Finance and Industry: Three cheers for enterprise (1964)

The Finance and Industry Column from the April 1964 issue of the Socialist Standard

Three cheers for enterprise

We are constantly being lectured on the virtues of private enterprise. Our capitalists, we are told, are justified in taking their profits because of the skill and foresight they put into their businesses and of the way they generally plan and run them. But just how enterprising are we supposed to get? At what point does the enterprising deteriorate into the shady?

Last month saw the end of the mail train trial. So enterprising are the chief robbers that they have apparently managed to get clear away with most of the loot—to the tune of a couple of million pounds. The operation was certainly well planned, the execution faultless, and both skill and foresight amply displayed. Such results in a company balance sheet would lead to the most fulsome tributes from the shareholders.

Again last month, we were regaled with all the details of the great air ticket swindle. Once more some enterprising characters have been at work, this time getting away with something like a million pounds by selling airline tickets at a discount and conveniently omitting to pay for them or paying for them with dud cheques. And the great joke is that there are apparently quite a lot of eminent and respectable businessmen prepared to “shop around" for this dubious merchandise. It has almost become a status symbol to get a "ticket at a rebate," said Coloney Ford of B.O.A.C. to the Observer. Carrying enterprise to the lengths of making robbery and fraud tempting to the respectable—what could be more enterprising than that?

And at just about the same time, to give us three examples in a week, H.M. Customs published their report on smuggling during 1963. They seized goods to the value of about £120,000, of which one-half was accounted for by watches. But it is apparently common knowledge in the trade that for every watch that is seized by the Customs, at least fifty others are successfully smuggled through; perhaps as many as two million smuggled watches circulate in this country each year compared with "legitimate” sales of about five millions. One smuggler was recently convicted for concealing 700 watches in his waistcoat, with the option of 12 months imprisonment or a fine of £6,500; the fine was paid the next day. You have to be a very enterprising operator to stand overheads like that!

Three fine illustrations, in short, of how to succeed in business. And just in case someone is all ready to protest about the difference between the straight and the crooked, let him pause a moment. Is there all that difference? The shoddy goods and poor workmanship, the slick advertising and the glib sales talk, the tax evasion and the expense accounts, the cut-throat competition and the take-over bids, the short weight and the wrong change, the cartel and the monopoly, the "loss leader" and the big, plain foot in the door—what is so respectable about all these?

And what is so respectable about the greatest fraud of all the exploitation of the many by the few?


Oil under the sea

The scramble for oil now goes on under the water as well as over the land. The big companies vie with each other to explore the sea bed in more than a dozen parts of the world and are actively prospecting for more.

As long ago as 1937 the Americans were drawing up oil from the Louisiana seaboard, though the amounts were small. But within the last few years, offshore output has gone up considerably and the search has spread to California and Alaska, Mexico and Venezuela, the Middle East and Egypt, West Africa, the Mediterranean, and now the North Sea. Spurred on by the recent huge natural gas find in Holland, British, Dutch and German interests are already struggling hard for concessions. The French and Belgians are showing similar concern for their own coastal areas.

Why such a sudden, spurt of interest in the oil under the sea? First, because the need for more and more oil is unceasing (reserves in 1939 were estimated at 40 years’ supply, today they are reckoned at' 30). Second, because even if this were not the case, no oil company can afford to let its rivals steal a march on it—this is a law of capitalism stark and simple.

The chances of finding oil under the sea are good, especially when the prospective deposits lie close to oil-bearing land areas. But the expense gives the oil companies the shivers—it is between three and nine times as costly as land prospecting and, of course, the question of coastal water limits immediately becomes an added problem. 21 countries have already signed the proposed Geneva convention on these and Germany, which has hitherto had nothing to do with it, has suddenly decided it might be a good idea to sign it after all. The convention proposes to calculate the national limit as far out as the 100 fathom line and this could cause enormous trouble since in some parts of the world the sea bottom is fairly shallow for many miles; the Straits of Dover, for example, are nowhere near this depth so that both France and Britain could technically lay claim to the entire width of the strait.

All in all, the proverb about pouring oil on troubled waters could hardly be less appropriate.


Exports—or dumping?

The recently published report by the Richardson Committee turned down the idea of introducing the turnover tax as a method of stimulating exports. The decision, was not unexpected, but one of the reasons for it certainly was.

