Where does profit come from?

This article is part of Fightback’s “What is Capitalism” series, to be collected in our next magazine issue. To subscribe to our e-publication ($20 annually) or physical magazine ($60 annually) please click here.

Take a KFC store, rented from the corporation by a franchisee. How does the store produce profit? It’s just a building.

For Marxists, the “material elements of capital” are “man [people] and Nature.”1 Take the window of a KFC drive-through, an element of the ‘capital’ that is the KFC store. The window’s glass began as sand; miners extracted the sand from an open pit; transport workers moved the sand into massive silos; through a complex scientific process in a factory, workers heated the sand, transformed it into liquid glass, flattened it with tin, cooled and solidified it, resulting in glass as we know it; workers cut, transported and installed the glass in the store window; a KFC worker now slides the window open, and hands over a delicious Zinger Burger. At every step of the way, workers transformed and re-transformed natural elements for human need. This is what the capitalists profits from; the transformation of ‘natural’ elements by workers.

So, there is no productive capital without labour (or Nature). By contrast, labour (not to mention Nature!) without a capitalist is possible. In the Argentinian occupied factory movement, workers took over factories and ran them democratically, instead of accepting redundancies. While these factories still operate within a capitalist market, their victory demonstrates how workers can operate without capitalists – whereas the opposite is not true.

But if workers are not reliant on capitalists, where do wages come from? Let us return to KFC. Max Caulfield makes 50 burgers in one hour. Each burger is sold for $5. She is paid $15 an hour. In other words, her first 3 burgers have already covered an hour’s wages in the first 10 minutes. 7 more burgers cover the price of ingredients, and a share of the store’s fixed costs. The remaining 40 burgers in the hour make $200. Stretch that out to 8 hours, and she will be paid $120, while the company will make $1,600 out of her labour. Max was not paid out of profits: rather, the profits were the surplus of the value of produced by her work. (Of course, other steps in the supply chain – the slaughter of chickens, the sale of the burger – also cost and reproduce capital, but the worker is essential at each step).

What about investment? Isn’t the investor also essential to the process? Doesn’t the investor take the risk? To get into this question, I’m going to go into a bit of detail about corporate structure and culture – if you get bored, the short version is that capitalism still sucks. So, investment requires prior capital. Capital may be inherited, as with Trump. It may be reinvested from a prior business: Warren Buffet serves as the entrepreneurial ideal, the teenager who brought a pinball machine for $25, brought more pinball machines out of the profit from that, and so on.2 For a KFC store, a franchisee must hire the real estate to run the restaurant – KFC’s owner Yum Brands don’t so much run restaurants as hire large amounts of real estate to franchisees. Setup costs are substantial,3 so the franchisee is likely to be independently wealthy. Franchisee average profits aren’t publicly available, but we can safely bet they’re better off than their employees, and inconsequential compared to the CEO or owners. The franchisee may be a tyrant, they may be perfectly lovable, but their job is essentially to ensure the corporate machine continues unhindered. Yum Brands are very restrictive about how KFC stores must be run, down to minute details like how often you shake the chicken after taking it out of the brine (7 times): they must protect the brand, and ‘product quality’ factors into that. Occasionally stores go through periods of laxness, followed by tight clampdowns. Like many companies, Yum Brands is financed through debt. They have $2.5billion of long-term debt,4 which sounds like a lot to me, but they haven’t gone bankrupt so obviously they’re getting some money back too (meanwhile McDonalds has 24.4billion dollars in long-term debt, economics is counterintuitive). In 2016, Yum Brands was on the market selling $2bn of bonds5 – a bond is basically selling your debt. Why would you buy debt? Apparently, bond buyers make money from the interest on the debt, or from random fluctuations in the market which bond buyers pretend they can predict.6 So, here we have our investor, let’s call him Guy White: he just brought Yum Brands bonds on his laptop. Now let’s rewind the corporate chain: he’s earning interest on the capital loaned to a company for selling real estate to a franchisee who employs people to sell food. This brings us back to Max, who has just made her 100th burger for the day, and just before she clocks off, been asked to clean up urine in the bathroom (not in her job description). Guy is now considering whether to invest in Lockheed Martin. The gap between Max and Guy is significant, metaphorically and literally. Of course, Guy is only one of many investors, one beneficiary of the vortex that is Yum Brands, with CEO Greg Creed earning a $15.3 million salary in 2016, not to mention the profit extracted by owners.7 The most tangible, beneficial human service in this whole psychodrama, and KFC’s most visible commodity, is the service of food. But the distribution of rewards for actually making and selling food is shaped like an inverted pyramid, or a tornado: the rewards get bigger the further up the vortex you go from the actual work of making food. And we don’t need this destructive, exploitative structure to make food.

