Big Fish Swallow Small Fish (2013)

The Cooking the Books column from the April 2013 issue of the Socialist Standard

Interviewed on Desert Island Discs on BBC Radio 4 on 3 February, Sir Terry Leahy, former chief executive of Tesco, said that ‘the death of the high street is progress’, adding that ‘the loss of some shops was a price worth paying for the lower costs at supermarkets’ (Times, 4 February).

He would say that, wouldn’t he? But the expansion of supermarkets at the expense of small high street shops confirms Marx’s view that one of the tendencies of capitalism is the concentration and centralisation of capital.

At the turn of the last century this was challenged by critics of Marx, but the whole of the last century confirmed Marx’s contention and it is no longer challenged by bourgeois economists. All sectors of the capitalist economy are now dominated by a handful of firms. Economists have even invented a new word to describe this – ‘oligopoly,’ or the domination of a market by a few sellers. Food retailing is no exception. In Britain this is dominated by just four supermarkets: Tesco, Asda, Sainsbury’s and Morrisons.

Marx put it this way:

‘The battle of commodities is fought by the cheapening of commodities. The cheapness of commodities depends, all other circumstances remaining the same, on the productivity of labour, and this in turn depends on the scale of production. Therefore the larger capitals beat the smaller.’ (Capital, Volume 1, chapter 25, section 2)

So, the supermarkets outcompete the smaller high street shops because, being bigger, they can sell more cheaply. Sir Terry is right on this point, but is he right when he says that the closure of many small shops that this results in is ‘progress’ and a ‘price worth paying’? Many disagree, especially the small shop-owners but also, on the political level, the Green Party which specialises in spearheading campaigns against the opening of new supermarkets as this conflicts with their vision of a smaller-scale capitalism.

People, however, have been voting with their feet – or their cars – and deserting the high street shops for the supermarkets. For most, this is an economic necessity, as to make ends meet they have to shop where the prices are lower.

Also, the ‘lower costs’ that Leahy mentions benefit the capitalist class generally since, in keeping the cost of living lower than it would otherwise be, they also keep down the amount employers must pay in wages to allow their employees to maintain their working skills. In other words, they lower the costs of production generally.

As long as capitalism lasts and by its very nature, supermarkets are going to triumph over high street shops. It is true that some small shops can and do survive by selling better quality goods at a higher price, but these will only ever be patronised by the higher paid. The Green Party will never be able to realise its nostalgic dream of a small-scale, more human capitalism.

Socialists take a different position. In socialism there will be neither supermarkets nor small shops, just distribution stores and centres from which people will be able to take what they need without having to pay. They will all be ‘Payless.’

Concentration of Industry (1967)

From the January 1967 issue of the Socialist Standard

Under capitalism wealth takes the form of capital. Wealth is used to produce more wealth not to satisfy human needs but to make profits. Most of these profits are re-invested and in this way capital accumulates. What forces the capitalist to re-invest his profits (rather than consume them all in riotous living) is competition. Each capitalist competes against other capitalists for a share of the market. This means he must run ever faster to stand still. He must use his profits to buy machinery that will cheapen his costs. This has certain technical effects: it leads to an increase in the size of productive units. This competition between capitalist enterprises is the motive for increasing productivity.

But competition has another result. It tends paradoxically to reduce the number of competitors. As the technical process becomes more complex and costly only large enterprises can survive. The weak and inefficient go under and their wealth passes into the hands of those who survive. Thus industry becomes controlled by fewer and fewer enterprises.

This whole social process makes Socialism a practical possibility. Ever-increasing productivity makes a society of abundance possible. Socialised methods of production make the private ownership of socially-produced wealth outdated—and worse, a fetter on production. As control of industry is centralised into fewer and fewer enterprises democratic social control becomes possible. Thus does capitalism prepare the technical basis for Socialism.

Marx, the man who did so much to put socialist theory on a scientific basis, when he was studying capitalism over a hundred years ago discovered this tendency towards the concentration of industry.

A recent study of this subject was published in The Journal of the Royal Statistical Society in 1965 by Alan Armstrong and Aubrey Silberston under the title “Size of Plant, Size of Enterprise and Concentration in British Manufacturing Industry 1935—58”. For this study they used the 1958 Census of Production and previous studies. Their conclusions were:

  Output has risen greatly since 1935, but the number of plants has risen much less, and in recent years has been falling. There has been a movement towards fewer, larger plants in most industries . . .  Further the average size of the largest plants, measured by employment, has in general increased, and large plants now account for a higher proportion of total employment in nearly all industrial groups than formerly. The same is true of their share of total output. Finally, plants are, in general, being operated by fewer enterprises, and the extent to which many industries are dominated by a few “giant” enterprises seems to be increasing.