This was that very few of the exporting firms consulted by the Committee thought they would benefit from the system because, they alleged, they generally made little or no profit from their exports anyway. Commented the Guardian, “Does the bulk of our export trade really depend on practices which verge on dumping, as this implies? ”

Perhaps it does, when you come to think of it. Competition in many industries is now fierce indeed, and exporting is made even more difficult when there are tariff barriers to be overcome. Britain is already meeting problems in getting goods into the Common Market because the tariff is getting progressively stiffer, and the Six are having similar troubles with exports to the EFTA bloc.

It is well known that many British cars are going to countries such as France at prices which can at the most cover cost and may be less; French manufacturers are using the same discount methods to send cars to Britain. There is lots of evidence to show that refrigerators, ships, steel products, chemicals of various kinds, agricultural produce, are being similarly marketed, often with government aid to cover the deficit.

It would be really interesting to know, in fact, just what proportion of international trade is taking the form of dumping, or something extremely close to it.


An excess of eggs

With the high point of the production year yet to come, there are all the signs of an egg glut extending not only to this country but over the whole of Europe. Germany has already tried to close the door to imports but has had to open it again following protests from her partners in the Six. In Britain, farmers have been warned of the approach of serious over-production, the intention being presumably to get them to cut down their laying flocks.

But such warnings are a waste of time. The small farmer cannot afford to do it anyway and the first reaction of the big producer is to step up the size of his flock so as to get more efficient output! The real irony, however, is that with a government subsidy of 5½d. a dozen, the big man cannot go wrong.

About £30 million of state aid has been paid to egg producers this year. Its intention was to help the small man to survive, but its main effect has been to make the big farmer bigger. This is the inexorable development of capitalism, we know, but it is ironic to see a capitalist government paying out such vast sums so gratuitously to assist the process.

Stan Hampson

The Value of Value (2018)

Book Review from the July 2018 issue of the Socialist Standard

‘The Value of Everything. Making and Taking in the Global Economy’. By Mariana Mazzucato. (Allen Lane. 384 pages. £20, hardback)

Mariana Mazzucato follows up her previous book, ‘The Entrepreneurial State’, with this fascinating look at how theories of value shape policy and economic behaviour. She reprises the core of that previous book in a chapter of this one, showing how much of the innovative success of capitalist firms in recent decades (such as the internet, GPS, etc.) actually stemmed from investment by the state, and only after the risky stage of product development did private capital swoop in to enormous rewards.

She begins with a brief history of national accounting, and how the question of the productive boundary – what is and is not a productive endeavour – gets brought into measuring these accounts. She notes that how we define this productive boundary shapes how we assess economic performance. She gives examples of difficulties: cleaning up pollution caused by industry adds to the productive side of the economy, but is actually correcting a major damage caused by cost saving by another firm. She notes that there is no economic accounting for housework and child rearing. She also points out that despite the role of the state in investing and driving innovation, the state is seen as inherently unproductive.

Her goal is not to define a new way of looking at value, but to open up the debate on why a theory of value is needed. She notes that the current orthodoxy, marginal utility theory (which essentially sees value as deriving from how useful the next additional unit of a good is, rather than how useful a good is in itself). Essentially, as she notes, this resolves into saying that the value of a good is whatever anyone is prepared to pay for it (and thus any good or services anyone pays for is productive). As a theory it abolishes any standard of value to measure prices by (it doesn’t allow for the concepts of bargains or rip-offs) and justifies the idea that markets are the most efficient measure of demand.

As she notes, marginal utility theorists maintain there is no unemployment, just a rational choice between income and leisure. As there is no measure beyond the market, it means that financial industries, that were once considered unproductive and merely distributive of wealth, can claim to be part of the productive economy. She passes into a quick mention of the idea that banks create money, with the added and helpful twist that sees that alleged ability deriving from the near monopoly of banks created by the state licensing system. This means, in effect that it isn’t private banks creating money, but the state.

She also gives a brief schematic account of the labour theory of value, and an account of Marx’ place in the history of the discussion of what is productive. She gives one of the better accounts of Marx’ theories you’ll likely find in any popular economics book. Marx noted that any activity that generates a surplus value for a capitalist was productive. What Mazzucatto misses in her account, is that Marx was clear that this was productive for capitalists and within a capitalist economy. This ‘valuable, for whom?’ is missing in most of her account, although she clearly gives hints that she would rather see a system of value accounting that gives a positive role to the state.

