves that ethics are based on societal norms ("social
upbringing").

If you think the norms are bad, try and change them, instead of seeking some
mumbo-jumbo "independently justifiable morality", which doesn't even make
sense (there is no method of independently justifying a moral position, nor
would it convince everyone even if it did it exist. Even human life is not
"independently justifiable" sacred. It's only as far as we believe in some
(societal) norms).

The benefit of this (as opposed to the imaginary "independently justifiable"
morals), is that our morals can be changed. This is after all what we call
progress, in the societal and moral sense of the word.

------
JonnieCache
If you have to ask, no.

