What’s Wrong With Profit? (2015)

From the May 2015 issue of the Socialist Standard

Think of a company that produces goods or provides some service or sells things. The company needs to make a profit, and to do this it has to deliver what people want and what they can afford. If it does not provide what people want, it will simply not make a profit – or at least not make enough profit – and will go out of business. So it has to produce, provide or sell what people want. This implies keeping up with changes in taste and technical developments and what its competitors are up to, as the company’s sales will decline if others can provide better or cheaper goods and services. The owners of the company will be motivated to improve its products and innovate new products and methods of production, thus the profit system stimulates technological progress. So production for profit keeps everyone on their toes and ensures that companies deliver what their customers want.

That, in a nutshell, is the kind of argument that is used in defence of production for profit and so of the capitalist system as a whole. But Socialists reject such arguments, so let’s look at what production for the sake of profit really implies.

For starters, companies do not simply provide what customers want: they have to provide what customers can afford to buy and what will make the company a profit. There is no point in supplying goods that are of excellent quality if they are too expensive for most prospective customers. So companies will often be forced to cut corners in various ways such as using cheaper ingredients and cheaper machinery and speeding up the production process. This may result in lower prices or just higher profits. For instance, water can be injected into chicken to increase the weight of portions; and a well-known recent example of adulteration was the use of horsemeat rather than beef in ready meals. What is produced may be less safe than it could and should be, and the health and safety of workers may not be properly taken into account, all because this is the way to reduce costs and increase profits. In 2013–14, 133 workers were killed at work in the UK, and 629,000 workplace injuries occurred.

But at the same time as companies seek to provide what customers can afford, they also attempt to get them to buy more expensive items. This method, known as upselling, may involve such tactics as selling extended warranties, suggesting a slightly dearer version of some item or simply adding fries to a fast-food order. It all adds to the profit of the seller or provider.

Moreover, advertising is intended not just to inform customers of new products but to stimulate demand and persuade people to buy. Wants, then, are not natural things but are often artificial, created for the sake of profit. Demand for the latest gizmo may be on the basis, not of ‘this is what you wanted all along’, but of ‘this is what you need now, and you’re missing out if you don’t have one’. Peer pressure, particularly among children and teenagers, can be a powerful means of getting people to ‘want’ things and so of increasing the profits of the company that can ‘satisfy’ them.

Does profit-based production really lead to technological progress? It was recently revealed that drug companies are scaling back their efforts to develop a cure for dementia, on the grounds that they have already devoted considerable resources to this end. In some cases they have spent hundreds of millions of dollars on searching for effective drugs, only to see potential treatments fail and so not produce any profits. In this and similar cases, then, the profit motive acts as a barrier to research and innovation. And this is not for the sake of some new Smartphone app or new line in fashion: this is the search for a cure for a dreadful disease which already affects 850,000 people in the UK alone, a number expected to increase. So the argument that the profit motive promotes innovative products is not always true, as it only does so as long as there is a reasonable expectation of profit in the short to medium term.

The aim of capitalist production, remember, is to make a profit, and making particular goods or providing a particular service is just a means to this end. Ford do not make cars, they make profits; Apple do not make phones and computers, they make profits; McDonalds do not make burgers, they make profits; Tesco do not sell food and so on, they make profits.

If companies really exist to make widgets or whatever, why do they ever make workers redundant or go on short-time working? Why do they not continually expand their operations in order to output more and more widgets, by taking on more staff or buying new equipment or extending their working hours? From a capitalist point of view, these are rather silly questions, as the answer is obvious. It’s because they are constrained by the need to make a profit. Producing more and more of some good or service is useless if there is little or no prospect of selling these, or selling them at a profit. Redundancies are made because business is not going well and costs need to be cut in order to restore profits. Anything else would be the path to commercial suicide, however useful what was produced might be.

The housing market is a particularly clear case in point. There are plenty of people living in poor-standard accommodation, living with their parents, stuck in homeless hostels and so on. At the same time there are many unemployed building workers and abandoned building sites. If house-building companies truly existed to build houses, workers currently unemployed would be working to build the houses that are so badly needed. But it doesn’t happen, simply because there is no profit in building houses and flats for those who cannot afford to buy them. Government schemes to make home loans easier and so help people onto the ‘housing ladder’ do not alter this essential point. In fact they represent an acknowledgement that there is a gross mismatch between what could be supplied and the effective demand for homes – effective demand, not just demand, since what matters is what people can afford, not what they badly need.

We have not mentioned the fact that profits are made by exploiting a company’s workers, who produce more in value than they receive in wages. This is yet another reason, in addition to those reviewed above, for getting rid of production for profit and replacing it with a system based on production for use, one designed to meet people’s needs and wants.

Paul Bennett