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Purgatory : Why do Socialists hate profit?

Anglican BratAnglican Brat Shipmate
edited April 2021 in Limbo
That is the question my right wing friends pose to me, as in if "I have a small business, I'm not going to go into it intending to lose money, I do want to make more than I put in."

My response is that socialists don't hate profit per se, but they would question if in the case of a large company, why most of the profits are given to the people at the top and very little given to the actual workers.
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Comments

  • An FDR administration official made the point that profits and taxes are basically the same thing -- excess income diverted to other purposes. In the case of taxes, they are diverted to public purposes, while profits are diverted for private use. Perhaps an appropriate question for your right wing friends would be why they hate taxes.
  • Golden KeyGolden Key Shipmate, Glory
    Theoretically: because they want to make sure everyone is adequately taken care of, rather than just one class of people raking in the profits and keeping them.
  • If the owner of the company is paid a salary, there is no need for profit. Profit is what is left over after all expenses are paid. If the owner's salary; is one of the expenses, there need be no profit. It's all a question about how the revenues of the business will be dealt out. Usually they are dealt out in such a way that the workers are paid far less than the actual amount of "value added" they bring to the company. The difference then can go to lining the pockets of the owner, or CEO, or shareholders if it's a publicly held company. Nearly always, and especially in absence of unions, the workers get a raw deal in terms of how much worth they bring to the company versus how much of that they are paid.
  • Golden KeyGolden Key Shipmate, Glory
    AIUI, (some?) Japanese companies tie workers' salaries to the CEO's. So if the CEO's salary goes up, so do the workers'. There's still a big difference, but not as much. ISTM the situation is more fair; the workers are apt to be happier and less disgruntled; and maybe the CEO manages a little more sanity and humility.
  • HugalHugal Shipmate
    I have to agree with everyone else. Socialists are not against profit, they are against unfair wages and believe that reasonable taxes work to keep things like railways, street cleaning and public services going.
    Inequality is built into the current business model. Those at the top get excessive pay. They get bonuses even for poor performance. Capitalism is essentially selfish. Conservative governments here in the UK are tied to business. They work on a top down principle, typified by a Champagne tower. You pour in the top and it trickles down. Unfortunately more often than not the glass at the top is much bigger than the rest.
  • RicardusRicardus Shipmate
    edited February 2020
    AIUI, large profits are a sign of an inefficient market.

    If you are making large profits in an efficient market, then someone else will come along and undercut you, thus taking away your market share and making additional sales of their own, because that's how a supply and demand curve is supposed to work.

    IOW, free-market capitalists should hate large profits too.
  • And if your market is perfectly spherical it will never stop rolling. In other words, free markets are a fantasy and free market economics about as useful as the phlogiston hypothesis.
  • Alan Cresswell Alan Cresswell Admin, 8th Day Host
    I think all of the above are right. Socialists oppose excessive profit that's gained by exploitation of workers and paid to a small number of people. Plus, socialists favour fair wages for all, redistribution of some of the profit earned by businesses to provide services and utilities for the public good - health, education, transport, etc. Basically, profits are good provided they are fairly earned and widely shared.

    One of the organisations I've worked with recently moved to an employee owned model. All employees (30 or so) get paid as before, profits that are earned go into a pot and the employees get to decide how that's spent - bonuses to staff, investment in particular equipment or a new staff member to expand the business, etc. Most socialists would entirely approve of this model of business.
  • Ricardus wrote: »
    IOW, free-market capitalists should hate large profits too.

    IME some of the people who are most against the operation of an actual free market are small business owners.
  • Ricardus wrote: »
    IOW, free-market capitalists should hate large profits too.

    IME some of the people who are most against the operation of an actual free market are small business owners.

    As Adam Smith himself was well aware.
  • DafydDafyd Hell Host
    What people said.

    In addition:
    In a free market the amount of money you get from owning and running a business should be such that you wouldn't consider yourself worse off if you went and worked for one of your competitors instead. If you're better off and richer running a business then senior employees will start setting up their own businesses until businesses start making less profit due to the competition or have to put up wages to keep good employees.
  • The objection is not to profits but to rent-seeking.

