Preface: a story about shoes
Imagine two competing sneakers set side by side. They’re both basically the same shape, same style, same price, etc. They’re competitors. So how do you choose between them?
There’s plenty of reasons to pick one over the other! And everyone is going to use different factors (each with their own unique weighting system) to make that decision. Maybe you like the little loop on the back of one pair, to make it easier to slip them on. Great, there you go! After navigating the selection of shoes available, you found the pair for you.
A couple months go by, and you see on the news that the brand you just bought shoes from was caught using child labor. Again. After promising just last year to stop.
Child labor? You didn’t sign up for any of this. You didn’t hear about it when they were first caught, otherwise you might not have bought from them anyway. You remind yourself you didn’t do anything wrong, you just didn’t know. And if you could, you’d return these shoes and get something else.
We can do better, right?
You tell yourself, “Hey, I’m not looking for perfection but I feel like ‘not using child labor’ is an ok expectation to have of a brand. Until that company stops using child labor, I’m not buying from them again.” Reasonable, right?
Next week, mis/fortune strikes: the stitching on the side of your sneaker rips. Damn, child labor and poor craftsmanship? Time to shed a tear as you realize that you need to “borrow” $100 from your New Phone money to get more sneakers, but you have no choice.
You get to the store, and see the display you saw last time: the child labor sneakers with the nice little loop on the back, and their direct competitor. You even googled other brands to see who was recently using child labor (and deciding how recent was too recent to consider it a problem). The competitor doesn’t use child labor, or at least hasn’t in recent history. You buy the competitors’ shoes, bring them home; only to find that the competitor has a long, public history of dumping chemicals into rivers after bribing local officials.
Now you’re stuck. You want to be an informed consumer, and vote with your dollars. But sometimes it feels impossible…
You must be an expert in everything
The above story may be silly to you, because you might know something about shoes than the person in this example, or maybe you don’t care about social/environmental issues like that. These are big, multifaceted problems, and the products you buy is only one way to combat these things. There’s an old adage about there being no ethical consumption under capitalism, anyway.
Cynicism aside, my point is that people try to make informed buying decisions. It doesn’t even have to be about social or environmental issues: it can be about which product actually works as advertised, which one is well-made, or any number of other factors.
I’m sure we’ve all had experiences with buying something only to find that it’s poorly made, sloppily designed, and ill-fitting. If we’re lucky, we can return it to get our money back. But even then, we’ve lost time and energy addressing it.
Why can’t we have nice things?
The goal of capitalism is to maximize profits for the people that own the company. Back when there were only 2-3 brands making a given kind of product, competing on quality was a valid strategy for a company to maximize profits since learning the differences between 2-3 products was tractable, and word could get around. If your competitor makes an inferior product, and the public knows it, you can rest assured that people will gravitate to your product.
But how do you pick when there’s 75 different choices? To make matters harder, some of these “choices” are identical, with mostly cosmetic reconfigurations, but sold as different brands at wildly different prices.
Tools for researching products emphasize things that are easily quantifiable: price, dimensions, and features. Some attempts, in a few product categories, aim to express quality in metrics. But overall, as consumers, the best we can get is reading reviews for the product online.
Instead of simply going to the store to buy something, you need to spend time and energy gaining some degree of expertise on a product category before you can make in informed decision. Using a totally non-scientific assessment, it seems like 75% of stuff on Amazon is utter crap. The alternative is to go into a depressing, miserable box store like Walmart, where maybe 50% of the products there are utter crap. Better, but not great. And if you’re lucky enough to still have access to locally owned businesses that can address your daily needs, then you’re one of the few.
We are not alone
We have government agencies that support us as consumers. Maybe the laws are a little lax at times, but generally speaking the stuff we buy isn’t going to explode in our faces (too often). What we need are better controls on industry, so we can just buy a damned pair of shoes without feeling like we need to research, or at the very least so that when we buy stuff it’s at least decent quality. I yearn for a world where products have to list their expected longevity/quality. Imagine looking at two different things, to find that the reason one is less expensive then the other is because the cheap one is only going to last a year.
There’s nothing wrong with cheap stuff, but I want to know the value of what I’m buying. Most times, after I buy a thing and it breaks, I wonder “maybe I should have spent another $20 and gotten the slightly nicer one. Maybe that one wouldn’t break.”
Better regulation for a better tomorrow?
