Is it Immoral to Earn Attractive Profits from Poor Customers? | Hacker News Reader

Is it Immoral to Earn Attractive Profits from Poor Customers?

blog.paulpolak.com

23 pointsph0rque52 comments

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.

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.

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.

> 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!

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.

Every seven years, not every fifty. That said, this rule caused all sorts of problems - because debts had to be forgiven on a regular basis, no one would lend to the poor at all.

In the first century BCE, Rabbi Hillel came up with a novel solution - the creditor 'sold' the debt to a rabbinical court, who didn't have to cancel it since (I believe - memory's a little hazy here) the letter of the law referred to individuals. The court in turn gave the creditor power-of-attorney to collect the debt at any time and the right to all the proceeds. Problem solved.

The mishnah (a codification of Jewish oral tradition) on this part of the Torah and Hillel's reinterpretation of it is really interesting - the rabbis aren't stupid, and they can see that Hillel's playing fast and loose with the original intent of the law, but write that it was necessary in order to 'repair the world'.

This wouldn't be the last time something designed to protect or help the poor completely backfired due to unforseen circumstances.

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.

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.

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.

When the City of San Francisco tows your car it's something like $60 a day in storage fees. Those will outweigh your interest costs pretty quickly.

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.

> 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.

That's an interesting example. But if an opportunity exists in the market for somebody to come in undercutting me and selling cotton balls for a mere 500% markup, then I think it's still okay.

> 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"?

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 :)

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.

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.)

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.)

"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?

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?

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.

But what incentive would entrepreneurial people have to help the poor if not profit? It's nice to be nice for the sake of being nice, but it's also important to eat.

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.

> 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.

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.

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.

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.

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".

> There are at least 7 billion different perspectives on morality

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

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.

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.

Or maybe the answer is not "yes" or "no" but "this isn't really a well-stated question". Without trying to be a Real Philosopher[tm], here's some questions I'll throw back: * how big is your businesses cost to the society? Could it be lower, at expense of your profits? * how expensive is your product for your clients? Could it be cheaper at expense of your profits?

The idea of removing profits, or even "attractive" profits feels a bit like a straw man. But there's another idea, that profits can be much lower while still being attractive enough to attract talented, capable people.

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

Regarding bringing water to the poor: Even if you're a charity, if you can charge for it and make money off it, that means you can bring it to the next group of poor people sooner.

If you're a business, being able to charge for it and make money off it means that more people are going to be willing to give you money as an investment and accelerate your build-out even more. This can easily outpace the pace of donations.

As I understood it, the question was not whether it's ethical to "charge for it", it was whether it was ethical to charge big bucks, ie. make a killing profit.

If you had a filter that can purify water, and you could get away selling it for huge margins, like 500%, just because they need it and they'll sacrifice other things in order to buy it, would you?

I, for one, don't think that would be moral. A heathy profit to sustain your business would be OK.

I do agree that large profit margins mean something is wrong, though I'm not sure the blame should necessarily fall on the person making the profit. It's the kind of situation where one should ask: why are profit margins high, especially if persistently high? Classic economic theory would predict that large profit margins shouldn't persist for more than a short time, because competitors will enter the market, whether the initial company wants them to or not. So then a question would be what's keeping the market uncompetitive.

Sometimes it might be the fault of the entrepreneur in question, especially if he/she has government connections: there are situations where a company is maintaining large profit margins serving the poor because their potential competitors keep running into licensing roadblocks. Other times it's something to do with patents, or network effects, or who knows what else.

"""I do agree that large profit margins mean something is wrong, though I'm not sure the blame should necessarily fall on the person making the profit."""

Well, if that person is you, though, then you have the morality question to answer, not the market. It doesn't matter, morality wise, if the profit happens because the market is inefficient or for some other reason.

An easy example would be, because you have a patent for the thing you sell, so no one else can get into the market while it holds. That's essentially what big pharma does

(they justify it with the "we fund future research" line, which I call BS. If you can save more people now, do it, instead of invoking vague future benefits. Else, even when that future drugs are available, you'll just screw the people of the future needing them, with the exact same argument about more future research).

Yeah, I agree there are situations where if it's you making the decisions, you should ask questions like that. I'm mostly interested in the structural causes, though, because I think encouraging people to have more ethics in business tends to be like whack-a-mole, if you don't also tackle the structural reasons that it's even possible for someone to extract persistent large profits from a situation.

That's a great insight, but it's interesting (though I'm not arguing wrong) that it is required.

It is problematic to associate profit with morality, and this cuts both ways. The author states that trillions spent on charity is sinful which implies that the lack of profit is immoral.

The problem for the poor is that they are at best a risky or at worst bad investment if profit is the sole concern. So I believe you have to find a way to address this too.

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.

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.

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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.

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

For this to be true, the decision for transaction must also be well-educated, not just voluntary. And this is by no way ensured in poor countries.

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

As long as it is very likely that the buyer is missing important information, this statement is quite optimistic (if not an invitation for fraud).

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.

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.

Ah, the "talking about it means you already lost" tactic. Very subtle, very subtle.

1) Not everything is a "tactic".

2) In some cases (and I feel in this particular too), that line of reasoning applies, you know.

I'm not so sure. People tend to have a very easy grasp of moral/immoral when it involves direct action ("It is wrong to stab this guy because he cut in line"), but the more abstract the situation, the more people need metaphor and analogies and conversation to determine what they believe is moral. It's hard to have a gut feeling about how many pieces of cheap paper is moral to take in exchange for a durable good.

"It's hard to have a gut feeling about how many pieces of cheap paper is moral to take in exchange for a durable good."

Except it's not "cheap paper", it's very precious and expensive to the poor folks parting with it.

You miss my point I think. You can't eat a bank note, and you haven't killed a person you've parted it from. Indeed, requesting more bank notes than necessary for something is many levels of abstraction removed from doing a person direct harm, and that makes it harder for people to have a gut feeling about the morality of it.

That doesn't mean overcharging necessarily doesn't do real harm; it just means it requires mental effort to understand it as moral or immoral. Maybe not much, but more than deciding whether outright killing someone is immoral or not. Ergo, it is not necessarily true that no moral dilemma might benefit from discussion.

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.

"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.

If you have to ask, no.

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