Institute for Labor Research, 1982, "Where do profits come from," pages 38-57, in What's Wrong with the U.S. Economy. South End Press, MA. I have left out some graphics.
Where do Profits Come From?
"There are too many billionaires."
"I would go to the store. I would see plenty of food, I would see clothes. Still I'd see the people that they didn't have it. I wondered why it was. I didn't know, nobody ever told me. The miners had to do all the work, but they didn't get the money for it. Somebody got the money while they done the work. They made ever'thing, but they didn't get it."
long-time Appalachian residents
"When we were kids we thought the steel mill was it....We just couldn't wait to get in there. When we finally did get in, we were sorry. (Chuckles).... I don't know where they got the idea that we make so much...it's the big bosses who are makin' all the big money and the little guys are makin' the little money....I got nothin' to show for it....After forty years of workin' at the steel mill, I am just a number."
56-year-old inspector at U.S. Steel3
Working people and the corporations agree: profits are the key.
Corporations argue that we can't improve our working and living conditions unless corporations can invest more. And that requires higher profits. "Cutting back on profits business needs...," an Allied Chemical ad insists, "would be like squeezing the breath out of America's future."4
Many working people wonder about this argument. Corporate profits have been soaring for several years, as we saw in Chapter 1, while working people have been struggling to stay afloat. How can we be so sure that improving profitability will improve our working and living conditions? Only 20% of U.S. adults think that profits "mainly create prosperity" while 75% think, instead, that profits "mainly benefit stockholders."5
The conflict seems clear:
Most working people think that our own problems demand immediate solution. If improving working and living conditions cuts into profits, so much the worse for profits! Corporations argue that our economy can't solve anybody's problems unless profits get absolutely top priority. If that requires reductions in our present living standards, so much the worse for our living standards!
Who's right? Why do profits play such a central role in our economy? And why should our working and living conditions be so closely tied to something which "mainly benefits stockholders?"
We can't answer these questions unless we locate the origins of profits in our economy. We need to begin with a very simple question: Where do profits come from?
DO PROFITS COME FROM CORPORATE RIP-OFFS?
"You go to work for someone and they rip you off all day. Then you drive a car some other company ripped you off for, go shopping and get ripped off at the store and go home and get ripped off by the power company, the gas company and the landlord. It seems like the only thing you can do without getting ripped off by them is sit in the park and shiver."
young worker in Massachusetts6
Many working people feel that corporations earn profits because of their monopoly power, because they are able to charge prices far above their costs. We have to pay those exorbitant prices because we can't buy from anyone else. Surveyed in 1975, more than three-fifths of U.S. adults agreed that "there is a conspiracy among big corporations to set prices as high as possible." In another poll, only 11% gave business a "high" rating in "providing value for the money."7 The problem, many people believe, is that corporations are rip-off artists.
How do we make this idea more concrete? We can take the giant auto companies as an example. They make cars in order to make profits. In making the cars, they put out money for raw materials and machines and workers. These are their costs of production. We give them money for the cars we buy. These are their sales revenues. Profits equal the difference between total revenues and total costs. When the auto companies complain that they only make 4 cents on every dollar, they mean 96 cents out of every dollar in revenues must go to cover their costs.
By these definitions, the view that the giant monopolies are ripping us off boils down to the simple argument that their costs don't warrant the prices they charge, that the basic source of corporate profits is their power to keep prices higher than they "should be." Does this rip- off analysis make sense?
It makes a lot of sense on the surface. Prices seem very high. We know that many corporations within a single industry, like steel or auto, charge roughly the same prices for comparable products, scrupulously avoiding price wars among themselves. Prices never seem to come down; they just keep rising.
When we probe beneath the surface, however, the rip-off perspective provides us surprisingly little help. It has two main flaws.
1. One problem is that it exaggerates the power of large corporations to determine the price at which they sell their products. Just because there are only a few giant firms making a product doesn't mean that they are totally exempt from competition. Corporations may try to fix prices high enough to permit huge profit margins, but that doesn't mean that they will always succeed. Competition casts its shadows on even the largest corporations.
