business corporate responsibility equality

What socialism looks like upside down

I’ve just started Michael Carolan’s new book, Cheaponomics, and he begins with a provocative thought – socialism has two sides. When we usually talk about socialism, we’re talking about ways of organising our economics and politics so that everybody in society benefits. But Carolan suggests the benefits aren’t the only thing that can be socialized.  Costs can be socialized too.

  • Take Supermarket A. It functions as a cooperative, collectively owned by its staff and customers. Decisions are made democratically and profits are shared across the membership.
  • Supermarket B is run by a corporation that is seeking to pare costs to the minimum in order to maximize shareholder value. It outsources production overseas, and pays low wages.

In Carolan’s thought experiment, both have a socialist dynamic. The first is the more traditional kind, the second a sort of upside-down version. The corporate model is socializing the costs, rather than the benefits. The low wages they pay force staff to sign up for government benefits in order to keep food on the table, a form of stealth subsidy to the supermarket. Who pays for those benefits? Taxpayers. The supermarket has kept its wage bill low and the shareholders reap the rewards, while the cost of paying a low wage is redistributed out across millions of ordinary people through their taxes.

What’s interesting about this perspective is that it opens up corporate ethics to a Conservative mindset. Those that see themselves as pro-business and pro-freedom are usually vehemently against taxation. But “when you socialize costs you necessitate higher taxes, either for present and/or future generations” says Carolan. “In the end, someone has to pay for those costs.”

Incidentally, there are real life examples to those supermarkets. The British chain Waitrose is owned by its staff, who each received an average bonus of £2,225 this year as their share of trading profits. On the other hand, Carolan cites a study that found that California taxpayers spend $86 million a year paying for healthcare, housing and food stamps for Walmart’s 44,000 under-paid employees in the state.

26 comments

  1. Let’s say, hypothetically, that there’s a supermarket C, which neither distributes profit to shareholders, nor members applying it directly for the benefit of society.

    In the US, as we know there’s a major retail chain which lobbies intensively to oppose the ratification of the International Covenant on Economic Social and Cultural rights.

    It was a hunger strike in support of the covenant which got me involved in economic sctivism 11 years ago.. It began in North Carolina where the Forward Together campaign is now gaining traction.

    http://www.p-ced.com/1/node/76 ‘.

  2. Indeed Jeremy, The People’s Supermarket is a social enterprise.

    iN 2013 The Guardian attributed David Harvey or saying

    “Professor David Harvey says our economics “privatises profits and socialises risks”.

    What would it look like if we shifted to a system that socialised both the profits and the risks, in which we all shared the good and the bad?”

    The conversation on how Walmart depends on state benefit has been ragng some time. A recent video draws attention to what ot would mean in terms of retail cost for Walmart to support a living wage.

    Last year the Mayor of Seattle tried to oppose the opening of a new Whole Foods store on the grounds of their poor wages. Ironically, It’s Whole Foods founder John Mackey who advocates ‘conscious capitalism’.

    What if some businesses were to do things differently? What if it made other people the central focus and instead invested in the local community and social objectives?

    The question was raised almost two decades ago and the for-purpose model suggested was soon being deployed to tackle poverty in Eastern Europe.

    In 2004, it was introduced to the UK as I’ve related earlier.

  3. This meme that ‘low pay is subsidised by the government’ is simplistic thinking. If every supermarket paid higher wages perhaps the government would have to pay a lower subsidy to the workers of the supermarket. But it would have to pay a higher subsidy to millions more who would have to pay higher food costs. Waitrose food ain’t that cheap. Works is other sectors of the economy – higher wages mean higher costs which everyone bears (a form of socialising I guess).

    Alternatively the companies could pay higher wages but employ fewer staff (as they do in France). So again the government has a gain from the higher wages to the staff but a minus for the unemployment payments to those no longer employed.

    At its heart this is just a re-tred of the ‘If we just paid everyone more we’d all be rich’ idea that has been found wanting time and time again.

    1. Aren’t you the one who likes to say there’s no such thing as a free lunch? Someone’s got to pay somewhere down the line. The important thing is that the price of things actually reflects the cost. Then we all know what we’re paying for and can make decisions accordingly.

      Let’s make the choice plain: 1) you can pay a bit more for your food and pay less tax. Or 2) You can have cheap food, but pay more in tax – and by the way, those extra taxes will be going to Tesco shareholders. I know which one I’d choose. I’d rather pay more for food and be in control of where my own money goes.

      You prefer the latter, it seems. Perhaps you’re a Tesco shareholder.

      As Jeff is pointing out, you can pay a living wage and still keep food cheap if you’re not paying out dividends. Not for profits and cooperatives have a real advantage here.

      1. Tesco’s total staff costs in 2013 were £7 billion. Profit was £120 million. Not much of a pay rise. Remember dividends can easily be cut in hard times, wages can’t. Of course if not from profits have a real advantage they should be out competing the likes of Sainsburys and Lidl – How is Co-op doing btw?