Of course, Yum Brands is not the only company on the market. Finance traders participate in an impenetrable blood-sport: the trading of debts, packaged into various exotic products, their origins ever more obscure. As we all saw in 2008, this is a house of cards. Even the most successful trader runs the risk of losing big and tragically having to sell his super-yacht. Marx used the term ‘fictitious capital’ for money that represents the promise of more money, rather than having any clear relationship to production.

The production process itself may even be fictitious, as with Enron’s infamous scandal, where some of their power plants weren’t even running in the first place. As Enron encouraged workers to buy shares, when the company collapsed, the loss felt by investors genuinely was unfortunate. David Harvey once observed that while he was excited about Syriza, he was also worried about how their winning would affect his pension (as pensions are increasingly financialised). Not all investors are demons, and capitalism has a way of drawing us all into complicity. But it’s hard to conclude that the global financial market allocates goods and services rationally, or justly.

So what next? What if machines replace our labour? Wouldn’t that mean the worker becomes redundant, and the machine generates the profit? Some in the scientific community believe a ‘Singularity’ of accelerating artificial intelligence will replace human intelligence – essentially robots taking over, but potentially nice ones. That would be one way of transcending capitalism!

However, despite appearances, current trends do not point to an absolute replacement of human labour by machinery. Capitalists make certain jobs redundant through automation, but they also invest in new ones to make more profit. Overall unemployment still appears unaffected by rapid revolutions in technology. Employment growth still closely correlates with GDP growth, an old trend,8 not with technological changes.

If you take a supermarket as an anecdotal example, self-service kiosks mean that customers must now scan and bag their own groceries, but there are still many attendants available to help if anything goes wrong – the nature of the work has changed.

Observably, what technological development means is a rearrangement of the labour market, increasing precarity, underemployment, jobs that don’t last, perpetual restructuring – not the end of work, but the destabilisation of work. For this reason, even many pro-capitalist theorists advocate a Universal Basic Income.

Automation has marched on since the inception of capitalism. Take the infamous 19th century struggle of the Luddites. The Luddites were textile workers who feared their work would be replaced by the new looms, which simplified the process of weaving. Previously a specialised form of labour, it was now becoming industrialised. Luddites sabotaged the looms. In a sense, they were absolutely right – their labour was replaced – however, it was replaced by people operating looms. The labour process is transformed, not entirely discharged.

Perhaps the role of capitalists, and managers, is to coordinate this extraordinarily complex process… by casting formerly valued workers onto the streets and hoping the state will foot the bill (before complaining about the taxes leveraged to do so).

Democratic, non-profit co-ops of workers and consumers would be much better suited to meeting human needs sustainably. As mentioned before, worker-owned factories operate from Argentina to Spain’s Mondragon, with democratic decision-making structures and no need of bosses.

In sum: Capitalists need us, we don’t need them.

1Karl Marx, Capital: Volume 1

2Brenton Hayden, Warren Buffet Knows It…, Entrepeneur https://www.entrepreneur.com/article/241196

3Hayley Peterson, Here’s what it costs to open a KFC, Business Insider

https://www.businessinsider.com.au/what-it-costs-to-open-a-kfc-2015-7?r=US&IR=T

5Adam Samson, Yum to offer $2.3bn in new bonds, Financial Times

https://www.ft.com/content/84422df9-004d-3de8-8053-bcf5c52e93d6

6Nickolas Lioudis, How does an investor make money on bonds?, Investopedia https://www.investopedia.com/ask/answers/how-does-investor-make-money-on-bonds/

7David A Mann, Pay for CEO of leaner Yum Brands more than doubled last year, Louisville Business First

https://www.bizjournals.com/louisville/news/2017/04/10/pay-for-ceo-of-leaner-yum-brands-more-than-doubled.html

8Doug Henwood, Workers: No Longer Needed?, LBO News https://lbo-news.com/2015/07/17/workers-no-longer-needed/

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How was capitalism established in Aotearoa and Australia?