Yes, and no. On one hand, stricter regulation can create better quality of life (consumer protections as part of that, no doubt) in capitalist countries. Take Germany, for example. At present, they have a strong social safety net and a higher quality of life. As an example of a more robust social safety net, Americans spend over 178% more per year on healthcare for worse outcomes compared to Germans.
In the past, the US had a more robust social safety net, too, and tighter regulation on business. But that’s been eroding over time, despite a broad majority of public support for these policies. (Yes, even among Republicans, especially if phrased without using GOP talking points.)
Similarly, in the past, Germany had a robust labor movement and was building a social safety net, but that got pulled apart and dismantled rather abruptly in 1933 in favor of maximizing profits. The point being that social safety nets are never permanent in capitalism, because they’re contrary to the goal of capitalism.
This isn’t a hot take. Take a look at capitalism’s biggest cheerleaders in America: Libertarians. They’re a group famous for being opposed to seemingly any and all industry regulations or social programs, because they recognize them as antagonistic to capitalism. Libertarians say capitalism functions better without them and I agree: the goal of capitalism is to maximize profits. Regulation inhibits that. I admire their ability to recognize this, but I am endlessly baffled that none of them seem to notice that they, as workers, will not get those profits.
Socialism never took root in America because the [working class] see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires.– Ronald Wright, paraphrasing John Steinbeck
Regulation vs Profit
Why do we see this relationship between profit and regulation? It’s because profit and regulations are antagonistic. Regulations inevitably reduce profitability, because profit arises from producing at the lowest possible cost. Regulations put limitations on cost-cutting: it’s far cheaper to dump chemicals in the river than safely dispose of them. Third-world child labor is less expensive than a unionized, adult worker. Durable goods require more and higher-quality materials to produce, and also last longer. Planned obsolescence is a major source of income for companies: products designed to fail sooner (but not too soon) so you have to buy another. A company would rather sell you five $20 widgets than only one or two durable ones for $30.
Let’s find some stability
I’m not saying regulations don’t work. They can, and sometimes do, improve the quality of life for the masses in the short term. However, this arrangement is not stable.
We already know the regulations don’t last forever. They get eroded or even smashed, and building them again is incredibly difficult. Monied interests–such as mega-corporations or even whole industries–oppose regulation at every turn. In other words, at the very core of our society’s function is tension and antagonism between opposing forces.
Were this a fight that could be balanced, it might not be so bad. Right now, one side has almost all of the people, the people that actually work and buy stuff; the other has almost total control of the government at federal, state, and local levels. The top 1% of income earners in the US hold more wealth than the middle 60%. Influence is used to buy control of the people and systems that make the regulations. It’s not an evil plot. Influencing and controlling regulatory agencies is a simple and obvious means to increase profits, and it’s got a jargon-y name: regulatory capture. It’s a well studied phenomenon.
Remember, profit always means the people that control the means of production (executives, factory owners, business leaders, etc) will make more money than the people that they employ. So even if we reign in profit, we’re still creating a system that allows the people that want less regulations and taxes on business to consolidate wealth and power.
It’s only a matter of time until the business owners use that power to undermine the regulations and taxes that hinder their profits. And because given that they control what we buy, eat, watch, do, and read; they have ample opportunity to help convince us that they’re good, nice, and working on our behalf.
Where does profit come from?
Simply put, it is value generated by the worker that’s in excess of the cost of creating the product. If it costs $3 (in material, wages, rent, equipment, etc) to make a burger that sells for $4, that means each burger generates $1 of (net) profit. Who gets that profit? It varies, but it’s never the person that actually created that value. When is the last time McDonald’s executive put in a 12 hour shift flipping burgers?
Don’t get me wrong, I understand there’s value in administrative roles in large organizations, and there’s nothing wrong with people making money. I’m talking about profits, money leftover after everyone has been paid. (Of course, executive pay is outrageous in the US too but that’s more a symptom than a cause.)
With regulation, we could reduce profits (for the benefit of using that money to increase wages, or support social safety nets). Instead of losing 20% of all generated wealth to profits in a given industry, we could reduce that to 10%. That 10% shift could make a big difference in people’s lives, especially if it all went back into wages. But, while less theft is better than more theft, what if no theft? What could we do with the money wasted on profit?
Case study: Information Tech Industry profits vs the World
The Information Technology industry, according to the IDC, generates about $4.8 trillion in revenue a year. The industry enjoys, at least as of time of writing, approximately a 20% net profit margin. In other words, that’s just south of $1 trillion in net profit each year (~$960 billion, to be more precise). That’s after everyone has been paid, including the egregious executive wages and administrative bloat. A trillion is a really big, hard to conceptualize number, so let’s find some context.
