2000s >> 2006 >> no-1217-january-2006

Cooking the Books 1: Value added, but who by?

Sir Digby Jones, director-general of the employers organisation, the CBI, has his own economic theory. Interviewed in the Times law section (22 November) he expounded his view that British capitalism could no longer rely on just producing commodity goods which sell only on price (by which he seems to have meant basic material goods), but should switch to value-added services. Britain, he argued, cannot compete with countries such as India and China in producing cheap commodity goods, but should let these countries make money from doing this which they could then spend on buying value-added services from Britain.

But what does he mean by value-added? In Marxian economics it would mean the new value added by labour in the process of production to the previously existing value of the raw and other materials. And which is divided into wages (the replacement value of the workers mental and physical energies used up in production) and surplus value (which goes to the capitalist employer and is the source of profit).

In a talk to businesspeople in Birmingham last April, he did make a little clearer what he meant. There were fewer and fewer widget makers in the region, he said, but we are creating more and more work in the higher value, quality, branded sector. And he gave an example. We should not be worried, he said,

if we went into Tesco to buy a Harry Potter toy for ú10 to discover it had been Made in China. Because of that £10 just £1 ends up in China. The rest stays in Britain via the likes of licensing and intellectual property rights, advertising, copywriting and marketing” (Birmingham Post, 27 April).

But neither advertising, nor copywriting, nor marketing add any value since there are concerned with selling not producing goods, while licensing and intellectual property rights are claims on profits, i.e. on value produced elsewhere.

So where does the £9, which Digby Jones calls value-added and which is the source of the income of the advertising agencies, etc. come from?

The workers in China who made the toy (and the transport workers who transported it to Britain) added a value of between £9 and £10 to the value of the materials from which the toys were made, out of which they received well under £1 (since the cost of the materials and the profits of their employers also had to come out of the £1 that ended up in China). The Chinese capitalists who exploited them had to pay licensing and intellectual property right fees to firms in Britain, which swallowed up a part of the surplus value they had extracted from their workers.

If they had had the facilities to advertise and market the toys they could have done this themselves and kept more of the surplus value. But, not being in this position, they had to sell the toys below their value well below their value, it seems to a whole series of go-betweens (advertisers, marketing consultants and the like) who each took a share of the added value, the last one (Tesco) selling it at its full value of £10 to the final consumer.

So, what Sir Digby calls value-added is rather value-realised. It is not the capitalists with money invested in advertising, marketing and other activities to do with selling who add new value to the goods made in China or India. It was added by the workers there, but sold below its value by their immediate employer to selling capitalists in Britain.

In capitalist terms, Sir Digbys strategy for British capitalism could make sense: within a global division of labour, China, India and others produce the material goods and Britain and others sell them. But, if his figures for the Chinese toys are right, what a condemnation of capitalism: nine-tenths of the selling price of a good made up of non-productive on-costs to do with selling and only one-tenth with actual production! If thats the figure for all goods, socialism where goods would not need to be sold but would be free for people to take would have no problem producing enough for everybody, in China and India as well as in Europe and North America.

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