    And the truth is that the majority of small businesses are the victims of distorting practices such as rent-seeking and various others by large businesses.

    AFZ

  • DoublethinkDoublethink Admin, 8th Day Host
    edited February 2020
    Seems to me people get captured by the idea of money to the extent they forget what a business is for.

    As a society we provide the conditions, (the education of workers, physical infrastructure such as roads, legal infrastructure to underpin contracts and a functioning currency etc), so that business will provide a service to the community and a decent living to those involved in its delivery.

    Profit is an indicator, not an end goal.

    We socialists get upset when business either a) doesn’t provide a decent living to all involved or b) a broadly useful service. So people who buy up businesses, extract all remaining monetary value and cast them aside broken - the service broken, the lives of those employed broken - and go looking for their next prey, also tend to piss us off.

    I got quite annoyed listening to someone on the radio during the financial crisis (or just after) complaining about “zombie businesses” - these were small concerns that were just about keeping their heads above water, servicing their debts, but not making much money. The speaker felt the banks should foreclose and kill them off, in order to allow new more profitable ones to spring up. I remember thinking, if you do that you are just dumping all the workers out with no realistic employment and for what ? We know global pressures caused the crash, the economy is recovering - slowly (thanks to Osborne’s incompetence) - why would it kill you to wait ?
  • According to this article from SocialistWorker.org, socialists consider all profit in a capitalist system to be the product of exploitation of the working class - it represents the forced appropriation of unpaid labor. In this view there can be no such thing as “a fair day’s wage for a fair day’s work” if capitalist owners are receiving any profit at all.
  • DoublethinkDoublethink Admin, 8th Day Host
    edited February 2020
    There are different flavours of socialism, I’d not agree with that particular view - I would tend to describe myself as a democratic socialist. That said, I do prefer co-operatives, building societies, partnerships and other worker owned businesses as a model.
  • There are certain companies (and individuals) who get lauded because they use their immense profits to create trusts which then find good causes. Bill Gates is one example, so is Wellcome, and there are many more. In the past there were folk such as Andrew Carnegie.

    I often struggle with this. Of course it's good to disburse the funds in that way; but I always have the nagging feeling in my mind that (a) they're not paying the staff enough and/or (b) they're selling their products at an inflated price. What do others think?
  • And additionally they are usually not paying their taxes and using philanthropy to buy influence.
  • lilbuddhalilbuddha Shipmate
    edited February 2020
    There are certain companies (and individuals) who get lauded because they use their immense profits to create trusts which then find good causes. Bill Gates is one example, so is Wellcome, and there are many more. In the past there were folk such as Andrew Carnegie.

    I often struggle with this. Of course it's good to disburse the funds in that way; but I always have the nagging feeling in my mind that (a) they're not paying the staff enough and/or (b) they're selling their products at an inflated price. What do others think?
    Philanthropy often financially benefits the philanthropist. Not that rich people giving is necessarily bad, but it isn't necessarily the good it often seems.
    And what chrisstiles said.
  • Dave W wrote: »
    According to this article from SocialistWorker.org, socialists consider all profit in a capitalist system to be the product of exploitation of the working class - it represents the forced appropriation of unpaid labor. In this view there can be no such thing as “a fair day’s wage for a fair day’s work” if capitalist owners are receiving any profit at all.

    Even my communist friends think the SWP are a bunch of loons.
  • Ricardus wrote: »
    AIUI, large profits are a sign of an inefficient market.

    If you are making large profits in an efficient market, then someone else will come along and undercut you, thus taking away your market share and making additional sales of their own, because that's how a supply and demand curve is supposed to work.

    IOW, free-market capitalists should hate large profits too.

    Capitalists hate free markets.
  • Profit is an indicator, not an end goal.

    This is explicitly contrary to neoliberalism, according to which the purpose of a business is to make money.
  • There are certain companies (and individuals) who get lauded because they use their immense profits to create trusts which then find good causes. Bill Gates is one example, so is Wellcome, and there are many more. In the past there were folk such as Andrew Carnegie.

    I often struggle with this. Of course it's good to disburse the funds in that way; but I always have the nagging feeling in my mind that (a) they're not paying the staff enough and/or (b) they're selling their products at an inflated price. What do others think?

