Cooking the Books: The ‘overriding financial objective’ (2024)

The Cooking the Books column from the November 2024 issue of the Socialist Standard

‘Pay ruling “threatens Next stores”’ read a headline in the Times (20 September), reporting on an employment tribunal ruling that women workers in the company’s shops should have been paid the same as men working in its warehouses. Next’s chief executive, Lord Wolfson (the son of the founder), was quoted as saying:

‘Whether we open or close stores will depend on the individual store’s profitability. So you would never expect a retailer to open a store that wasn’t planned to make a profit.’

Knowing how capitalism works, we certainly wouldn’t expect that. In fact, we wouldn’t expect a capitalist enterprise like Next to do anything if it didn’t plan to make a profit from it. As Next put it in this year’s half-yearly report to shareholders:

‘The overriding financial objective of the Group remains the same — the delivery of long term, sustainable growth in Earnings Per Share’ (tinyurl.com/44zkry3h).

In other words, to provide shareholders with a growth in the value of their shareholding. ‘Earnings Per Share’ (EPS) is, basically, profits per share, a company’s after-tax profits divided by the number of its shares. To increase this is the ‘overriding financial objective’ not just of Next but of all companies.

A company’s profit is typically the difference between what it receives from sales less what it costs to run the business. In Next’s case, in the first half of this year its sales (and other) revenue was £2,860m and its costs £2,408m, resulting in a before-tax profit of £452m, which is about 16 percent. This is its ‘profit margin’. It means that for every £ of what Next sells they pocket 16p as profit, the rest going to cover their costs (including wages). After-tax income was £341m, the amount used to calculate EPS.

A company increases the value of its shares by increasing its profits. One way this can be done is by reducing the costs of running the business. This is why Next is so dissatisfied with the legal ruling on equal pay; implementing it will increase their costs and so reduce their profits.

Another way is to increase revenue from sales. As companies don’t normally have control over the prices they charge — they are limited by competition to what the market will bear — the main way to do this is to sell more, to ‘grow’. But the aim is not simply to increase revenue. It is, as Next puts in their report, referring to new areas for growth, ‘to maximise profitable growth’ (their emphasis). The increase in sales must outmatch the cost of bringing this about.

However, not all the profits a company makes are re-invested in growing the business. As Next says in its report:

‘Our established businesses generate more cash than we are able to profitably invest in the Group, so managing our capital to ensure high returns, and returning cash that cannot be profitably invested to shareholders, remains a central discipline of the Group.’

In Next’s case, they invest some of this surplus cash in other companies, the income from which adds to their overall profits. Another part is used to buy back some of its shares which besides distributing money to some shareholders also increases EPS (profit per share) by reducing the number of shares in issue, reducing their supply and so other things being equal pushing up the price. Yet another part is paid to shareholders as dividends. Other companies have a different mix. Some pay no dividends and re-invest all their profits in profitable growth, from which shareholders benefit through the value of their shares going up.

Whatever a company decides to do, the aim is maximise the financial benefit to shareholders. This reflects the logic of capitalism of increasing the value of invested capital (though shareholder capitalism is not the only possible framework for this).

Material World: Cosmetic tourism (2024)

The Material World Column from the November 2024 issue of the Socialist Standard

A recent Daily Mirror headline ran ‘Mum of five dies after butt-lift treatment’. It explained how Alice Delsie Preet Webb failed to recover from an operation by an unregistered practitioner which involved injecting hyaluronic acid and dermal fillers into the backside (a so-called ‘Brazilian butt-lift’). This apparently was the first time anyone in the UK had died from this procedure. But, as confirmed in a recent article about ‘cosmetic tourism’ in the Times by Sarah Ditum, such outcomes are far more common when people (largely women) decide to take a holiday abroad and at the same time have cheap surgery done on various parts of their body they consider need improvement. She referred to a website which asks the question: ‘Why not take full advantage of the charming beaches and sunshine while sparing some time for dental treatment?’