For example, competition may increase corporate costs. Take the airlines. They're huge companies. During the 1960s and early 1970s, their prices were fixed by the government and they were largely protected from new competitors by route regulation. But they still competed frantically with each other. They devoted huge budgets to advertising. They showed movies, played music, served wine, dressed up their meals, and fiddled with their service. Every time one airline got an edge, the others raced to copy it. Despite the fact that their prices were fixed (and very high), competition continually eroded their profits by forcing them to increase their costs.
Competition among the largest corporations may also occasionally force them to lower their prices. Take color televisions and pocket calculators. When those products were first introduced (by huge corporations), their prices were very high. As other (large) corporations entered the market and production technologies improved, prices plummeted. The price of a comparable pocket calculator fell from about $80 to about $20 in a couple of years. The fact that only a few firms made the product did not prevent the decline.
Competition also comes from abroad. As auto and steel workers know only too well by now, both the Big Three in auto and the Big Eight in steel, despite their enormous size, have been hit hard by foreign competition. During the 1950s and 1960s, companies in both industries had been raising their prices continually in order to maintain their mark-up margins over costs. While they got fat and a little lazy competitors began to steal their markets. Try to convince the workers at Chrysler that giant firms are immune to competition!
2. Another important problem weakens the rip-off analysis: it fails to look at both sides of the market-at the buyers as well as the sellers. We can illustrate this problem with a sequence of logical steps:
a) Consider the 500 largest corporations in the United States as a group. Together they constitute the core of the U.S. economy accounting for 63% of all purchases and sales.8 Suppose these corporate giants tried to charge prices far above their costs. What would happen? b) The large corporations could earn sustained profits by charging far more than their costs justify only if their customers could continuously afford to buy the core economy's products. Small businesses, workers and people in other countries are the corporate sector's customers. Their income is derived from revenues from products they sell to the corporate sector and from wages that they earn from the corporate sector. c) In other words, the corporate sector's customers can only earn enough to afford rip-off prices for corporate goods if the corporations are willing to pay high enough prices for the products they buy from small businesses and high enough wages to their workers. But, the more the corporations pay out to the rest of us, the higher their costs. And the higher their costs, the less their prices seem like rip-offs. d) Thus, if the corporations refused to pay us anything but bargain basement prices and poverty wages, and then turned around and tried to charge rip-off prices, we wouldn't have enough money to afford what they wanted to sell to us. No customers, no profits. Nobody-not even the largest and most powerful corporations in the world-can make a profit if they can't find buyers for their merchandise.
As one oil worker recently explained about his own company, "The whole point is that Union Carbide is getting it, but it's got to come from somewhere else. Union Carbide may sell it, but it's got to come from somewhere."9
These arguments aren't intended to justify high corporate prices. Or to suggest that corporations never make relatively higher profits-for a while at least-because they are able to limit competition and keep their prices relatively far above their costs. The rip-off analysis certainly provides a partial insight. But since even the largest corporations are never entirely free from competition, rip-off profits are never entirely secure. And since monopoly profits create losses for others, rip-off profits can't go on forever. No matter how powerful the sellers in market economies, they can't completely escape from competition or the need for buyers.
The numbers support this suspicion. The best available evidence suggests that, at most, barely more than 10% of total corporate profits can be attributed to the special monopoly pricing power of the giant corporations.10 That's much too small a share for us to feel satisfied with the rip-off explanation of profits.
If the rip-off analysis is inadequate, where do we turn for a better understanding of the origin of profits?
A Refresher: What Is Profit?