    I agree with your nagging feeling.
  • DafydDafyd Hell Host
    mousethief wrote: »
    Profit is an indicator, not an end goal.

    This is explicitly contrary to neoliberalism, according to which the purpose of a business is to make money.
    The claim of neoliberalism (and classical economic liberalism) is that economic actors trying to make money for themselves is a good thing because it results in the general benefit.
  • Under capitalism, then labour, as in paying employees is conceptualized as an "expense", and not a just payment to the people who actually do the hard work. Therefore, under the current system, the owners of the means of production has an incentive to drive the wages down, and keep the bulk of the profit for themselves.

    So if we use the Amazon example, Jeff Bezos might be earning the bulk of the money of his company, but he certainly isn't packing every single box, nor driving every package. Meh, I could never figure out exactly what do CEOs do in terms of work, other than come up with more ways to rip off the buying public.

    I am coming around to the idea that the answer is to radically democratize our corporations, to make workers be in charge of the management and profit of their company. I am wary of old school socialism which argues for centralized planning, given that I do not want the government to own and manage every single business (save major industries such as public transport and public utilities).

  • DoublethinkDoublethink Admin, 8th Day Host
    mousethief wrote: »
    Profit is an indicator, not an end goal.

    This is explicitly contrary to neoliberalism, according to which the purpose of a business is to make money.

    I would argue that from a psychological and sociological perspective, those who argue this are wrong. I suspect any half decent field-anthropologist would also disagree.

    At some level, to say that is to confuse mechanism with purpose. Money is useless without a social context.
  • I'm self employed with employees and partners. It is absolutely reasonable for business owners to make more money than employees. There's much more stress and worry to running something, meeting a payroll, keeping a physical premises going. How much is excessive? I'm not sure that this is the right question. The right question is whether business ownership where an owner has no actual role in the company should be taxed differently, and whether amounts of money regardless of source should be taxed the same. Right now, shares are taxed much more favourably than wages. Such that it's better to pay yourself a wage at a low level and separate out profit as dividend. And you can create complex companies structures to defer / hide income via this.

    If we treated income, dividends and capital gains the same, it doesn't matter what someone is paid. Where I live the income tax could be close to 50%. Which could close the gap between rich and poor.
  • It is absolutely reasonable for business owners to make more money than employees. There's much more stress and worry to running something, meeting a payroll, keeping a physical premises going.

    I'm sure that the stresses of owning a business are real. But so are the stresses of being an employee and co-worker. I retired over seven years ago, and have only recently reached a point where job-related nightmares are unusual. The truth is that work has tremendous stresses involved in it, whether you are on the top, middle, or bottom of the food chain.
  • tclune wrote: »
    It is absolutely reasonable for business owners to make more money than employees. There's much more stress and worry to running something, meeting a payroll, keeping a physical premises going.

    I'm sure that the stresses of owning a business are real. But so are the stresses of being an employee and co-worker. I retired over seven years ago, and have only recently reached a point where job-related nightmares are unusual. The truth is that work has tremendous stresses involved in it, whether you are on the top, middle, or bottom of the food chain.
    There are stress at every point. But not all the stakes are equal. A small business owner often stands to lose much more if the business fails than their employees do. CEO often has much less to lose than the average employee if the business fails. But it si not as simple as that.
    A progression in pay as position increases is not unreasonable. It is the scale used that is most often unreasonable.
  • There are good reasons why not everyone is self employed. Risk tolerance for most people I've met is relatively low. You need tolerance for having zero income, mortgaging their home if you have one, risking life savings.

    Yes being employed can be stressful but it's not the same at all. You usually don't risk all of your assets. Seldom get sued. It's absolutely crazy to personally take out a short term loan to pay employees because some pay 120 or 180 days late. Or decide not to pay at all. And you work less that 65 to 80 hours per week- which is typical for the self employed.

    Thus the drive to cushion yourself by having savings is strong. A year's income at minimum for me. Typically in Canada self employed have no employee benefits, no pension, no sick leave, no vacation leave, no employment insurance. And have to make both employer and employee contributions to taxation programs including those you'll never be eligible for like workers' compensation for injury.