The trouble is that it sometimes goes wrong and people end up with wonky teeth, a lopsided smile, uneven size breasts, tummy folds rather than tucks, and even worse. In fact, since 2019, as the article tells us, ‘at least 28 British medical tourists have died following treatment in Turkey’. And that’s not counting the much larger number who return home with complications which they then need to try and get fixed by the NHS. Of course, many of the thousands who do this each year are lucky and for them it works out as they would want. But it’s definitely a gamble and, according to the article, the reason women are prepared to take that gamble is that they want to be, as the article puts it ‘the best version of themselves’ and not ‘substandard’. And, given the prohibitive cost of such surgery in the UK by regulated medical professionals, they see no alternative but to seek it out more cheaply in less regulated countries – Thailand, Mexico, Slovakia or – the most common destination – Turkey.

Society of the spectacle

But why is it that people want to look different from the way they are in reality? In the late 1960s the French writer Guy Debord published The Society of the Spectacle, which presented the idea that ‘all that once was directly lived has become mere representation’. His point was that, because of the atomised and consumerist nature of capitalist society, an obsession with outward appearance (ie ‘the spectacle’) had taken the place of the authentic reality of social life and relationships. People’s lives were mediated by images of perfection which they were made to feel they had to live up to. This led them to focus on the superficial and become alienated from their fellow humans and from socially beneficial interaction.

Though this was theorised more than 50 years ago, it is surely more relevant than ever today. While it is true that, in any kind of society, people may find certain aspects of their physical being less than satisfactory, they are more likely to focus on that if other aspects of their life fail to offer them satisfaction and the ability to fulfil their natural talents and capacities.

This is precisely the case in modern capitalism where the vast majority of us are obliged to expend most of our energies working for an employer in activities we are unlikely to have chosen freely but are dictated by the needs of the market on the employer’s side and the need to keep the wolf from the door on the worker’s side. And this work, including the conditions in which it is carried out, is unlikely to represent any kind of real fulfilment of the individual’s personal needs or aptitudes. So is it any wonder if, outside working hours, workers’ minds are occupied with superficialities – sporting spectacles, stars of entertainment, the lives of royalty and other ‘celebs’, and also perceived flaws in their own physical appearance?

Life blood

Capitalism’s need to constantly find ways of supplying its life blood – profit – means that it can only seek to relentlessly sell things, to provide the means for workers to cultivate and spend money on those superficialities. So it’s no surprise that, for example, music concerts starring people’s ‘idols’ are promoted with ticket prices as high as they are likely to be able to scrape together money or credit for. Nor is it any surprise that, held back as they are from fulfilling their real talents or needs by lives dominated by wage and salary work, the feelings of powerlessness and inferiority this engenders make them easy prey to the cult, to the idol, to the hero, to the conspiracy theory, and to the cheap cosmetic procedures promised by potentially dubious practitioners.

In the society of the ‘quick buck’ we live in, tainted as it is by money and the profit system, should we therefore be surprised if the products we are offered for purchase do not serve the purpose they claim to but upset our expectations, and even – in the case of botched cosmetic procedures – make our life even more uncomfortable than we perceived it as in the first place? It’s time we got rid of the false value system that puts appearance before substance, that puts ‘looking good’ over being truly human.

Howard Moss

How we live and how we might live - Part 2 (2024)

From the November 2024 issue of the Socialist Standard

(Continued from last month)

In his London talk in November 1884 William Morris admonished his hearers that if they wished to be honest, they would ‘call competition by its shorter name of war’. He was referring to the war that rumbles on at the very heart of capitalist society. To engage with our world, that war is something we have to track down and confront.

As noted in last month’s article, there is a growing awareness that the origin of modern crises like human-induced climate change, species loss and pollution have a single origin in the mechanics of a capitalist economy. We ask, therefore, what is capitalism? The answer we get, unfortunately, is usually an ideological one designed to obscure rather than reveal the system’s true identity. Often it is a paper-thin definition such as ‘capitalism is the private ownership of the means of production’. Dissatisfied with this, we might plunge into the tangled world of capitalist economic theory, with its abstract analyses of markets, money, scarcity, demand schedules, etc. Common descriptions of capitalism get abstract very quickly. However, we can start to address this question another way by putting some solid ground beneath our feet. We can start by asking: what is an economy? The answer, at the broadest level of generality, is that it has something to do with humans and how they relate to one another in society. So let’s start with humans.

