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Purgatory : Why do Socialists hate profit?
Anglican Brat
Shipmate
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.
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.
Comments
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.
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.
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.
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.
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.
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
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 ?
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 what chrisstiles said.
Even my communist friends think the SWP are a bunch of loons.
Capitalists hate free markets.
This is explicitly contrary to neoliberalism, according to which the purpose of a business is to make money.
I agree with your nagging feeling.
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).
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.
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.
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.
A progression in pay as position increases is not unreasonable. It is the scale used that is most often unreasonable.
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.
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.
Especially as a CEO of a large corporation is usually an employee.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.)
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.
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 ?
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.
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.