    None of which means you should become stupid rich. Just get some favourable treatment for creating jobs.

    We pay more than both other private and the public comparable jobs. Also treat people extremely well. Sometimes too well: employees have stolen, lied, left us with 5 figure debt. It happens.

    None of which means anything about socialism and profit. Happily would pay more taxation for better supports for people and less stress. I actually think that small business and socialism, where employers are closely integrated with their community is foundational to socialism. It creates the love for community and those within, that means you want to give to others.

    Socialism is about more than money. It's about "us", about ther community.
  • Dave W wrote: »
    According to this article from SocialistWorker.org, socialists consider all profit in a capitalist system to be the product of exploitation of the working class - it represents the forced appropriation of unpaid labor. In this view there can be no such thing as “a fair day’s wage for a fair day’s work” if capitalist owners are receiving any profit at all.

    Even my communist friends think the SWP are a bunch of loons.
    "Socialist Worker" is (or was) a publication of the US-based International Socialist Organization - I don't think it has anything to do with the UK Socialist Workers Party, if that's what you're referring to.

    I'd be surprised if your communist friends disagreed with the position I described. With ECraigR, I think it's a pretty standard result of Marxist analysis.
  • Jamie Dimon takes no risk at all running Chase. None. If he bankrupts it, he gets a multi-million-dollar golden parachute, and gets a new CEO job long before his money runs out and he has to sell a mansion in the tropics. Meanwhile all his workers are on the street in short order if they're not fairly lucky. You really can't compare people like him with someone running a small business like No Prophet.
  • A small business owner getting paid for their work is not profit; profit is getting paid for someone else's work.
  • A small business owner getting paid for their work is not profit; profit is getting paid for someone else's work.
    Small business owners often do get paid for other people's work. There are a myriad of small business models. An owner can be anything from hands on, side-by-side with the employees to providing the capital/licensing/permitting/certifications/etc. for the business to run but doing none of the actual work. That doesn't make them evil capitalists until the disparity becomes too great.
  • mousethief wrote: »
    Jamie Dimon takes no risk at all running Chase. None. If he bankrupts it, he gets a multi-million-dollar golden parachute, and gets a new CEO job long before his money runs out and he has to sell a mansion in the tropics. Meanwhile all his workers are on the street in short order if they're not fairly lucky. You really can't compare people like him with someone running a small business like No Prophet.

    Especially as a CEO of a large corporation is usually an employee.
  • All this begs the question as to when renumeration becomes excessive.

    I'm self employed but as a sole trader. The idea of running a growing and going concern and employing people and remortgaging property or renting or buying premises etc would be the stuff of nightmares. I wouldn't know where to start.

    I take my hat off to those that can and do.

    What I can't establish from the comments so far is the point at which a 'legitimate' return or renumeration for the proprietors or principals in an enterprise topples over into 'evil fat capitalist bastard' territory.

    Where's the cut off? Where do we draw the line?

    We are all of us here among the world's most comfortably off in global terms. Of course, we aren't at the level of corporate fat-cats but in comparison with much of the world's population we are most of us doing pretty well thank you.

    Where do we draw the line?
  • DoublethinkDoublethink Admin, 8th Day Host
    edited February 2020
    In the UK context, I don’t feel any company should be profiting above break even and contingency fund, if they are paying any of their employees at a level that requires the state to pay them in work benefits.

    If you need state funding for your business model to be viable, you should be having that conversation up front - and if you you require state aid to make your business run, what you are taking out of the business is not truly profit.

    Likewise, if you have taken 400 million out of your business as ‘profit’, then your pension fund for your staff should not be hundreds of millions short.
  • orfeoorfeo Suspended
    I'd flip the original question: why are some people so in love with profit that they'll pursue ever bigger ones to the exclusion of everything else?

    Many years ago I read a book by David Suzuki that discussed various case studies of people successfully running environmentally sustainable but less profitable businesses. Not unprofitable, just less profitable.

    One of the ones that's always stuck with me is a family forestry company in the Pacific Northwest that's been running for several generations, and still has as much forest as they started with because they only log it at the rate it can renew. So they makes less money, but enough to earn a living for the families involved. And still have an ongoing business.

