In a well-functioning market economy, businesses can do well
by doing good. They can prosper by supplying customers with useful goods and
services, providing jobs for their employees, treating them well, and
participating as good citizens in their communities. The name of the game is creating
value. Profits are the way we keep the score.
Creating value is, of course, a game that works well only
when played by the rules. At the highest level, the rules are clear: Respect
property rights, honor contracts, shun fraud, welcome free and open
competition. Without these rules profits become decoupled from value creation.
If you pad your profits through fraud, by cheating on contracts, skimping on
customer service, or by blocking your rivals’ right to compete, you are no
longer creating value. Any “bad profits”
you may earn in the short run will soon come back to bite you.
When the rules are clear and easily enforced, businesses can set targets, innovate, and show off the best they have to offer. But the devil is in the details. Important though the high-level rules are, they need the support of thousands of more specific rules that fill in the operational details. If we get those operational rules wrong, the game goes awry.
