The profit motive:a case study and Cooking The Books 2 April 2005

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The profit motive :
a case study

In January Sony, the multinational electronics corporation, announced it is to declare 300 redundancies at its two factories in south Wales – 80 from the Bridgend factory, producing cathode ray tubes, and 220 from the TV factory adjacent to the M4 at Pencoed – a move that almost certainly signals the imminent closure of an operation that once employed 3,300 working people. This latest news will be of no surprise to those working in the two factories where Sony has been quietly shedding jobs since the late 1990s.

Production from these factories relies on ‘old’ tube technology and, as a spokesman explained, “The move away from CRT-based TVs accelerated last year with flat panel products now accounting for around half the UK market” (Guardian, 21 January). It is now evident that the managers employed in Japan to make profits for shareholders had decided by the late 1990s that investment to support flat screen televisions would go elsewhere and after 30 years have decided to call it a day in Wales. So where did it all go wrong?

…

Sony’s Bridgend factory, officially opened by Prince Charles in 1974, was the first major manufacturing venture in the UK by a Japanese multinational corporation. The main imperative of capitalism is to expand – a fact well understood in Japan where by 1972 the country had the largest television industry in the world producing in excess of 8 million sets a year and a domestic market on the verge of saturation. Japanese exports had already devastated the American television industry and while UK imports of Japanese colour TVs were rising, UK manufacturers found some comfort under a 1962 treaty that limited imports of Japanese televisions.

Sony needed unrestricted access to European television market and the UK government was on the verge of joining the European Economic Community (EEC). Assembling televisions inside Europe would circumvent the agreement limiting imports and end the stream of accusations from European manufacturers that Japanese televisions were being ‘dumped’ on the market at ‘uneconomic’ prices.

Welcomed
The British government was friendly to Japanese investment and politicians quickly warmed to the prospect of new jobs. This, combined with financial grants made available to ease job losses in traditional coal and steel industries, an established market and a region crying out for employment made Wales an attractive proposition. Bridgend was to be Sony’s assembly base to compete in the EEC, a venture viewed by Britain’s partners in Europe, particularly in Holland – the home of Philips – as a ‘Trojan Horse,’ an apt description for a company importing 90 percent of its components from Japan. In 1976 the British government, under pressure from the EEC and the European television industry, moved to protect ‘home’ producers. It agreed that unless 50 percent by value of components had European origin, sets could not claim to be ‘British-made’ and would therefore count towards Japanese import quotas agreed between the two industries. By this time, however, Sony was operational and employing over 500 people and compliance with this ‘origin rule’ was quietly forgotten.

Other Japanese television manufacturers followed and by 1977 Britain had ‘overcapacity’ in both set and component manufacture. The Radio Industry Council made representations to government for protection and again policy was altered. In future inward investment was to be encouraged provided it either took over existing capacity or resulted in joint ventures with established manufacturers – hence Rank-Toshiba and GEC-Hitachi. But by 1979 it was apparent that British television manufacturers were unable to compete with Japanese design and manufacturing technology and in October 1980, Pye at Lowestoft was shut with the loss of 1,100 jobs. Despite the higher wages paid to Japanese workers, “the direct labour cost of a set made in the UK was almost double that of one made in Japan because the Japanese set took 1.9 hours to make and the British one 6.1 hours.” (Keith Geddes, The Setmakers, 1991) Japanese television sets incorporated 30 percent fewer components by making greater use of integrated circuits, and automatic insertion accounted for 65 percent of components against 15 percent in the UK. These advantages forced a spate of factory closures and ‘consolidations’ as European producers tried desperately to compete.

Sony’s output at Bridgend had now increased to a level that justified investment in a tube-manufacturing factory, built alongside the television factory and opened in 1982. This expansion was essential because Sony holds patent rights to a cathode ray tube – “Trinitron” – fundamentally different from its competitors and available only from Sony in Japan. Local production was needed to reduce enormous importation costs. Further expansion to tube manufacturing came in 1989 when the television factory was relocated to a site 3 miles away allowing the tube factory to double in size. The new television factory – hailed as Sony’s ‘European Flagship’ – was constructed on former farmland in Pencoed and opened in 1992 at a cost of £30 million. By the early 1990s Sony had a major share of the European television market and was locked in bitter competition with Philips. Output peaked at about 1.75 million televisions and computer monitors were added to the production line-up. The combined turnover of both plants was approximately £800 million.

But then things started to go sour. Intense competition from manufacturers producing high quality, low cost televisions and the collapse of a major market in Russia started to eat away at profits. The market demanded cost reductions, and Sony – which had traded for so long on a brand name that marketing gurus had made synonymous with quality and price premiums – could not deliver, at least in Wales. A further threat emerged as Sony’s recently opened television-factory in Barcelona, employing the latest technology, gathered momentum.

The ‘centre of gravity’ of the European TV market was moving eastwards and factories in Wales were no longer suitably placed. The company then negotiated generous grants and tax concessions and, eager to exploit cheap labour, opened new factories in Hungary and Slovakia to improve competitiveness in the growing east European market that had once been supplied by the Pencoed factory. The factories in Wales had served their purpose and utilising ‘old’ technology were now to be run-down while ‘new’ technology and investment went elsewhere. The workforce now lived under threat that production would be transferred unless profits improved, serving to keep wages and benefits fixed, while the trade union, effectively anaesthetised since the 1970s, collaborated with management on projects to increase profits. Desperate to cut costs, investment in manufacturing was slashed; internal component production contracted out, permanent workers were replaced by temporary employees and leavers not replaced. Discipline became oppressive and workers grew demoralised and indifferent to the continuous demands to improve performance. The company’s reputation as an employer plummeted and official redundancies were first declared in April 2000.

