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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 Sepp on
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This seems all very fine but to me it appears hugely complicated and rather inefficient.
Most business (talking about small and medium size) today is run by a person who is responsible and who normally is the owner. There are millions of those small to medium sized businesses that provide a great service to their customers. Some of the owners get rich, some just get by, and some fail, but on the whole, I believe theirs is a positive contribution to society. Customers get what they want and they pay a reasonable price.
To seriously think about changing that, I think we need a worked out example or better yet, a pilot project based on your idea of consumer ownership. It might be better than what we have, but it also might turn out to be too unwieldy to manage. There is no telling until we can get some meat on the bones of that proposal.
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Permalink Reply by Josef Davies-Coates on
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Disclaimer: I've not actually read the above post yet, but have just remembered that a friend of mine has recently opened a cafe in the UK based on Chris Cook's "Open Capital", using the LLP legal structure to allow people to invest "monies worth" in time/ money or other resources.
I'll have to get him in here because he's an inspiring young chap, and an engineer to boot :)
His name is Daniel Scott...
Smiles,
Josef.
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Permalink Reply by Woody Evans on
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Seems to me that the abstraction of Swadeshi into terms of global economies could unfortunately be another way to attempt an argument for communism, unless I'm misreading things... and that would be a misreading of Swadeshi!
Making my own hats and wearing them is self-reliance-for-hats. It isn't the same as saying "all the folks in my community co-equally own my yarn and knitting needles," and all co-equally share in any gain I get from my hats. Maybe I just wear my hats, just hat my own kids. Maybe I give some, trade some for salt.
I don't read Swadeshi to mean communal ownership of means of production, or of products produced.
Gandhi defines it like: "I should use only things that are produced by my immediate neighbours and serve those industries by making them efficient and complete where they might be found wanting."
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That said, part of the problem in this debate may stem from the fact that 'we' post-mod Westerns have not been working in a paradigm where things are produced locally from discrete sources; it may be difficult for Swadeshi to make sense in a world where the polyesther was made in Candada, spun into fibre in China, marketed and distributed from New York, and sold to me by my local Wal-Mart in Clovis, New Mexico.
For me it's helpful to think of the 'economic side' of Swadeshi as everything homebrew!
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Permalink Reply by AGNUcius on -
"all the folks in my community co-equally own my yarn and knitting needles," and all co-equally share in any gain I get from my hats.
This is definitely not what I am talking about.
I am talking about UNequal or 'weighted' co-ownership accomplished through regular property rights in groups of minimum size. There is no communism, it is just standard, private property shared among small groups willing to invest for those products. The only real difference is the contract that those co-owners have chosen to apply to that property. Applying the contract is a choice in just the same way that the GNU General Public License is a choice made by the copyright holders. There is no coercion, and there is no communistic state.
Investing consumers that are skilled in that area can invest with work, while those unskilled in that particular area will invest with money that they received working in the trade they are skilled in. This amounts to trading labor while avoiding the exploitation of external owners.
In other words, what I propose is that groups of people buy some Means of Production (say the tools to make hats) in the normal way, right inside of Capitalism. There is no magic or wishful thinking. It is straight, regular property ownership.
Then, when that group has purchased those tools, hopefully a few of them have the skills to operate them, but not everyone is skilled at making hats right? Even if nobody in that group happens to have those skills, it is beneficial for the consumers AND for the skilled workers for the consumers to be the owners (as compared to a random group being the owners), since the consumers had usually been paying a price that included both wages AND profit, whereas now they will only be paying wages (and all the other costs that they always pay).
The objectives or output of that production are certainly not "communally owned" either. This is all just regular property ownership with a single rule enforced by the contract that they CHOOSE to apply:
|All profit gained against a consumer must be treated as an investment from the person who paid it, whether that payment was with work or with money.|
Since the only reward you can receive for investing in such a for-product corporation is aquiring product for your own use, only consumers will ever invest. I'm not trying to exclude non-consuming workers from owning. They can invest if they like, but why would they?
There are a few different cases to consider in determining who owns the product, and I don't think I have this completely understood.
Maybe this is part of why Sepp says it is "hugely complicated and rather inefficient". But I think it is only because there is more freedom, and that freedom allows more choices. In a way it is more complex in potential, but each group can always disregard or even disallow any cases they feel are too strange, or that cause them too much management headache.
(We need better titles or classifications for these)
1. For sources where the "inputs to be modified" are not clearly defined: Let's say a large almond tree is owned by 3 people with personA owning 70%, personB owning 20%, and personC owning 10% (that ownership would be based on the amount they invested because of the amount they intend to consume). The costs of sustaining that tree and harvesting the almonds are split among those owners in the same proportion to their ownership. PersonA pays 70%, PersonB pays 20% and PersonC pays 10%. They each also receive as much product as they they have ownership - 70%, 20%, and 10%. There is no forced co-equal redistribution with some larger community. It is really quite intimate and private.
2. For sources where the "inputs to be modified" are clear:
2a. When the product is wanted repeatedly in fairly predictable amounts: Let's say 1000 people have invested in the building and tools for a restaurant. Since food is something you want every day, and in about the same quantity, it would probably be most efficient (easiest) for those owners to hire one or more full-time cooks for 'regular' timeslots. This would look mostly the same as a regular restaurant except the consumers would be paying a lower price, so could easily pay the cook a higher wage. For 'irregular' timeslots (say 1am-5am), when few customers want to eat, each customer could rent the grill from the collective others (the other 999 owners) as described in 2b below.
2b. When the product is wanted rarely or in unpredictable amounts: Let's say 100 people have invested in the tools to make hats. Since a new hat is something you need only occasionally or suddenly, it would probably make sense for the collective others (the other 99 owners) to charge rent to anyone wanting to use those tools. The rent would cover extra wear they inflict.
That said, part of the problem in this debate may stem from the fact that 'we' post-mod Westerns have not been working in a paradigm where things are produced locally from discrete sources; it may be difficult for Swadeshi to make sense in a world where the polyesther was made in Candada, spun into fibre in China, marketed and distributed from New York, and sold to me by my local Wal-Mart in Clovis, New Mexico.
Yes, this is a big problem. What I propose attempts to address this by incrementally purchasing the *sources* of production whenever a consumer pays price above cost so that we slowly gain control of the entire chain of production in a local setting.
For instance, when a consumer with insufficient ownership buys a hamburger (a consumer with sufficient ownership would not buy the hamburger, as he would already have ownership in the case of frozen burgers he had previously purchased, and other condiments, and gas to run the grill, etc.) - so when a consumer pays "price above cost" (profit), the amount he paid would be treated as HIS investment in more productive sources of that type: beef cattle; seeds to plant mustard, lettuce, tomatoes, wheat (for the bun), sesame plants; chickens for the mayonnaise; and the land and water rights needed to 'host' those plants and animals.
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