because one world is plenty
Scaling Swadeshi: Part One - The Meaning and Purpose of Profit
This post is the first in a series of investigations into why Swadeshi has not yet succeeded, what must be changed for that success, and how that change can be implemented.
This first part is meant to be purely observational research attempting to avoid any pre-conceived conclusions.
I hope questions and responses here will help simplify and codify these results into a concise problem statement and an associated course of action.
1. What is profit?
http://Wikipedia.org/wiki/Profit says "'Accounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component costs of delivered goods and/or services and any operating or other expenses.'"
So, for the purposes of this discussion, profit will be described as the difference between Consumer Price and Owner costs or in short form "price above cost".
2. Why does a consumer pay "price above cost"?
I have an answer for this, but don't know how to 'prove' it is true.
Another way to look at this is to ask:
2a. When does a consumer NOT pay profit?
A product consumer does not, and in fact cannot pay profit when he owns the physical Sources (Means of Production) for that product.
As an example, if you own a chicken, you must pay the same costs of production as a large poultry farm, including wages to any work you hire out, but those are all costs.
Paying profit makes no sense when the product consumer is also the source owner unless he were to pay himself.
3. When a consumer pays "price above cost", what should be the destination of those funds?
The profit that consumers pay causes the organization to grow, so my answer to this is that profit should be understood to be a consumer's "plea for growth".
If the current owners were to treat it as an investment from the consumer who paid it, then the ownership of that enterprise would be continuously distributed to those that are paying for that growth.
This first part is meant to be purely observational research attempting to avoid any pre-conceived conclusions.
I hope questions and responses here will help simplify and codify these results into a concise problem statement and an associated course of action.
1. What is profit?
http://Wikipedia.org/wiki/Profit says "'Accounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component costs of delivered goods and/or services and any operating or other expenses.'"
So, for the purposes of this discussion, profit will be described as the difference between Consumer Price and Owner costs or in short form "price above cost".
2. Why does a consumer pay "price above cost"?
I have an answer for this, but don't know how to 'prove' it is true.
Another way to look at this is to ask:
2a. When does a consumer NOT pay profit?
A product consumer does not, and in fact cannot pay profit when he owns the physical Sources (Means of Production) for that product.
As an example, if you own a chicken, you must pay the same costs of production as a large poultry farm, including wages to any work you hire out, but those are all costs.
Paying profit makes no sense when the product consumer is also the source owner unless he were to pay himself.
3. When a consumer pays "price above cost", what should be the destination of those funds?
The profit that consumers pay causes the organization to grow, so my answer to this is that profit should be understood to be a consumer's "plea for growth".
If the current owners were to treat it as an investment from the consumer who paid it, then the ownership of that enterprise would be continuously distributed to those that are paying for that growth.
Replies to This Discussion
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Permalink Reply by AGNUcius on -
If there is no profit because the consumer owns the source, then how can you pay the workers?
Workers are paid Wages that are calculated as a Cost. Profit is "price above cost". Wages are on the other side of the equation.
Treating profit as a reward is dangerous because profit increases in direct proportion to scarcity, so the perpetuation of profit requires the perpetuation of scarcity - often through destruction.
Profit would not exist in a society where everyone could get what they wanted "at cost" because profit can also be thought of as a measure of inefficiency. Efficiency destroys profit.
Profit is a valuable tool to those that desire to be paid for reasons other than work. Profit only arises when the sources of production are not fully distributed. Profit is a tool of subjugation and slavery when it is not treated as that consumer's investment because it causes the laborer (as a consumer) to pay more than the real costs of production without allowing them a foothold to climb out of their predicament.
How strange that people think profit is 'OK' until it reaches some arbitrary and undefined size. I think it is because we have been trained since childhood that we will try to "get ahead" to the point where we can collect "residual income" from those that continue to work. It's a sort of Ponzi scheme.
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Permalink Reply by Fabio Barone on -
OK, let's try to be concrete.