This article is part of Fightback’s “What is Capitalism” series, to be collected in our next magazine issue. To subscribe to our e-publication ($20 annually) or physical magazine ($60 annually) click here.

A state can be defined as a monopoly on violence: “a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory.”1 For Marxist geographer David Harvey, “accumulation by dispossession [is] the hallmark of what capital is really about.”2 Put simply, a ruling class must establish sole control over land and resources.

So what was necessary to establish a capitalist state Australia and Aotearoa?

Firstly, the bloody dispossession of land from indigenous peoples, and secondly the importation of European labourers. While this colonisation by Great Britain is a common thread between Australia and Aotearoa, it also played out differently in each country, so this piece will be broken into two brief sections, before a conclusion.

This article cannot represent the complexity of indigenous knowledge and struggle. This is a tauiwi (non- Māori) perspective, intended to explain the motor of colonisation. If you want to engage with indigenous knowledge and history, scholars such as Moana Jackson, Ani Mikaere, Leonie Pihama, Ranginui Walker, and Gary Foley are recommended.

Aotearoa

In the 19th century, Britain was rent with economic crisis. Colonisation served two useful purposes: claiming new raw materials, and exporting surplus labour (workers without work). This was justified through race theory, which portrayed indigenous people as inferior.

However, direct Crown intervention in Aotearoa was expensive. Until the late 1830s, unofficial actors – missionaries, traders and explorers – moved ahead of the Crown. The Crown only became directly involved when they developed a scheme of selling land in the colonies to prospective settlers, thereby funding colonisation.

To establish capitalism, the Crown had to transform the relationship between people and the land. Whereas iwi and hapu (Māori kinship groups) lived collectively off the land, capitalism required that the majority be separated from the land, forced to live off meagre wages (a process that had first been carried out with the dispossession of European peasants). That required systematically depriving iwi of their land.

Initially, a fraudulent Treaty was intended to establish the basis for Crown and settler ownership (with later struggles demanding that the Treaty be honoured). From 1840 to 1870, the Crown and settlers engaged in “rampant expropriation” of the land, as well as setting up a political infrastructure (with parliament established in 1854 on the British model). This colonisation drive led inevitably to the Land Wars, as iwi were not keen to part with their land.

Māori were initially excluded from production, driven onto ‘unproductive’ land. Wage labour was mainly provided by European settlers, until urbanisation in the 20th century led to more Māori joining the urban workforce – 8% of Māori lived in ‘defined urban areas’ in 1926, compared to 41.1% by 1996.3 By the late 20th century, urban and rural Māori would combine forces in leading a new wave of resistance.

Australia

Infamously, Australia’s colonisation began in 1788 with a penal colony in New South Wales. As with Aotearoa, European labour – in this case, initially, convict labour – was imported. Exploitation of convicts was brutal:

In April 1798 an Irish convict who worked in a gang in Toongabbee threw down his hoe and gave three cheers for liberty. He was rushed off to the magistrate, then tied up in the field where his ‘delusions’ had first overwhelmed him, and flogged so that his fellow-Irishmen might ponder of the consequences of challenging the English supremacy.