    That anyone thinks it's better to make a whole lot of money quickly by logging a forest out, but then having no forest, only works because those sorts of companies have been able to just move on to a different forest and then destroy that one, then another one, then another one.

    And that's the real problem with many cases of big profit: the way you achieve them is to externalise the costs and prevent them from appearing on the balance sheet.
  • I have read much of this (not all - sorry if I am repeating someone else). To me (who would call myself a socialist) the problem is not profit per se. It is wher ethe focus of hte business is profit.

    Whereas I would like to see a) wage proportionalism (i.e. salaries do not differ by more than say 30% across the business) b) Incentives to put money back into the business - re-investment. This might be by very high taxes on profits and c) shareholders told to fuck off, as they should not be the people who drive the business.
  • DoublethinkDoublethink Admin, 8th Day Host
    I think one problem with share holder owned companies, is - if I understand correctly - there is a legal obligation for managers to run the business in their interest. Whilst that’s obviously partially subjective, it must be effected by over what time period that goal is evaluated.

    There’s no obligation to be socially responsible over and above the minimum required by law. I think this leads to unintended consequences and probably needs to be ‘fixed’ by changing the legal frameworks around companies as legal entities.
  • DafydDafyd Hell Host
    If we consider a perfectly free market, an ideal model, some senior employees will be thinking they'd like more money but be put off running their own business by the stress and some will be attracted by the prospect of being their own boss. Meanwhile some bosses will might think that the stress of running a business is too much and they would be better off working for someone else as an employee. In an ideal market the no more employees want to start up their own business then owners want to close their business down. So the most risk-happy employee and the most risk-averse business owner are both indifferent to what they do. Neither minds whether they switch roles or not.
    So once you factor in the extra hours and the extra financial risk the amount of profit someone makes is exactly what they'd make working for someone else. If it's more then in an ideally free market more people will start their own business. If it's less businesses will close down.
  • Alan Cresswell Alan Cresswell Admin, 8th Day Host
    Even if there's no legal obligation for managers of a share holder owned company to run the business to maximise the dividends, that will be the effect of the very nature of share owning. It's probably unusual for the majority of share holders in most businesses to have invested based on any criteria other than to maximise returns on their investment - most shares aren't in any realistic sense owned by individuals at all, rather being in the hands of investment funds (including pension funds). Since these big share holders own the business then they set the rules of how it's run, within legal requirements, and that will be to support their own business (ie: build their investment funds). The public can have some control over that, by selecting pensions and other investment funds that carry additional requirements - not investing in particular industries (eg: not arms trade or fossil fuels), or only in businesses that maintain minimal ethical standards (eg: pay living wages) - but the rules within that will still be to maximise returns on investment.

    For small businesses there are alternatives, where the share holders are people who have an interest in the business. Where people can invest to increase the chances of a particular business succeeding rather than making money without even knowing what businesses they have invested in. I've seen calls for investors in a small local windfarm development, which is likely to make some form of return eventually, and invest in film productions, which may well not make any money at all. These seem to be not too different from crowdfunding, but with some chance of a return on that eventually.

  • This is the problem of shareholder businesses. You see it all the time on Dragons Den. The business may be a good business, may be profit-making, but unless there is a realy good and speedy return on the investment, the Dragons will not put their money or expertise in.

    I read somewhere - long time ago - the "continental model" (No idea how true this is) that investment in a business should be long-term, not for immediate profit, but for the sake of the business. A decades long "investment" of support. That will, over time, produce a small return. But (more importantly) will support the business longer term, and allow and encourage the business to grow and develop.

    It seems that the "Profit motive" has taken over. The idea that everything should be run for profit, not provision (education, NHS, BBC, Train services). It is wrong there, and that shows that it is fundamentally wrong in other areas.
  • EnochEnoch Shipmate
    All this begs the question as to when renumeration becomes excessive.

    I'm self employed but as a sole trader. The idea of running a growing and going concern and employing people and remortgaging property or renting or buying premises etc would be the stuff of nightmares. I wouldn't know where to start.