The first thing we can say is that whatever real or outlandish claims we make about ourselves, one thing stands out: we are physical beings in a physical world. We have biological needs for food, clothing, shelter and social contact. These needs we must satisfy continually if we are to survive. Second, we don’t survive well on our own. We have always lived together in communities. Evolutionary biologists tell us that we are a social species and that we are evolved cooperators. We operate with high levels of trust and sociability. The bloke next to us on the tube train may be irritating, but we generally find ways of getting along together for our mutual convenience. This behaviour contrasts sharply with that of our nearest relative. Cram a random collection of chimpanzees into the confined space of a rush hour tube train and the result will be soaring stress levels and, ultimately, carnage. We are, in fact, hyper-cooperators. We cooperate with strangers and even with other species. Social media is bursting with videos of humans supporting each other as well as rescuing cats, elephants, dolphins, kangaroos, eagles, sloths – you name it.

Not only do we live together in communities but we also work together to create the things we need. Levels of economic dependence vary between human societies, but we have never lived by producing individually for ourselves and consuming only what we have individually produced. We have survived by dividing up tasks among ourselves which are required to produce the things we need, and then sharing out the results according to some agreed method. And that gives us a pretty good definition of an economy: an economy is the way we organise ourselves to collectively produce and distribute the things we need.

At different points in time and in different parts of the world people have organised themselves in different ways. Some of our societies have similar features to our own; others are remarkably, even bizarrely, different – so different, that if we didn’t have the published field research of anthropologists, we might have dismissed them as fantasies or as unworkable.

Employers and employees

So, what is a capitalist economy? How do we divide up tasks within it to produce and distribute what we need? Central to the organisation of capitalism is an apparently simple social relationship – one that is reflected across most of society. It’s so familiar to us that we rarely question it, yet it has enormous consequences for our lives. This is the relationship that exists between the roles of employer and employee, between those who buy labour power and those who sell it. It is the wages system. People can to a limited extent move between these roles, but the roles themselves are fixed. This is not a relationship that is central to all human societies, and in many, it does not exist at all, but its existence and its centrality are what define capitalism.

An important feature of this relationship is that employers and employees are mutually dependent. Neither can exist without the other. Eliminate one and you eliminate both. The relationship is held together through a process of exchange: labour power for money (wages). It’s a process of buying and selling. And this requires the existence in society of a system of individual ownership – private property. Like the employer/employee relationship itself, not all human societies are built on the institution of private property. Some, like those of immediate return societies, own everything in common. People who own things in common do not exchange them; they do not buy and sell.

We think of property in terms of the objects we own. But this can be misleading. Pick up and examine a mobile phone, for instance, and describe it thoroughly. It has a certain shape, colour, weight, design. It feels a certain way in the hand. It has a definite set of functions. However, no matter how carefully and minutely you examine it, you will find nothing about it that tells you it is someone’s property. Property is not a natural attribute of things; it is a social relationship between people, an agreement to behave towards certain objects in specified ways. And for those who don’t behave towards them as society demands there will be social consequences.

A capitalist society, therefore, gives us rights and powers over things that are agreed to be our property, but denies those rights and powers to others. We accept this arrangement because we have been born into a pre-existing system of property owners and we have learned its rules. Property relationships occur in several different kinds of society, but a property relationship that expresses itself centrally through the employer/employee relationship is unique to capitalism.

One major consequence of a society founded on a property relationship is that it isolates individuals, families and groups from one another and divides them into defined property units. We can think of these units as property bubbles. You live in your property bubble with the things that society agrees to treat as your property, and I live in mine. Property is transferred from one bubble to another by means of exchange. An arrangement like this creates a tension between our cooperative way of living and producing things, and our individual ownership of them. That tension manifests as competition.