Say I sell home made furniture. I have two workers working for me. I sell at cost. I get say 100 quids for a table. I pay my workers 40 quids each, the rest is for material, as I sell at cost.
How do I get the means to buy veggies and bread and whatever I need to live? Do I need to grow my own food (which I would do, but you get the point)?
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Permalink Reply by AGNUcius on
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If you are working (even as a manager or just generally organizing the business), you should receive a wage. Since it sounds like you are the only owner, you can arbitrarily label your income as 'profit' or as 'wage'. The more important case is when there are multiple owners. Those multiple owners would not allow a managing-owner to overpay himself, they would put that job up for others to reverse-bid upon.
If you really are working (and not just an absentee owner), then you would need to be receiving a wage for your labor.
I'm not talking about lowering prices directly, I'm talking about them being lowered as a result of how profit is treated.
Let's say you sell the table for 150.
You pay each of your workers AND yourself 40 apiece.
You have 20 in costs for material, electricity, machine wear etc.
You have 10 profit.
You will likely keep that 10 as a 'reward' for yourself. You might even reinvest it back into the table-shop.
If you reinvest it for yourself, we see the shop will experience growth, but the ownership of the shop will be further concentrated into your hands.
Since you are being rewarded for keeping price above cost, you will want other table-producers to fail, and would vote for any political measures that keep table price artificially high (such as import tariffs or government subsidies paid to NOT make tables (this really does happen, especially in agriculture)).
If that overpayment (10 profit) were treated as an investment from the consumer that paid it, then that consumer would move closer to being able to receive his next table "at cost". He wouldn't be required to work at the shop, he could hire someone to do that skilled work, but running the equipment himself would also become an option if he could show the other co-owners that he could do so safely (without harming the equipment or others).
If you are not working, why should you be paid? Because you were "there first"?
You should also be compensated for your investments in the tools and for all the work it takes to form such an organization. Those payments should be labeled Costs, not Profit.
Thanks for asking these questions. I hope it helps others see what is wrong with "the economy".
It is my opinion the only reason Swadeshi hasn't already succeeded over Capitalism because profit is being mistreated.
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Permalink Reply by Lucas on -
"It is my opinion the only reason Swadeshi hasn't already succeeded over Capitalism because profit is being mistreated."
And what would be the way around it?
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Permalink Reply by AGNUcius on
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Beginning businesses that treat profit as an investment from the consumer who paid it would cause all industry to be for "use value" instead of for "exchange value".
The price of all products would tend toward cost as profit was safely driven toward zero. Employment could finally be seen as a cost that could be minimized without trouble.
Local production, even with multiple owners and with specialization of skill would be more efficient because the externality of profit would move toward zero while trading objects would also be minimized since those in need of those products would own them even before they are produced (think of the apple-tree owner who owns the apples even before they are grown).
This actually enhances our ability to trade labor (specialize) and keeps the value we invest local, where it belongs.
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Permalink Reply by Vinay Gupta on -
Also, note that in a Swadeshi economy, there is no profit for the most part. You make your own stuff, you use your own stuff, end of story.
I don't think you're making a case that is related to or relevant to Swadeshi, although, as I've said before, I think your basic insight about customer-owned companies is very useful.
It has to be simpler. It has to be tighter. It has to be better explained: the challenge is not the idea, it's communication.
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Permalink Reply by AGNUcius on
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Yes, the communication is definitely the problem. I'm hoping that someone will finally understand me enough to phrase it in the terms that I should have used from the beginning. I don't yet know what those terms or the structure of those terms are.
You make your own stuff, you use your own stuff
Are you saying a Swadeshi economy will have no specialization and no co-ownership?
How will a Swadeshi village have doctors? Must we each learn ALL trades? Must I fix my own broken arm? Must I be my own brain surgeon? Must I work on my own teeth? Must I be my own plumber?
How will we own things that almost MUST be collectively owned such as roads and a community center? Do you believe that ownership is unimportant?