This brutally exploitative system lived alongside the collectivist society of the Aborigines for many decades, with tensions often flaring up. Although antipathy grew between Aborigines and settlers, Aborigines expressed sympathy at times with the brutal conditions faced by exploited convicts:

At the same time the Aborigines began to evince disgust and hatred for some features of the white man’s civilisation. When a convict was detected stealing tackle from an Aboriginal women in 1791, Phillip decided to have him flogged in the presence of the Aborigines to prove that the white man’s justice benefited blacks as well as whites. All the Aborigines displayed strong abhorrence of the punishment and sympathy with the sufferer. They shed tears, and one of the picked up a stick and menaced the flagellator.4

In the 1820s and 1830s, Australia began to shift from its origins as a penal colony towards becoming an agricultural hub, with ‘free’ wage labourers increasingly imported from Britain. Throughout the 19th century, the settler population grew, as did appropriation of land – resisted by Aborigines. As in Aotearoa, military conflict was necessary for the Crown to take control, with frontier wars breaking out from first arrival right through to the early 20th century. Estimates indicate at least 20,000 Aborigines were killed in the frontier wars, and about 2,000 settlers. In 1901, Britain’s existing colonies federated into a single capitalist nation-state: the Commonwealth of Australia.

Essentially, the capitalist state was imposed through the barrel of a gun.

Postscript: Is there hope?

This conclusion is focused on Aotearoa, due to my greater familiarity.

Waitangi settlements in total make up about $1.6 billion, compared to about $20 billion annual national income.5 This is woefully inadequate. As private appropriation of land was the basis of colonisation, only a radical redistribution of land and resources can address indigenous dispossession.

Constitutional lawyer Moana Jackson recently led a project consulting Māori on “Constitutional Transformation.” Supported by iwi (Māori kinship groups), but independent of the Crown, the working group conducted 252 hui (discussions) between 2012 and 2015. The report stressed the need for a balance between rangatiratanga (Māori self-governance) and kāwanatanga (Pākehā self-governance).6 However, the report focused on the rangatiratanga side: the question of kāwanatanga (Pākehā governance) remains open. Ultimately, Constitutional Transformation requires that not just Māori but Pākehā take responsibility for transforming society. To quote Donna Awatere’s Māori Sovereignty:

Set against our people has been the united strength of white people. The Māori now seeks to break that unity in the interests of justice for the Māori people… Gramsci’s concept of hegemonic consciousness has relevance to Māori sovereignty. In hegemonic consciousness, a class puts its interests with other classes at a national level and establishes alliances with them. These alliances are necessary because changes cannot occur with the Māori on our own. White people have cut across class barriers to unite on the basis of white hegemony… To overcome this requires a restructuring of the white alliance.

Awatere ultimately despaired of this restructuring of white alliance occurring, advocated withdrawal from Pākehā left spaces, and later joined the political right. As a mainly tauiwi group, Fightback seeks to break the ‘white alliance.’ This is a cross-class alliance that leads white workers to believe they benefit from colonisation. In a sense this is true: Pākehā are less likely to be arrested, less likely to be imprisoned, and likely to be higher paid.

However, by supporting rich right-wing politicians, white workers ultimately vote against their own interests. Infamously, Don Brash’s ‘Orewa speech’ against ‘race-based funding’ saw a surge in polls, particularly pronounced among manual workers. As revealed by Nicky Hager’s Hollow Men, this speech was a cynical ploy by a politician who sought to deepen the neoliberal revolution, which would undermine the conditions of his blue-collar supporters. Whiteness is corrosive to working-class liberation. Standing with Māori for collective self-determination would ultimately free Pākehā workers from a system that exploits all. Nobody’s free until everybody’s free.

To end on an optimistic note. During the Māori renaissance of the 1970s, as Māori resisted attempts to sell Māori-owned land at Bastion Point, the Auckland Trades Council placed a ‘Green Ban’ on construction at Bastion Point. Union members were not to participate in any Crown/settler-led construction on this site. Members of the Communist Party of New Zealand won the Trades Council to this position. Memories like this are the heritage we need to build on.

1Max Weber, Politics as a Vocation

2David Harvey, Private Appropriation and Common Wealth, Seventeen Contradictions and the End of Capitalism

3Evan Poata-Smith, The Political Economy of Inequality Between Māori and Pakeha, The Political Economy of New Zealand (Brian Roper ed)

4Manning Clark, A Short History of Australia

5Bruce Anderson, Chapter 32: Redistribution, A New Place to Stand https://itstimetojump.com/32-redistribution/

6THE REPORT OF MATIKE MAI AOTEAROA – THE INDEPENDENT WORKING GROUP ON CONSTITUTIONAL TRANSFORMATION, http://www.converge.org.nz/pma/MatikeMaiAotearoaReport.pdf

Is capitalism (or greed) part of human nature?

capitalism timeline

This article is a part of Fightback’s ‘What is Capitalism’ series, to be collected together in our next magazine issue. To subscribe to our e-publication ($20 annually) or physical magazine ($60 annually) through PayPal or credit card click here.