The property-based employer/employee relationship is the source of most forms of competition we experience throughout our lives and occurs at many levels of society. Employees, who live by selling their labour power for a wage are forced to compete with one other for their income at job interviews. Those who have jobs often find themselves in competition with others for promotion. In the world of employment, every penny that an employer pays to their employees is a penny less for themselves and vice versa, a condition that sets up a competition for how the company’s income is shared out.

Businesses exist in their own individual property bubbles, causing them to compete with each other in the market for the money in consumer’s pockets. They lobby governments for legislation that will favour their business or their sector over that of others. Governments and businesses compete in our globalised economy for access to the world’s resources, markets, and trade routes. Governments negotiate and deploy their militaries to secure strategic advantage or forceful control over them. All this competition has its source in the fundamentals of a property-based employer/employee relationship.

Property-based competition

In his address, Morris reminded his hearers that, ‘Our present system of society is based on a state of perpetual war’, that is, on perpetual competition and perpetual conflict. When we compete over something as crucial as the means of life itself, or over a means of access to it – money – competition turns inevitably to conflict. In every kind of society, there are conflicts of interest, but the degree to which such conflicts exist and the degree to which they are resolvable depends on how extensively competition is built into a society’s structure. In capitalist economies, competition is universal. It is an objective feature of the system which gets turned ideologically into a positive value. It is taught in schools, it is often deliberately built into workplace relationships. It is a game among the wealthy and powerful that is played for high stakes. In our world, competition is impossible to eradicate without eradicating capitalism itself. Government reforms can do nothing. Even at their occasional best, they succeed only in providing temporary, partial and inadequate relief for competition’s many negative consequences. Competition and the conflict it creates are unending. Attack one problem here, and another breaks out elsewhere.

By its nature, capitalist property-based competition creates and exaggerates conflict at every level of society, and results in every degree of harm. It exists in the trivial and in the catastrophic, in the occasional awkward splitting of the cost of a restaurant meal, and in the devastation of vast mechanised warfare that rumbles on endlessly around the globe. Property-driven competition penetrates into the heart of the family. It erupts in arguments over domestic incomes; it tears family members apart over legacies. When relationships fail, it often turns acrimonious and ends up in the divorce courts. During disputes over pay and conditions the implicit competition between employer and employee breaks out into open conflict. Such conflicts can go on to have side effects which ripple out across society causing social disruption and individual tragedy as recently seen in the action taken by rail staff and junior doctors.

Capitalism is a cockpit of competing interests. It leads to clashes of all kinds. It provokes racial conflict and social ‘unrest’. It expresses itself in disinformation and propaganda wars. Competition over access to wealth and the status it brings drives people into conflict with the property system itself and leads to corruption, theft, embezzlement, fraud and many acts of violence and murder. Competing firms engage in industrial espionage and resort to strategies to put their competitors out of business and to extract money out of the pockets of workers. Governments attempting to protect or further the interests of companies within their territories introduce tariffs leading to trade wars, rising international tensions and diplomatic breakdowns. Conflicts over access to markets, resources and trade routes lead to threats and sanctions and ultimately to military actions and mass carnage.

When addressing the harm wrought by poverty and military conflict on our world we frequently point the finger of blame at surface causes such as government and business practice or at intangibles such as greed and ‘human nature’. We shy away from their real root causes which lie hidden in plain view in the operation of capitalism’s international property system. Emerging crises, such as climate change, loss of species and pollution get blamed on individuals: profit seeking capitalists, grasping politicians or bankers when, in reality, they are the inescapable consequences of capitalism’s property-based employer/employee relationship. Under present conditions, these problems are insoluble.

Next month we will look in more detail at how capitalism’s conflicted nature underlies these social ills.

Hud.

A mental state (2024)

From the November 2024 issue of the Socialist Standard

An acquaintance recently confided that he now avoids news media, broadcast and printed. Because it is generally so depressing it is adversely affecting his mental health. A constant round of outrageous reports of depressing episodes of inhumanity.