Her perspective is broadly Keynesian, seeing the struggle between the rent seeking of finance and the productive capacity of industry, and siding with productive capital. One aspect of her narrative that seems to undermine her case for stricter financial regulation, is that she recounts how the banks broke out of their previous regulated regime, and basically forced deregulation. Where there are profits to be made, they will be sought.

This is a useful read, and an opportunity for socialists to get involved in a debate about ensuring that the best way forward is to put an end to economic value through common ownership and the production of an abundance of wealth for use rather than exchange. We would still need mechanisms to assess resources and effective use, but we wouldn’t need a singular measure of personal wealth like a private market economy requires.

Pik Smeet

Private Enterprise in Russia (1954)

From the August 1954 issue of the Socialist Standard

When all the arguments for the existence of Socialism in Russia have been exhausted by Communist Party members and their sympathisers, they usually conclude with the idea that "At least Russia has, in abolishing private enterprise, taken a great step towards Socialism." Even if Russia had nationalised everything, this would not mean that they have got Socialism but only State capitalism. Avowedly capitalist countries have never hesitated to nationalise industries when it suited them. But has Russia abolished private enterprise? 

Readers Digest for May, 1954, condenses an article from the Wall Street Journal by Tom Whitney who has recently returned to the United States after nine years in Russia, first as chief of the economic section of the U.S. Embassy in Moscow, and later as correspondent for the Associated Press. He wrote “If you dial a certain telephone number in Moscow you can arrange to buy a TV set within 24 hours—instead of the two or three months it takes to get one from the State run electrical appliance store. Calls to other Moscow numbers will summon such people as washing machine salesmen, doctors, repair-men, and house builders—all private enterprise ready to provide speedier or higher quality service than the Soviet Government offers."

Many traders, asserts Whitney, wait (or more likely get the tip) of a new delivery of goods arriving at a store where there has been a shortage for a long time, and buy a huge quantity and resell them for a handsome profit to those not willing to wait or stand for hours in queues. Rosa Martynova, a member of the Moscow branch of the Komsomol (Communist national youth organisation), is now serving five years for this practice. Another eminent party member, M. Kogan, obtained several thousands of watch movements from the government, assembled them and netted £89,000 profit before the government woke up! There were two brothers who sold leeches to the government (they are still widely used there and were applied to Stalin before he died), made 400,000 roubles profit a year on the sales.

Everywhere in Russia, and in every branch of activity, according to Whitney, there is some private enterprise and it can successfully compete with the inefficient state enterprises. Of course if the goods are just stolen, as they frequently are, or if the raw material has been wangled from a government store, then competition should not be too difficult. Whitney claims that even landlords can get rents above controlled prices, and he witnessed that a friend of his in Moscow signed a lease for a room priced at 265 roubles a month; but on top of that the landlord demanded extra cash to boost the total rent 450 per cent, claiming that he would go bankrupt if he only charged the official rent!

How can the police prevent the buyer of a television set from selling it to a "friend” for a profit? Whitney claims that only 100,000 TV sets are at present coming on to the market annually, yet the demand is for at least ten times that quantity.

He points out that not all private enterprise is illegal in the U.S.S.R. Soviet law permits individuals to work privately under licence at any of about 20 trades and professions, including medicine, hair-dressing, book-binding, house-repairing, etc. Russians can work full time at such jobs and part-time at many others. House repair must cover a multitude of occupations, and with a few friends (or business partners in state warehouses) can be very lucrative. Taxes on private incomes are levied as a recognised thing.

Stealing from government factories keeps private enterprise going very profitably according to Whitney. In most of the large towns medical, dental and even teaching is done privately. State-run clinics are inefficient and always overcrowded. One Russian doctor maintains a private practice in Moscow as a homeopath and earns over 16,000 roubles a month. His income from official work could never approach that mark.

Whitney concludes his article by saying that "You can get private help in practically any service field in Moscow—if you can pay the price.”

Private enterprise is hard to stamp out, even with secret police, who are sometimes as corrupt as the private traders. So long as the workers don't understand or want anything else, the profit motives of society will survive. There is no socialism in Russia. State capitalism is the dominate form, with private enterprise, according to Whitney, as a flourishing subsidiary.

Horace Jarvis