        What you don’t get is that if everyone pays more for their food they have less to spend on other things, which means less demand for other goods and services – less income to pay other people’s wages. Less economic activity generally so lower standard of living all round. Is that the unspoken steady state greeny subtext here?

        That the government/society has decided that people should receive a particular fixed lowest level of income and services such as healthcare is not in the control of companies so unfair to blame them over its cost. Under your logic if tax credits were doubled then the government ‘subsidy’ to employers would be raised even if wages didn’t fall. I don’t have a problem with government/society setting a floor of incomes but since that is the choice of the government/society it seems right that it is paid for by the taxpayer rather than trying to force someone else to pay for what you want. Social choices should be socialised.

        You do have a choice where you money goes – go spend it at a non-profit; but why are you trying to take mine away?

        Final point, as I’ve said before. If the government stopped taxing the minimum wage then it would be the ‘living’ wage.

        1. If you want to engage with what I write, can you try and resist the silly stuff like citing Stalin or accusing me of trying to take your money away? It doesn’t encourage me to take you seriously. Just pointing that out.

          1. Where did I cite Stalin? Please back that up. And wasn’t suggesting you were seeking to take away my money, but my choice. You shouldn’t be too quick to get on your high horse after suggesting my motives opposing this were for personal gain.

            Still I guess you don’t have any sensible arguments on this so its an way to avoid challenge to the latest lefty hobby horse.

          2. It has also been argued that paying people less than a wage that can sustain their basic needs causes an increase in poverty for the community as a whole. Wealth simply fails to flow.

            According to an academic in the Guardian today, we need more than a moral case to support a living wage. He claims is is missing from the conversation about human rights. Clearly he doesn’t have the same conversations I have.

            http://www.theguardian.com/sustainable-business/moral-case-living-wage-not-enough

          3. Jeff. Wages do have to bear some relation to the value the employee is creating for the employer. If you force wages above that level then companies will try to use as few workers as possible so you have a well paid ‘in’ group and lots of unemployed. France is a text book case.

            If as a society we feel the poorest should have a higher income we should provide that via cash transfers such as tax credits. More economically efficient and proven to raise standards of living.

  4. Stalin was on the think tanks post Devonchap. I let it go because I figure you’re just trying to wind me up, but it doesn’t help your cause.

    Is this a lefty hobby horse? I’ve not heard anyone use the term socialism in this context before. A new one on me, and that’s why I wrote about it. Is it doing the rounds? I’d be interested to know if anyone else is appropriating the term in that way to make their point.

    I’m not sure you’ve really understood the matter here. The point is that if something is cheap (supermarket food in my example, but lots of other things apply) it is still being paid for somewhere. If the costs aren’t reflected in the price, they’re being paid elsewhere. But they are being paid. You are paying them already, you just don’t know it. If you’re concerned about people telling you how to spend your money, we’re on the same side – I’d rather know what I’ve spent than see my tax money frittered away by companies socialising their costs.

    Don’t get hung up on the supermarkets example. Driving and the health costs of air pollution is a better example of the same thing. We’re already paying for it, we just pay for it through NHS costs rather than at the petrol pump.

    1. Google ‘corporate socialism’ for examples such as http://www.commondreams.org/view/2012/04/13-6 or http://corporatesocialism.net/

      What is missed from the Carolan analysis is the broader economic development that this cheapness brings. Since that generates tax revenues that offset those supposed subsidies. Cheaper good = more economic activity = higher tax revenues + higher standard of living.

      For example cars. I’ve read that in the Guardian that in the UK the external costs of motor vehicles (air pollution etc) is about £10 billion more than the tax petrol duty, VAT on petrol and VED bring in. What that doesn’t include is the huge amount of growth in the economy from the mobility that cars provide. That generates tax that pays for things like the Health Service. But it is hard to disentangle from the broader economy so doesn’t make it into these balance sheet type discussions.

      It does seem to be a left wing hobby horse that since at the crash the European welfare state has outrun the tax revenue to support it. Rather than cut the state to fit the finances there is campaign after campaign from the left to find new sources of tax – FTT, Companies’ legal tax avoidance and now the supposed subsidy to employers.

      The idea of higher wages instead of paying dividends is medium term economic foolishness since it would cut future wage growth which is driven by productivity. Economically it is much more efficient to raise incomes for the poor via in work benefits, which is what we do but apparently is a terrible subsidy.

      1. Have you read Carolan’s book? If you haven’t, you can’t presume to tell me what’s missing from his analysis.

        Let me just summarise your position – you’re in favour of low wages, higher taxes and more benefits. Am I hearing you right?

        1. Direct cash transfers are the best form of benefits. They are clear, transparent and not economically distorting. Which is why I’m open to the citizen’s income which I thought you liked too.