    I take my hat off to those that can and do.

    What I can't establish from the comments so far is the point at which a 'legitimate' return or renumeration for the proprietors or principals in an enterprise topples over into 'evil fat capitalist bastard' territory.

    Where's the cut off? Where do we draw the line? ...
    The usual cut-off point seems to be where there is someone else who is earning more than oneself, and whom one envies, resents or of whom one is jealous.

    I agree with @NOprophet_NØprofit that a person who puts their own financial security at risk is morally entitled to get something financial back for that to which a person who does not put themself at risk is not.
  • In the UK context, I don’t feel any company should be profiting above break even and contingency fund, if they are paying any of their employees at a level that requires the state to pay them in work benefits.

    If you need state funding for your business model to be viable, you should be having that conversation up front - and if you you require state aid to make your business run, what you are taking out of the business is not truly profit.

    Likewise, if you have taken 400 million out of your business as ‘profit’, then your pension fund for your staff should not be hundreds of millions short.

    Continency fund? The simple math is 5 to 7 times the annual payroll, preferably 10. The company needs to earn 170% of payroll per year to pay all the bills, preferably 250%.

    Easy example of some of the costs: if you have individual computer server access, that's 2k per user per year, with replacement and "upgrades" on top. (People who provide "business services" are parasitic, but they've employees too.)
  • mousethief wrote: »
    Jamie Dimon takes no risk at all running Chase. None. If he bankrupts it, he gets a multi-million-dollar golden parachute, and gets a new CEO job long before his money runs out and he has to sell a mansion in the tropics. Meanwhile all his workers are on the street in short order if they're not fairly lucky. You really can't compare people like him with someone running a small business like No Prophet.

    But making them out to be equally worthy of their profits is one of the tricks used to fool voters into supporting tax cuts for Mr. Dimon that screw No Prophet and the rest of us.

  • DoublethinkDoublethink Admin, 8th Day Host
    In the UK context, I don’t feel any company should be profiting above break even and contingency fund, if they are paying any of their employees at a level that requires the state to pay them in work benefits.

    If you need state funding for your business model to be viable, you should be having that conversation up front - and if you you require state aid to make your business run, what you are taking out of the business is not truly profit.

    Likewise, if you have taken 400 million out of your business as ‘profit’, then your pension fund for your staff should not be hundreds of millions short.

    Continency fund? The simple math is 5 to 7 times the annual payroll, preferably 10. The company needs to earn 170% of payroll per year to pay all the bills, preferably 250%.

    Easy example of some of the costs: if you have individual computer server access, that's 2k per user per year, with replacement and "upgrades" on top. (People who provide "business services" are parasitic, but they've employees too.)

    I’m not going to argue over what contingency is reasonable, I don’t have the expertise and it must vary from business to business. I think my central point is valid, companies that require state benefits to operate are not truly operating at a profit. Why should I as a taxpayer, subsidise Tesco - when it states it has billions of pounds ?
  • Genuine question: how the government subsidizing Tesco?
  • Alan Cresswell Alan Cresswell Admin, 8th Day Host
    What contingency fund is reasonable is irrelevant. Establishing and maintaining an adequate contingency fund is one of the costs of running a business, and therefore shouldn't be considered part of the profits. Same with funds for future investment in the business.
  • DoublethinkDoublethink Admin, 8th Day Host
    edited February 2020
    Marsupial wrote: »
    Genuine question: how the government subsidizing Tesco?

    We pay in work benefits to the majority of their employees - because the wages they are paid in the places where they live are insufficient to cover an acceptable standard of living.

    Source.

    Moreover, if you are unemployed and refused a job offer on that basis from, e.g. Tesco’s, your unemployment benefit can be withdrawn - so you don’t have the option of holding out for a job which will pay you enough to live on.
  • Marsupial wrote: »
    Genuine question: how the government subsidizing Tesco?

    We pay in work benefits to the majority of their workers - because the wages they are paid in the places where they live are insufficient.

    I suspect we're mostly subsidising their landlords. If we had sufficient socially rented accommodation rather than shovelling money into the pockets of the rentier class we might find that supermarket wages were a lot closer to liveable.
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