Friday, 20 July 2012

Profit

I am going to act naive and maybe end up somewhere as a result.

The word "Profit" gets applied to very different things.

I am self-employed with no employees. At the end of each tax year, my accountant calculates what he calls my "Assessable Profit". This figure is arrived at by taking my Income (derived mostly from retail sales, in my case), deducting my Expenses (purchase of stock, other expenses)and then further deducting Capital Allowances (expenses which are claimed against tax in instalments).

I don't pay myself a wage: instead of a wage, I have this "Assessable Profit". It's equivalent to a gross annual salary.

Now some economists would say that I am only a rational actor insofar as I try to maximise that Assessable Profit (or, at least, that figure when converted to an hourly gross wage). But, of course, most self-employed people are engaged in satisficing not maximising: they aim to end up with an annual figure which seems satisfactory compensation for the hours-cum-effort they have expended and allows them to pay their mortgages and all the rest.

"Profit" here could hardly be more benign.

Quite different are corporate profits - what's left after all expenses and all wages have been paid. It's what is available to distribute to owners (generally, shareholders) or to re-invest.

Nowadays, I suspect that very few people actually live off profits in the sense of "income from invested capital" except as beneficiaries of a pension scheme which holds invested capital. I don't think Marx had pensioners in mind as capitalist exploiters.

And as we have come to realise - really quite recently - the interesting (morally, politically significant) exploitation occurs in the division of the pre - profit wage bill. It is executive remuneration which drives down everything else: worker pay, shareholder profit and the amount available for re-investment. In many large companies, executives behave like Third World extractive elites.

In both cases, power is being used to rack up a rent. Profit is not the problem.

So in poor countries cursed with one valuable resource (diamonds, oil) extractive elites exercise power in two directions. They use coercion and repression to keep down the incomes of those who work in the one-resource industry. And they use their control over the state to set monopolistic terms of trade with those who wish to buy the one resource. (This has, by the way, very little to do with capitalism as Marx understood it but it is a very good method of getting very rich).

Likewise, the executive class considered as an extractive elite both seeks to keep down the wages of "ordinary" workers (through casualisation and so on) and seeks sole control over the terms on which it is paid, excluding as far as possible the exercise of shareholder power.

Though this is most obvious in the private sector, it can and does operate in the public sector where nowadays top civil servants and heads of publicly-owned industries have secured considerable control over what they pay themselves. Think of the BBC.

So, for the moment at least, maybe we should worry less about Profit (the profit motive, capitalist exploitation and all the rest) as a driver of inequality and injustice and more about rent extraction.

I suppose someone is going to tell me that's back to Henry George.

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