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Permalink Reply by Vinay Gupta on
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You've gotta go back to source material:
http://www.mkgandhi.org/gospel/gospel.htm
And, in general, I'm interested in making efficient progress where we can - each person making as much forward progress as is possible from where they are - rather than trying to design total system solutions.
That's not to say that I'm against whole systems, as you know, I'm fanatically for whole systems thinking. Rather, I believe that we've seen far too much "Think global" and far too little "act local."
I want to see food grown, clothes made, houses constructed, stoves used, and generally see people do it. That's why I want to see you work out your idea in the form of an operations manual for a restaurant. Where's the food come from? Where's the money spent? How are the wages set? an so on...
If you sit down and grind through the detail of such a plan, then I think we'll be able to understand the implications of your work in practice, which is fundamentally what is important in a Global Swadeshi context: "how does this help me, personally, do it?"
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Permalink Reply by Josef Davies-Coates on
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Yes, exactly.
To me all Patrick is really saying is that all businesses should be Consumer Co-operatives?
http://en.wikipedia.org/wiki/Consumers'_cooperative
http://www.cooperatives-uk.coop/Services/memberBenefits/legalServic...
http://www.cooperatives-uk.coop/NewVentures/co-operativeEnergy/mode...
I love co-ops of all kinds, but I don't agree (or have I totally misunderstood you?) because I think ownership and decision making power should be spread out to include ALL stakeholders.
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Permalink Reply by AGNUcius on
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A "Consumers' Cooperative" is similar, but there are some big differences.
For instance, following the Rochdale Principles would require "one member, one vote" which is not what I see as being correct. Vote-weight should be determined by percentage of ownership, and ownership should be determined by amount invested. Think of a shared tool such as a tractor. Shouldn't someone that paid for 80% of that machine have more vote weight than someone that paid 5%?
Another thing that I think would be different is something I call "realistic divisibility". When someone wants to rent the tractor, they should not have to report what they are going to do with it, only that they are paying the full "at cost" rent. If someone else is trying to rent during that same time-slot, then the slot should be auctioned. The auction winner will pay "price above cost" (profit), and that profit will be applied toward the purchase of another tractor since the conflict has proven there is not enough tractors to meet peak demand.
The second link describes a "Consumer Co-operative" as Owned and controlled by some of its customers. Why is it not owned by ALL of it's customers? How do customers gain ownership in this case?
Lastly, about all 'stakeholders' gaining ownership: I can agree with this definition if we can determine that all those stakeholders have paid for that ownership with money or with labor. But note that "paying with labor" and "working for a wage" are not the same, they are actually opposite. The first case is the worker paying the coop, and the second case is the coop paying the worker.
A worker may pay the collective with his own labor or with any form of money the coop is accepting. In either case, if he pays more than cost for what he receives, that overpayment (price above cost) should be recognized and treated as his investment into the coop, and should eventually become his real property as the coop grows.
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Quickly (because I'm procrastinating when I should be doing something else entirely):
I agree that "one member, one vote" isn't always appropriate. One model doesn't fit all.
I'm not sure that someone who has invested more should have more of a say though (and, how is that different to current businesses where shareholders with more share has more say?).
Doesn't everything ultimately come from land and solar income? Doesn't land and solar income correctly belong equally to everyone? Wouldn't the fact someone invested more potentially just be indicative of the extent to which they have previously had unfair access to the means of production and so have unjustly captured profit from others which they now have to invest?
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Permalink Reply by AGNUcius on
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That's why I want to see you work out your idea in the form of an operations manual for a restaurant.
I failed to find such a manual on the internet. I wish I knew what the template was so I could better understand what you are looking for.
I will try to answer questions you included:
Where's the food come from?
A group of consumers starting a restaurant (think of it as a shared kitchen) could just buy large lots "in bulk" at first - to get going, but will use profits to invest in the "chain of production" for each product. For instance, a group could buy cases of hamburger patties to get going, but if they are collecting profit from non-members, then those funds would go toward purchasing cattle, land, water rights, etc.
