Thursday, August 8, 2019

The Loophole of Surplus value


There is a loop-hole in neo-liberal economics which, if used, reduces inequality (increases the distribution of the wealth generated by economic activity), and undermines corporate power.

This economic theory distinguishes between pure monopoly and pure competition, with a gradation between. "Firms" are described as being "price takers" or "price makers". As a market is controlled by fewer firms - as it moves toward monopoly - those firms acquire "market power", which allows them to gain control over prices. This power is the goal of every business. More than anything they want to control their prices, and set them high.

I can't give you an entire economics class, but here is an important concept: Surplus value is the difference between what a customer will pay and what a business will sell for. In a monopoly market, the surplus value is sucked up by the business operator (cash is paid to the monopolist for the product). In a competitive market, surplus value remains in the community (cash is retained by the buyer). Another important distinction: accounting profits assure that the business is operating in the black, and economic profits assure that the investor has maximized return on investment.

The business environment where surplus value remains in the community is a tough one, but if it isn't churning too much (weather or riots destroying property) it doesn't suppress business activity. Businesses (firms) have motivation to operate down to the point where economic profits go below zero. Down to zero, they are still meeting payroll, paying taxes, and sending the owner home with a modest income. The difference is that their Price Curve is inelastic - they are price takers.

But the surplus value is still produced, it just isn't funneled into the hands of the owner. This is the loop-hole. Just by dividing the market into sufficiently many businesses (imposing pure competition on them) we can cause the distribution of the surplus value of business activity into the communities in which they operate.

While I agree that many economic activities are too important to be left in the private marketplace (health care, where it is also cost-ineffective), there are numerous economic activities that we might want to socialize which, if operated in a competitive market, would not do the damage they are doing. Every firm must know it is a pure competitor. For example, housing. Large holders of property must find their costs increasing as they own more property, giving them incentive to divest.

This means dividing every firm into its logical units of production. Let there be firms that design cars. Let there be firms that buy designs and build cars. Let there be firms that distribute cars, and let there be firms that repair cars. Make them all compete. Do not allow owners to buy multiple units of production- investors are allowed multiple investments in unrelated fields, only.

As bad as control of a given market is - a horizontal monopoly - is control of a given production chain- a vertical monopoly. Apple, for example is a vertical monopoly for its products, since it controls the entire supply chain, buyers are trapped in its particular "ecosystem". Fortunately there are other manufacturers of computers and smartphones, but these others experience much more competition, because it is a more fractured ecosystem of products. It is easier for a new company to get into the market.

This is a model for breaking up the mega corps whose impacts on the world are so questionable. You don't have to force people to use other search engines than Google, if you break the corporation into so many separate businesses. The subunits - let them operate self driving cars as a separate business- can do business with businesses other than the mother business.

This tool has not been explored. Many people want to jump directly to socialism, because they hate the control corporations have over people's lives, and they hate the poor quality of services that result. I agree. But let's try this too: just impose the capitalist ethos on the capitalists: make them compete.

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