A common criticism of socialist politics holds that greed, or even capitalism, is necessary to human nature. However, most of human history was not capitalist. This social system has existed for approximately 300 years out of 200,000 years of human existence: in other words, capitalism makes up 0.15% of our time on earth. More complicated is the claim that greed, clearly older than capitalism, is fundamental to our nature.

The claim that ‘greed is human nature’ has a kernel of truth. Humans, like any creature, are naturally attracted to activities that are rewarded. If humans are rewarded for their greed, most will act accordingly. We can’t all be Jesus. However, greed is far from the only human compulsion. Cooperation and care are also necessary to ‘human nature.’

Cooperation and care are even necessary to capitalism. A private corporation requires huge amounts of cooperation: between workers in different departments, customers and workers, bosses and workers. If everyone acted on their own individual impulses, companies would likely not function. Capitalism is a cooperative social system. Although the profits are privatised, the labour process is socialised. Without this cooperative labour, the luxuries enjoyed by the rich would be impossible.

Care is also necessary for human existence, and for capitalism. As Terry Eagleton highlights in Why Marx Was Right:

For a long time after birth [human beings] are unable to fend for themselves, and are thus in need of a prolonged period of nurturing… Even if the care they receive is appalling, infants very quickly imbibe some notion of what caring for others means. This is one reason why, later on, they may be able to identify a whole way of life as callously indifferent to human needs. In this sense, we can move from being prematurely born to politics.

Care must be built into any society. In this sense capitalism undermines human existence – unemployed single mothers are punished, rather than helped, despite doing necessary work. Although capitalism does not always reward care work, care work remains necessary for capitalism, as it would for any society. People perform care without reward, showing that ‘human nature’ involves compulsions other than greed.

Greed is not outside the range of human nature – anything humans do is, by definition, a capacity of ‘human nature’ – but it is currently so central because it drives and is driven by capitalism. By contrast, a socialist society could reward collective behaviour. Returning to Terry Eagleton’s Why Marx Was Right:

Take, for example, the idea of a self-governing cooperative, which Marx seems to have regarded as the key productive unit of the socialist future. One person’s contribution to such an outfit allows for some kind of self-realisation; but it also contributes to the wellbeing of the others, and this simply by virtue of the way the place is set up. I do not have to have tender thoughts about my fellow workers, or whip myself into an altruistic frenzy every two hours. My own self-realisation helps to enhance theirs simply because of the cooperative, profit-sharing, egalitarian, commonly governed nature of the unit. It is a structural affair, not a question of personal virtue.

Put simply, different societies reward different kinds of behaviour. A society that rewarded egalitarian cooperation would make avarice less attractive.

This would not be totally unprecedented. Anthropologists have highlighted ‘gift economies’, based on giving rather than financial exchange. In the lands that would later be named New Zealand and Australia, where indigenous societies lived off the land collectively, capitalism had to be imposed through colonisation (see ‘How was capitalism established in Aotearoa and Australia?’ in this issue). If capitalism is a part of human nature, why did so many people engage in bloody wars to defend their way of life?

Unless you’re reading this as a historical text in a post-capitalist society (inshallah), all of us were raised under capitalism. We internalise its compulsions. When we wake up in the morning, we see Capitalism in the mirror, and blame the figure that stares back:

where the whole world is against us, we begin to take its part against ourselves, to avoid the withering sensation of being alone on our side.”1

The notion of ‘human nature’ itself is debatable, hence the quotation marks. Humans are very adaptable. There are compulsions we all experience, like the need for food – but this does not mean human behaviour is permanently fixed in one form.

