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Cooking the Books: Capitalism No Better

DEBORAH ORR, who writes on economic matters for the Guardian from a vaguely Green standpoint, entitled her 28 December column, ‘It’s time for a better capitalism, one that creates jobs and provides security’, arguing that ‘the civil, civilised kind of capitalism we have long been promised could yet emerge from the rubble of the financial crisis.’

Her argument was based on what she sees some firms as doing in the current economic crisis:

‘After decades during which we have all be told that we must allow the market to decide, the market is making a pro-social and humane decision. It is choosing to sacrifice profits in order to save itself. This is what the sales are all about – companies slashing their profits in order to keep ticking over, providing jobs, maintaining a presence. Staying in the game is being valued above providing shareholder value.’

This is not what sales and their lower than usual prices are about. They are a business strategy designed to maximise income over expenditure, i.e., to make a profit by selling more at a lower profit rather than less at a higher profit.

Some firms, in the present economic crisis, may well be prepared to ‘tick over’, merely covering their costs without making a profit, just to stay in business. But this would not be the start of a ‘fairer’ capitalism in which firms seek merely to cover their costs so as to provide jobs for their workers and lower prices for their customers.

Doing this to try to survive the crisis would not be a ‘pro-social and humane’ decision, but a hard-headed business decision in the interest of shareholders, since if a company goes under – as Comet did before Christmas and Jessops, HMV and Blockbuster did in January – the shareholders lose nearly everything.

Surviving means that when the slump comes to an end and growth resumes, as it will sooner or later (even if later rather than sooner, as there is now talk of a triple-dip recession), the company is still ‘in the game’, ready to take part again in the chase after profits.

In imagining that companies accepting to make no or very little profit could prove to be permanent, Orr is being naive. Capitalism could not function on that basis. What would be the point for a capitalist to invest money in a business just to end up at the end of the accounting year with the same amount of money?

The aim of capitalist production is to end up with more money at the end than at the beginning. What Marx expressed as M-C-M’ where C is the purchase of the materials and labour to produce something. Orr’s ‘better capitalism’ based on M-C-M would not really be capitalism at all, just some unrealistic economic system that could never exist.

In any event, it is not the case that most companies involved in post-Christmas sales are just ‘ticking over’, still less aiming merely to do this. They are aiming to make as much profit as they can and they will be succeeding, even if for some this won’t be as much as in previous years. Others, on the other hand, benefitting from the disappearance of their rivals, will be making more than before.