As a long-time member of the Labour Party he is already disillusioned by the Starmer administration. The ready acceptance of gifts of substantial financial worth, while, with seemingly ill-considered haste, snatching the winter fuel allowance from many pensioners who really need it.

He is an example of the contention that though the Labour Party is not, never was and never will be, socialist, there are some with socialist ideas, however inchoate, within it. This friend came with me to hear a Socialist Party speaker in Sheffield. After the meeting he told me that he agreed with the analysis of capitalism put forward and that he was pleased to hear the case for democratic change, rather than revolution through violence too often voiced by Trotskyite and other Leninist groups.

However, he did have a major caveat, the frequently proffered defence of reform. The Tories, then the governing party, were doing increasingly dreadful things to workers and their families. It’s all very well having a principled view of socialism, but the priority is to effect change, however marginal, immediately.

There remains, for him, a strong notion that for all the failings of Labour in government, many clearly outlined by the speaker, nonetheless the welfare state in general and the NHS in particular were a triumph of socialist ideas enacted by the 1945 Attlee government.

So it is that the Labour Party continues to occupy the ‘socialist’ political ground on which even those disaffected continue to stand. The siren song of the Starmer Labour Party consists of one word, CHANGE!

Although that political vessel very quickly ran aground on the economic rocks of capitalist reality (no change there then) this particular crew member, even now, isn’t prepared to abandon ship. He is not alone.

Murderous conflicts

Then there is the Middle East, the Ukrainian attrition, and various other murderous conflicts going on. Yes, the socialist analysis of capitalism may be absolutely correct, but socialism?

A worldwide commonwealth based on the principles of production to freely meet self-defined needs in a moneyless society to which all contribute, also freely, whatever they are able? Even accepting there are frequent instances of people working together and for each other’s benefit, where is there any indication that enough human beings will ever collectively pursue such a course?

These are my friend’s questions, and why he has turned off the news. His mental health is suffering as he desperately tries to hang onto socialist notions that are constantly denied by the dystopian world as it is.

As a socialist I too at times find it difficult to square socialist principles with the evidence of human limitation I witness when I turn the TV news on. He is not alone in wondering why humanity appears so incapable of learning from its history.

Surely Russian military authorities must be aware that the reduction to rubble of Stalingrad not only did not bring victory to the invading army, but rather served as an exemplar of resistance that completely thwarted Nazi imperial ambitions.

Then, four decades later, Russian forces were driven from Afghanistan despite being in nominal occupancy of the country. Such aggression doesn’t subdue but engenders determination to fight back. Why would there be any expectation that Ukraine would be different?

America, for all its technological superiority, was defeated by a force employing the humble bicycle to transport supplies along the Ho Chi Minh trail. And following dreadful loss of life, military and civilian, the two sides then, eventually, became reconciled.

War becomes mythologised and integrated into national ideologies. Remembrance Sunday in the UK has elevated the ‘fallen’ into heroic defenders of freedom, rather than the reality of terrified young men dying in mud, squalor and savagery. When the next instalment of the war to end all wars led to the deliberate bombing of towns and cities this horror became the spirit of the Blitz, supposedly a demonstration of a character unique to the British.

The Middle East is the present martial spectacle. Recently, the BBC carried two reports illustrative of the pervasive twisted logic such conflicts produce. One was an Israeli spokesman insisting that his country is acting in proportionate self-defence. This was followed by an Iranian supreme something or other who was equally insistent that the missiles launched at Israel were a proportionate act of self-defence.

Putin, of course, claims the non-war war was launched against expanding NATO influence and Nazis in Ukraine, an act of self-defence. It would appear that most wars are merely conflicting ‘self-defences’. It seems that it’s always the other side that is the aggressor; most definitely, ‘not us!’

And while this and similar sophistry is spewed out across news media we sit and watch as the appalling death toll, mainly amongst non-combatants, including a horrendous number of children, continues to mount. As mere spectators there is an ever-growing sense of powerlessness. Critical voices raised are all too readily accused of anti-semitism or Islamophobia. But most can only look on and despair, or press the off button on the remote. Such is the source of the impact on my friend’s, and many, many others’, mental health.