The bottom line
So who is to blame? Why did the bubble burst? It would be easy to blame local management employed to squeeze profits from working people or the working people who became dispirited or perhaps even market conditions. But all this evades the fundamental issue that we live in an economic system that demands that corporations must roam the world in pursuit of lower costs to remain competitive to increase profits for shareholders. Sony, like any other corporation with global aspirations, cannot stop to consider how its working people, many employed since the beginning in 1974, are to survive when the factories in Wales close, as they must surely do in the near future. The fact that Wales already suffers dire poverty and comparable jobs will virtually impossible to find is of no consequence on the balance sheet, where the only consideration can be the bottom line. It should not be forgotten that the social cost of Sony’s years of successful profit-making in Wales was achieved at the expense of forcing thousands from employment in factories across Europe with all the misery and trauma this entails. The wheel has turned full circle and it is now the turn of people employed by Sony in Wales to by abandoned, cast aside in the pursuit of greater profits. This is capitalism.

In capitalist society there can be no allegiance or loyalty to a workforce or community. Production is motivated solely by profit, regardless of the social consequences. As a recent article in the Economist states, ‘corporate social responsibility’ – “a kinder, gentler capitalism,” is a non-starter. Instead, we learn:

“The goal of a well-run company may be to make profits for its shareholders, but merely by doing that+the company is doing good works. Its employees willingly work for the company in exchange for wages; the transaction makes them better off” (22 January).

Now we are asked to shallow the outrageous proposition that capitalism has a benevolent social purpose – but try telling that to the people until recently employed by Sony or those formerly employed by the thousands of other companies that have shed working people when higher profits are demanded. The choice is stark; the working class either sells its labour power in return for wages or salaries or goes without the essentials of life. This is not willingness but compulsion. It is wage slavery.

Capitalism has outlived its usefulness and must be immediately replaced by socialism. Capitalism divides the world’s population into two classes, the majority who sell their labour power in return for wages and salaries and those who own the means of producing wealth and live on profits. It is class struggle where workers will always be the losers, with the impending closure of Sony in south Wales a testimony to opposing class interests of workers and owners. As ex-Sony workers go about rebuilding their lives, they, and working people everywhere would do well to reflect on the fact that capitalism cannot operate in any other way and is incapable of being reformed to do so. Like millions before them, capitalism has condemned these workers to an uncertain future, breeding the stress and anxiously that is linked to a Jobcentre interview likely to lead nowhere.
STEVE TROTT

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Contents Page

The Socialist Party

Cooking
the Books 2

What classless
society?

At one time, a long time ago now, when the Labour Party still retained some sort of vague commitment to being opposed to the workings of capitalism it used to say that it favoured the redistribution of wealth from the rich to the poor. They were going (they said) to establish a more equal society by taxing the rich and using the money to provide better public services for the rest of us.

Actually, in the last century there was a long-term trend towards a less uneven distribution of wealth ownership. But this did not result from any deliberate policy on the part of governments (the wealthy soon found ways of minimising or avoiding taxes on their existing wealth and on their accumulation of more wealth), but rather from a majority of people coming to own more consumer goods, etc. resulting in the total amount of wealth owned by the non-rich sections of society rising faster than the total amount owned by the wealthy.

The rich still got richer – and, in absolute terms, each one of them got more than each of the rest of us – but, proportionately, together they got less than the rest of us as a group. There was no redistribution from them to us; which would have gone against the logic of capitalism involving as it does the accumulation of more and more capital in the hands of a capitalist class.

In the 1990s this long-term trend (which continued even under Thatcher) was reversed. Since 1991 the rich have been getting richer faster than the rest of us – despite a Labour government. In December the Office for National Statistics published the figures for the latest available year, 2002. Two sets of figures are published, one for all marketable wealth and the other for ““marketable wealth less value of dwellings”. Since capitalism is based on the concentration of the ownership of the means of wealth-production in the hands of a tiny minority, and since houses are not means of production, it is the second set of figures that are the more relevant (even if they still include other items of wealth such as cars and hi-fi equipment that are also not means of production),

These figures (published on the ONS website at http://www.statistics.gov.uk/cci/nugget_print.asp?ID=2 show how things have changed since 1996, as the situation inherited by the present Labour government when it came into office:

                                     1996 1999 2000 2001 2002
Top 1% owned               26      34     33     34     35
Top 5%                           49      59     59     58     62
Bottom 95%                    51      41     41     42     38
Bottom 50%                      6       3        2       2       2

As can be seen, whereas in 1996 the top 5 percent owned as much as the bottom 95 per cent - or one out of every 19 persons owned as much as the other 19 (of whom half owned virtually nothing) taken together - by 2002 the top 5 percent owned nearly 40 percent than the rest of us.

Who says that we’re living in a classless society? Who says that the capitalist class have died out? Who says that the Labour Party can deliver a more equal society or is even trying to?