Where's the money spent?
The collective owners can spend any of their own wages in any way they like, but all profit should be invested in more "physical sources" so the facility incrementally owns the entire "chain of production" for all that they consume.
As for how costs are decided, such as how much is spent on preventative maintenance or insurance or just generally the 'quality' of the operation is in the hands of those specific owners. They may choose to spend alot or little depending upon their own tastes. I don't think there is any reason to legislate this.
How are the wages set?
It appears to me that wages are set just as they are today in regular Capitalism. The person offering the best performance for the least pay will likely be employed.
A related difference is how employment generally will not need to be 'protected' as the worker's ability to consume is more and more protected. Does this part make sense?
A society where each person has sufficient ownership in the sources of production required for the things he consumes can 'withstand' fully automated production.
Employment is not a 'need' in itself when the sources of that production are in the hands of the consumers.
"how does this help me, personally, do it?"
Consumer Ownership means we are protecting the worker's ability to consume. It also means those workers have "at cost" access to the Means of Production (except when real scarcity drives the price higher through auction).
A Consumer Owned restaurant really is (y)our kitchen (both yours, and ours). If you like salmon and buffalo, you will stock part of the freezer(*) with those meats. When you want something different, you will begin buying that ingredient instead. The restaurant can offer the dishes of any other restaurant, so will never become boring. As much as you can find cooks that know how to prepare the dishes you like, you can have African, American, Brazilian, Chinese, Japanese, Mexican, Italian, ...
Here are some answers to questions Sepp asked at P2PFoundation.Ning.com that may be what you are looking for:
But any restaurant can't survive only on the habitual customers.
I think you are saying a restaurant can't grow with only habitual customers. That is true, but growth is not required (will level off) as all the potential customers in the area have access to such a restaurant.
What do those occasional clients get out of their visit to the restaurant? It could only be a lower price for their meal. I see no sense in making these customers owners.
A client without any ownership will notice little difference between this restaurant and a 'normal' capitalist restaurant except they will receive a strange receipt that is also a bond issued in the amount they paid above cost. They can throw the receipt away if they like, and in that case nothing will be different. But the bond is valuable (it becomes a deed to real property when it matures), so if they understand what it is, they could also sell it to someone wishing to invest in the business (I call this a pre-production-bond). There is much more to say about this part.
Each customer that doesn't yet have sufficient ownership in the kind of thing they want will be buying product, but consumers that have already stocked up on things they want will just be retrieving their own property from the pantry or fridge or whatever. Think of it as a kind of shared kitchen. In some cases we may need lockers, but not always. It is common for college students to share a house with a shared kitchen. Sometimes food gets stolen. The problem with security will probably increase with the number of owners.
In either case the consumer might pay a cook to prepare the food for them or they can sign-up (bid) for a time-slot where they can rent equipment such as a grill. Usually you will just pay a cook who has already rented the grill, but sometimes (especially during odd hours) you might also cook for yourself.
Renting the grill (or anything else) is "at cost" when there is no rivalry (say at 4 in the morning). You would only be paying for the gas and any sort of wear you might inflict. But
Still, getting a meal at close to cost would be a possible way to attract customers, a thing any restaurant has to do to stay in business.
A Consumer Owned organizations may offer product at a price above cost if they want to attract more consumer-owners, but it is not a requirement of operation; they can safely hold price "at cost" indefinitely. A capitalist business cannot do this because the investors expect to receive profit instead of product.
How would the late comers be required (would they at all?) to make up for that first investment of the original owners?
(*) Part of the costs of operation is the expense of purchasing and running a freezer. Your payments to the collective others will include rent for any space you occupy there. Just as any other part of the business, if availability is running low, the space (or time-slots) will be auctioned off to potential users. This will cause the winner of the auction to pay more than cost. That price above cost will be invested toward a new freezer, and the amount that winning bidder paid will 'vest' to him as his property.
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