Alienating effects

War is the extreme expression of the alienating effects of capitalism. All the financial problems afflicting people, public services failing because they are too expensive to be adequately run and myriad other difficulties people have to deal with that, ultimately arise from the profit imperative.

There is a general awareness that all is most definitely not well, either nationally or internationally. However, a political cognitive dissonance prevents serious engagement with how to treat those widespread ills.

The ‘Christmas Truce’ of 1914 on the Western Front is illustrative of this. Soldiers from both sides laid down their arms, including British imperial troops from India who didn’t have the Christmas imperative for peace on earth. They fraternized openly, defying their high commands, and there emerged a shared realisation that the propaganda that had convinced them of the barbarism of their ‘enemies’ was a lie. Within days they were killing each other again at the behest of their nation states.

Ukrainians and Russians, Israelis and Palestinians similarly have far more in common than might be guessed listening to their comments when interviewed. The ‘other’ remains the barbarian who must be vanquished for the general good. And so the slaughter goes on.

Is it any wonder that mental health problems have become an increasing issue in society? Talking therapies and/or pharmaceuticals may, in some cases, act as first aid. However, there is only one cure, socialism. Unfortunately, at the moment, the ‘patients’ remain reluctant to take it.

Dave Alton

Dismal (2024)

Book Review from the November 2024 issue of the Socialist Standard 

The Shortest History of Economics. By Andrew Leigh, Old Street Publishing, 2024

Thomas Carlyle described economics as ‘the dismal science’. But Carlyle was a racist, writing in 1849, who believed slavery should be reintroduced in the West Indies. The ‘dismal’ view he was attacking was the economics of the time which he saw as regarding all peoples as equal (and not, as is commonly supposed, to the dismal Malthus doctrine of overpopulation and famine). Andrew Leigh’s book on the history of economics is, he tells us, ‘the story of capitalism’. Capitalism is defined as the existence of markets and economics studies how people ‘maximise their wellbeing in the face of scarcity.’ Scarcity is an important assumption made by most economists. Just as the slaves in the markets of the West Indies were subjected to deliberate scarcity, it avoids economists having to confront the artificial scarcity of modern capitalism for wage slaves.

Leigh endorses Thomas Hobbes‘s view of human life as ‘solitary, poor, nasty, brutish, and short’. ’Hobbes was right’, declares Leigh, and he argues that human history has been a long struggle to overcome that condition. With the application of the correct economics, of course. However, Hobbes’s view was not based on anthropological or archaeological evidence but on the English Civil War of 1642 to 1651. He fled to France while the civil war raged and while there wrote Leviathan, published in 1651, from which the above quote is taken. In Hobbes’s hypothetical ‘state of nature’ (that is, human nature) a ’war of all against all’ exists and this calls for an authoritarian state to keep the peace. There can be no doubt that much of human history is a record of struggles, but if Hobbes was correct the ‘war of all against all’ should have meant that we would all still be living in caves, without hope for the future.

The fact that human productivity has increased enormously since settled agriculture took place about 10,000 years ago has mainly been due to the adoption of new technologies, not the following of economics wisdom. Leigh claims that at the turn of the twentieth century the Englishman Alfred Marshall ‘was the world’s most influential economist’. In academia perhaps, but the accolade surely belongs to Karl Marx. Leigh doesn’t mention him, and that’s probably just as well. A running argument of this book is the alleged superiority of capitalism over communism in practice. The 1917 Russian revolution was a ‘communist revolution’. Cuba established a ‘communist dictatorship’. East Germany had ‘communist rule’. North Korea has had ‘decades of communism’. They all failed miserably, of course, but none of those regimes claimed to have established communism. Leigh is by no means alone in making this mistake but it is a serious flaw in his book. So when he writes of Russia and China that they have recently ‘transitioned from communism to capitalism, this is simply not true. No country in the world has claimed to have established communism. Ever.

Lew Higgins