(By plant is meant “premises under same ownership or management at a particular address”; by firm “one or more plants under the same trading name”; by enterprise “one or more firms under common ownership or control”.)

One of their tables, reproduced here, is particularly revealing.

A further table shows the percentage of workers employed by the largest three enterprises in some “industries” (as defined by the Census).

Employment is used rather than output as it is easier to measure. But as the larger enterprises will tend to be more efficient the concentration in terms of output will be greater than the figures given here. For oil refining the percentage is 84; for man-made fibres 81; for sugar between 70 and 91; for Tobacco between 66 and 85; for watches and clocks 70; for margarine between 59 and 75; for steel tubes between 49 and 79; for asbestos 63; and for soap, detergents and candles and linoleum both 60. The top four enterprises in dyestuffs employ 88 per cent of those in the industry and in cement between 71 and 85.

Although both Tories and Labourites praise competition and denounce monopoly they have long since ceased to tilt at the windmills on this point when in office. They accept—and even encourage —the concentration and the centralisation of control of industry. A White Paper put out in January 1966 spoke of setting up an Industrial Reorganisation Corporation just to encourage concentration. The White Paper stated:

  The need for more concentration and rationalisation to promote greater efficiency and international competitiveness of British industry, which was emphasised in the National Plan, is now widely recognised.

and went on:

  There is no evidence that we can rely on market forces alone to produce the necessary structural changes at the pace required.

Hence the IRC. There’s no talk of protecting the small man here.

On this point no defender of capitalism can deny that the early Socialists were right, though they will of course deny where it leads: the social ownership and democratic control of the means of production.

Adam Buick

Neither London nor Brussels, but World Socialism (2012)

Editorial from the January 2012 issue of the Socialist Standard

No wealth is produced in The City. It is a place where the proceeds of working-class exploitation transformed into rights to a property income are the subject of trading, speculation and gambling. Around this has grown up a whole range of “financial services” – wheelers and dealers of one kind or another – vying for a share. In short, it is entirely parasitic on those parts of the world economy where wealth is actually produced by those working there.

So – apart from the fact that the Conservative Party has always been committed to defending the interests of The City, going back to the time when it was the place through which the loot plundered from the British Empire was channelled – why did Cameron make such a fuss about defending The City “from Europe” and expect people to think that this was a good thing? After all, is not The City the habitat of the same bankers that the media has been vilifying since 2008? It is, but they’ve got him over a barrel just as they had the previous Labour Government.

According to the Times (12 December), the financial services sector (not just The City) makes up ten percent of UK GDP and contributed £53 billion as taxes for the upkeep of the government. In addition, The City achieved a “trade surplus” of £36.4 billion, a measure of how much surplus value produced in the rest of the world it sucks in. Clearly, The City is an important part of the British capitalist economy which no government can ignore. But The City is not the only section of the capitalist class.

There are also the businesses producing for export. It was precisely to further their interests by gaining them free access to a wider European market that Britain joined the “Common Market” in the first place. They still benefit from the single market with its common standards and regulations and do not want Britain to withdraw from the European Union. To placate them, Cameron has had to make it clear that the government has no intention of doing so.

He did win the plaudits of his backwoodsmen, the Eurosceptics, but they represent small businesses producing for the home market (and financed by some bigger businesses in the same position). They want a referendum on withdrawal, which they expect to win. It is precisely because they could well do so that no government is going to hold one. They are not there to govern on behalf of small businesses but of Big Business.

This is a dispute between different sections of the same capitalist class which should be left to them to settle for themselves. No working class interest is involved. We don’t care whether or not there is a referendum on the matter and, if there is, wouldn’t take part in it except to write “World Socialism” across the ballot paper. As socialists we refuse to pander to petty nationalism but work to promote a world without frontiers where the Earth’s resources have become the common heritage of all.

Archetypal Fat Cats (2004)

Book Review from the September 2004 issue of the Socialist Standard

Bad Company: The Strange Cult of the CEO by Gideon Haigh. Aurum £6.99

They used to be called something like ‘general manager’, but nowadays the main term for the head of a big capitalist company is ‘chief executive officer’. While they are nominally salaried employees, their pay as archetypal fat cats is so high that they are in fact clearly members of the capitalist class.