Global problems that can be solved for less the net profits of the Information Tech Industry alone
World Hunger, total elimination (price: ~27% of net profits/yr)
The International Food Policy Research Institute has some numbers for us. We can fundamentally decrease and limit world hunger for as little as $7 billion dollars a year, but if we want to eliminate hunger entirely, we could expect to spend around $265 billion dollars a year.
World Hunger, reduce rate to 5% (price: ~5.5% of net profits/yr)
IFPRI again. Maybe that $265 billion/yr seems steep. How about $52 billion/yr to reduce world hunger rate to just 5%? For example, in over-exploited regions like Sub-Saharan Africa, hunger rates can be as high as 22%.
Global Access to Clean Water (price: ~15.5% of net profits/yr)
The World Bank estimates ~$150 billion/yr would make it so everyone has access to clean water.
Convert 80% of the world’s electricity generation to renewables by 2050 (price: ~50% of net profits/yr, until 2050)
Morgan Stanley, the bank, put together a huge report on the costs of combating climate change. While the net profits of the Information Technology Industry alone couldn’t foot the bill, they can make some big impacts.
Carbon capture and storage for all coal power plants by 2050 (price: ~9% of net profits/yr, until 2050)
Electrification of vehicles and infrastructure by 2050 (price: ~39% of net profits/yr, until 2050)
Wow! With just the net profits of the Information Technology Industry alone, we could: solve world hunger, convert to renewable energy, move away from fossil fuels, capture carbon from our worst polluters, and give the world access to clean water. And then by 2050, a most of that opens back up and could solve other problems.
Uh, what happened to talking about consumer protections?
Well, ok, you got me there. I’m sort of off-topic. Solving world hunger is not a consumer protection, per se. I can’t find numbers for costs of consumer regulations, or get global figures on those. Plus, once I realized what $960 billion dollars/yr could do for the most challenging problems humanity has ever faced, my example about buying sneakers seemed so trivial. But the bigger point is that we can walk and chew gum at the same time.
I won’t pretend that building the infrastructure necessary for robust consumer protections and industry regulation doesn’t cost money. It might cost a lot, but it certainly can’t cost more than solving world hunger, or combating climate change.
By eliminating profits, we would both free up resources desperately needed the world over and remove the means for dismantling the systems meant to keep us safe and lead a good life. We can stop climate change and make it easier to shop for an SUV, at the same time.
The more moderate approach, limiting profit, is still a good thing for the short term because it frees up resources for solving major global and national issues, which definitely includes consumer protections. But that’s only a short term solution because the system is still tipped to favor the powerful. And the powerful get more powerful by removing those protections and social safety nets created by limiting profit. Instead of the federal government funding social programs with corporate tax revenue, now the federal government subsidizes corporate profits with money meant for social programs. It’s all backwards.
What are you, some kind of Marxist?
Beats me. I mean, I agree with Marx: value comes from labor. I know we typically associate Marx with radical ideas, but even Adam Smith argued passionately about the labor theory of value. And I don’t think America should (or even could) become like the USSR of old or the China of now. Our cultural and material conditions are different here and now versus there and then. We can analyze other examples of non-capitalist societies, but we can’t emulate them. Plus, we’ll have a distinct advantage over them: if we let go of capitalism, we won’t have to be afraid of a US-led coup, or US-led blockades, or a war that kills 20% of the population to return us to capitalism.
Eliminating profits: the ultimate consumer protection
If we eliminate profits from our economic system, we would not only have oodles of money to put towards huge and seemingly intractable global problems; we’d also eliminate the driving force for making cheap crap. And remember that we’re only talking about profits here. Not a single cent of increased taxation on the working class, and even the executives are still paid their ungodly wages. I’m sure it would depress the stock market, since that is driven by profits.
But also, the stock market is not the economy. Most people’s connection to the stock market is via a 401k, but clearly we can fund massive social programs if we eliminate profits. No one’s ability to retire should be tied to such an unstable system, anyway. Imagine getting ready to retire, and the stock market crashes. Poof! There goes your hard-earned retirement.
If we give up on profits, we can re-focus our economy on improving the lives of Americans, and even people around the world, without even increasing the tax load on the working class. Seems worth it to me. What do you think?