          I’m in favour that if society through the government decides on a policy such as bolstering the income of the poorest that broad society bears those costs transparently through taxation rather than trying to shift them on to one sector of the economy in an economically damaging way that will actually reduce future wage growth. Raising wages in the way suggested in your article would be jam today with crumbs tomorrow. Only productivity gains in a growing economy can sustainably and consistently raise real wages. Productivity increases are driven by investment and if you take all the dividends investors won’t invest.

          From what you have written you are in favour of higher prices for all, higher wages now only for some, more unemployment for others and stagnant wages all for the future.

          1. Yes, I’m with you on direct cash transfers, and also on lowering taxes to ensure a living wage. But I still don’t think you’re engaging with the fundamental point here. We are already paying the full cost of cheap stuff, it’s just that we’re paying it through taxation rather than at the till.

            If we’re already paying it, where is this ‘crumbs tomorrow’ bogeyman coming from?

          2. How you pay for things is important. There are ways that hinder economic development, and ways that are less harmful.

            Direct taxes are the best way to pay for government expenditure. Raising wages without productivity improvements, especially if paid for by a raid on investors is very economically damaging, especially to business investment which is the sure way to raise productivity and hence real wages in the medium term. Far better to pay for direct transfers via broadly based taxation as this is much less economically distorting.

            I also think that the ‘cheap is bad’ point misses a lot of the economic positives of that cheapness so the sums appear negative when they are not. Carolan is a sociologist, not an economist, so it isn’t surprising that he misses that. But economics is a key part of this argument.

          3. You’re still missing the point. Carolan isn’t saying ‘cheap is bad’. He’s saying ‘it isn’t cheap’. It is the illusion of cheapness, made possible by externalising social and environmental costs.

          4. I got that point, wholly unoriginal but I got it. But you are missing my point that looking at wider costs (which is what you say Carolan does) while ignoring wider gains means you get an unbalanced picture. “Cheap” then can still be good value.

  5. I once asked our founder why he never used the word social in the context of his work. In the US he said, social means socialism which id one step beyond a baby burning communist.

    In Tomsk, Russia where he first deployed his social business model locals were puzzled by his coming to create new business and give it to other people. They asked him ” Are you some new kind of communist or just crazy?”

    Here’s an extract from his 2009 paper for the Economic for Ecology conference in Sumy, Ukraine.

    “The prevailing economics systems in the twentieth century were capitalism and communism. Both systems were hypothetically aimed at creating a means of providing people with comfortable, safe and secure life.

    Along the way, in the process of attempting different forms of economics from capitalism to communism, we have managed to pollute and contaminate our own environment to the extent of causing environmental change to the point of quite possible catastrophe for people around the world. Neither the capitalist system nor the communist system – nor the various fascist systems attempted in such as Germany, Spain and Italy – lived up to their promises. Communist and fascist systems became infamous for mass murder. The Western capitalist was less murderous. Overall, capitalism was able to produce a much larger middle class of people between rich and poor, and has gained precedence due to making safe and secure life possible for more people. But, it’s various methods over the past 100 years left millions of people to suffer and die more indirectly than outright murder. Those people were dismissed as relatively unimportant, mostly left to die from deprivation rather than outright execution. In all systems, some rationale was created to either dismiss people and leave them to die, or, kill people outright. In the end, for the victims, the result was identical.

    In that context of disposing of people, by all economic systems, and with capitalism having become predominant, financial profit came to rule the day. Profit, the bottom line, was master of all else. People and the environment we live in were secondary considerations. The vehicle of Western capitalism was, and is, corporations.”

    1. Sounds dangerously like you are getting IS and OUGHT confused. If an employer pays wages that mean it staff die of hunger, then that employer will close for lack of staff. But we aren’t talking about that are we?

      If paying your employees more is good for business then in the competitive market they will out compete their rivals. John Lewis might be a good example of that. If so then we will expect their rivals to raise wages to compete since as rapacious capitalists they don’t want to go bust.

      Alternatively John Lewis might want to hobble its competitors by getting them to give up their competitive advantage by paying their staff – helping John Lewis gain market share. It ain’t all altruism.

        1. Lewis makes a point about externalities, the risk of social breakdown due to inequality. His solution was not about what others ought to do, but what they could do based on his example..

          We’d made similar warnings in 2004. “it is completely predictable that it should be only a matter of time until uprisings become sufficient to imperil an entire nation or region of the world. People with nothing have nothing to lose. Poverty was therefore deemed not only a moral catastrophe but also a time bomb waiting to explode.”

          Again the proposed solution is non compulsory. As we said in an inteview. :

          “The P-CED model is not a charity sort of operation. It is business. What we choose to do with profits is entirely up to us, and we choose before anything else happens to set most of our profits aside to assist poor people”.

          That was about Crimea, where there is now very clearly a problem to be solved:

          http://www.iccrimea.org/scholarly/economicdev.html

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