It was the growth of limited liability from the early nineteenth century that gave rise to the modern capitalist corporation and hence to the CEO Firms were originally run by their founders (or their heirs), but the owners faced the debtors’ prison if they went bankrupt. So few would buy shares in a company unless they could be personally involved in supervising how it was run. Limited liability meant that shareholders were no longer personally liable for any misdeeds or bankruptcies, so owners could delegate day-to-day control to a salaried manager, with a board of directors overseeing the whole thing.

As the title of this short volume suggests, the CEO has become a kind of cult figure, with in many cases a celebrity status and a pay packet to match (averaging over $30 million a year in large US companies in 2002, for instance). Many CEOs work long hours, apparently, though of course a lot of this time is spent in luxury hotels and swanky restaurants, and they are seemingly surprised when their employees fail to share their taste for sixty-hour weeks. Their income is reinforced by the curious idea of a ‘guaranteed bonus’, and of a ‘golden parachute’, paid to them if they are sacked by the board of directors.

And what does a CEO do in return for this generous remuneration? It’s clear that they do not in any real sense run the company, since big corporations are far too complicated to be managed by individuals. Rather, they concern themselves with the company as a business, often having little detailed idea about what it actually produces, and give orders that others have to implement. The impression gained from Haigh’s book is that if the share price keeps rising, irrespective of any medium- or long-term benefits to the company, then shareholders and directors are happy. Reducing costs by cutting staff is a favourite, and none too sophisticated, approach.

With golden parachute in pocket, a number of CEOs go into politics - President Bush’s cabinet, for instance, is full of them, from Dick Cheney to Donald Rumsfeld. As Haigh quips, “the Bush administration is more a CEOcracy than a theocracy.” The extent of this cosying-up is fairly new, but governments do not have to be full of ex-businessmen in order to serve capitalist interests.

Haigh makes the useful point that, while workers are urged to keep wage demands in check so that they can compete with other workers (especially those in other countries), CEOs instead always want to be paid more so as to be in line with their counterparts overseas — the idea of ‘internationally competitive’ has different meanings for bosses than for workers. While he is well aware of the absurdities of CEO pay, he has some odd ideas about the way capitalism works. For instance, he claims that “Companies do not exist to make profits; they make profits in order to exist” He seems to think this is an important correction to a common myth, but in whichever version it just means that companies are motivated by profit-making. Nevertheless, his book does give a useful picture of what CEOs do and don’t do, and of why we have no need of them and their fellow-exploiters.

Paul Bennett

Why doesn't big business support a national health service?

Cross-posted from the blog, Stephen's Blog.

It is often argued that a "single payer" health insurance system run by the federal government or a national health service would be in the interests of American big business apart from the health insurance companies. The growing burden of healthcare costs on the economy would be brought under control, and companies would no longer have to pay insurance premiums for their employees. Companies in Britain and Canada are quite happy with the national health service in those countries.

So why does big business not promote a real healthcare reform? This is the question asked by Doug Henwood in Issue 120 of his Left Business Observer (a publication that I highly recommend for its astute analysis of American economic and political developments; see here).

Apparently some people offer a "web of influence" explanation that focuses on interlocks (overlapping membership) between insurance companies and other companies and on the role of insurance companies as a source of finance for other companies. Henwood presents detailed evidence to show that these are not very significant phenomena.

Basing himself on testimony from researchers who have interviewed top executives on the issue, Henwood states that some (perhaps even many) executives support "single payer" in private but are reluctant to make their views public for two reasons.

First, they worry about the possible reaction of other firms with which they do business. Small companies especially are considered hostile to "single payer." They do not stand to gain in terms of costs because they do not provide health insurance to their employees, while they would have to bear part of the additional tax burden. So they would see such a reform as an attempt to shift costs from big business to small business.

Second, they are afraid of "encouraging would-be expropriators." One informant formulates this fear as follows: "If you can take away someone else's business -- the insurance companies' business -- then you can take away mine." In other words, the politics of capitalist class solidarity trumps the economics of cost reduction.

Henwood adds another consideration: "Employers like workers to feel insecure. Fear of losing health coverage makes workers less willing to strike or resist pay cuts or speedups."

At least in this case, it is misleading to view reform politics solely as an arena of conflict among diverse business interests. It is also an arena of class struggle.

Stefan