Now, with the complex cooperation that has overcome the scarcity of earlier societies, we could achieve an egalitarian society with greater comfort than ever before. Likely people would still harbour the occasional negative thought, but the point is to liberate ourselves, not to redeem all our sins. The primary barrier is not human nature, but that minority which benefits most from colonial capitalism, and resists any attempt at redistribution.

1Robert Maturin, Melmoth The Wanderer

Do we really live under capitalism?

In short: yes.

However, some claim that the regulating role of the state means that this system is not ‘true capitalism.’

Capitalism can be defined quite straightforwardly, if tautologically: an economic system based on the private ownership of capital. This is a descriptive definition rather than an ideal one: capital can be defined as financial and productive wealth (shares, land, factories etc). This definition is not distinctly socialist: The Oxford Dictionary defines capital as “wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.” (Later we will break this concept down further, but Oxford’s definition will suffice for now).

In other words, capital is private property used to generate profits. This is distinct from previous social systems, such as indigenous societies, where land was collectively rather than privately owned. Under capitalism, an investor may own and profit from miles of irrigated land he will never visit, an inconceivable concept in most indigenous societies.

Although many libertarians define capitalism as a free market without state involvement, we again define capitalism straightforwardly: a system based on the accumulation and circulation of capital. The relationship between property owners and the state varies, but the property relations are the common feature.

The involvement of the state does not in itself negate capitalism. In fact, the state often serves capital. This is most obvious in the case of massive subsidies and tax breaks given to corporations. There are also more extreme cases: in Chile 1973, a democratically elected socialist government was overthrown by a military regime that implemented pro-market reforms, the first of the so-called ‘neoliberal’ policy regimes that would soon sweep the world. By contrast, in countries such as Aotearoa and Australia, a relatively representative democracy operates alongside undemocratic private property relations. Democracy can be tolerated by the powerful, up to a point.

Even state regulations that help workers also stabilise capitalism as a whole. For example, clashes between labour and capital over the work-day were resolved in the interests of labour, with a state-imposed 8-hour work day, but this also prevented that bloody conflict from destabilising capitalism itself (it’s also a reform that has largely slipped from our grasp again). Similarly, minimum wage laws guarantee a certain amount of social stability, as well as ensuring that workers have the money to buy commodities, thereby lubricating the profit system. Individual capitalists, by acting in their own interests – increasing the work day, cutting wages – destabilise capitalism as a social system. Through regulation, the state saves capitalism from itself.

The state also develops infrastructure necessary to capitalism. Roading, railways, and other national infrastructure are too expensive for any given capitalist to produce, so the state uses its accumulated resources to invest in this infrastructure (often giving individual capitalists lucrative contracts in the process). Taxes, seen by some right-wingers as an attack on capital, enable this investment that ensures a stable basis for capitalism.

The capitalist state also provides police, and the military, to protect and enforce the capitalist system. The police first developed in 19th century Britain and the USA, not in response to any increase in crime, but in response to angry working-class mobs: riots, strikes and slave insurrections.1

Even some nominal socialists claim that the state is inherently socialist, just as right-wing libertarians do. Bernie Sanders claimed that the military and police are socialist, because they are provided by the state. However, Irish socialist James Connolly explains the problem with this in his work State Monopoly versus Socialism:

Socialism properly implies above all things the co-operative control by the workers of the machinery of production… state ownership and control is not necessarily Socialism – if it were, then the Army, the Navy, the Police, the Judges, the Gaolers, the Informers, and the Hangmen, all would all be Socialist functionaries, as they are State officials… To the cry of the middle class reformers, “make this or that the property of the government,” we reply, “yes, in proportion as the workers are ready to make the government their property.”

For revolutionary socialists, the question is not state or capital: state ownership can exist in a capitalist system. The question is private exploitation, or collective liberation. We may use the levers of the state at times, but only where they benefit liberation struggles, not because the state is automatically socialist. Capitalist states continue to predominate in the world today, and in Australasia specifically.

This article is a part of Fightback’s ‘What is Capitalism’ series, to be collected together in our next magazine issue. To subscribe to our e-publication ($20 annually) or physical magazine ($60 annually) through PayPal or credit card click here.