We can get one clue from a glance at different definitions of profits. The DUPE pushers keep talking about profits on sales: Mobil Oil took this tack in one of its recent pamphlets, for example, arguing that "most Americans have a greatly inflated conception of how much the average business earns from each dollar it takes in.''11 But corporate investors actually pay little attention to that definition. Investors measure the profitability of their investments by the profits they earn on the capital they invest, not on the sales revenues the corporation receives. (When we choose among savings banks, we measure interest on the net amount of money we deposit, not on the total flow of funds in and out of our accounts.) If a corporation "finds the return on [its] investment very low," as the DUPE primer puts it, this means that it "should think of going into some other line of work.''12
Since Mobil Oil says we have an "inflated conception" of profits, let's take Mobil as an example. In 1980, Mobil received $59.5 billion in sales revenues on a net stock investment of $13.1 billion. Its net after-tax profits were $3.3 billion. Measured against sales, its rate of profit was "only" 5.5%. Measured against stock equity investment, however, its rate of return was a snappy 25.0%-or more than 4 times greater than profits on sales.13 That' s something like the difference between chicken feed and filet mignon.
If investors care most about returns on their capital investments, then we should probably shift our focus. The bulk of capital investment goes into the means of production-into building and machines. That suggests that we need to study what affects the profitability of capital investments in the means of production. Let's leave the market behind for a moment and wander into the factories and offices of our economy.
DO PROFITS COME FROM WORKERS' LABOR?
"It's like assembly work....[For] about three months....I did piecework at Western Electric....[They] expected you to put out a production report and they expected your rates to be very high....
"Well, on this job we process bills. [We're] expected to do so many a day and put out so much money. So we have to total up and make out production reports daily, and in the last six months they've been putting a lot more pressure on us ...I have trouble with that....My production report goes up and down. It depends on how I feel....But they must think I'm worth something, because I'm still there!"
28-year-old clerk, former factory worker14
"I'm habitually late to work. I'm late almost every day because I personally, I resent punching a time clock. I don't want to be a number....There's no feeling to it....I think that's my way of getting back at them and I've told my boss that if I didn't punch a time clock, I positively would be in there every day on time."
chemical worker in New Jersey15
The rip-off analysis comes from our experience as consumers in the market. What happens during the time we spend as workers in production? Are we ripped off at work? Instead of coming out of our wallets, do profits come out of the labor we perform as workers?
As we saw in Chapter 2, production in a capitalist system depends on wage-labor. Most people don't own enough tools and machines to work as independent producers. A few people own most of the means of production. Those of us who can't produce what we need on our own must work for those who control the necessary buildings and equipment. When we're hired by employers, we sell control over our labor power-our power to labor or ability to work-for specific periods of time. This sale of labor power takes place in the market. The capitalist pays us a wage or salary in return for control over our labor. We agree to submit to the capitalist's supervision in return for that payment. This exchange seems fair enough, since each party gets something out of the deal . Don't we put in a "fair day's work" and get a "fair day's wage" in return? Let's take a closer look at what happens on the job. Suppose our workers have just clocked in at the toaster plant of the Short Circuit Electric Corporation. Short Circuit owns the buildings and machines. It has already bought the necessary parts and supplies. It has hired its workers for the day. Let's assume that the workers are earning $24 a day. Let's also assume that the company spends $12 per toaster to cover the necessary cost of parts and supplies. Suppose that each worker turns out two toasters during a four-hour day. Assume the toasters sell for $24 apiece. Each worker therefore produces, on average, $48 worth of toasters per day. Those revenues exactly cover the worker's wages and the other costs of the toasters he or she makes. [Expenses per worker = $24 in wages + (2 toasters x $12 costs per toaster) = $48 per day.] There's no surplus left for the capitalist. The corporate owners look at their accounts and begin to moan . "We didn't go into this business to make toasters," they wail. "We're in this to make profits. Where are our profits?" The capitalists realize that their ownership of the means of production gives them some extra clout. "Who says you bozos only have to work four hours a day?" they announce. "No more lollygagging about. Buncha lazy goldbrickers! From now on, if you want to work for me, you're working eight hours a day." The capitalist is the boss. If the workers want to keep their jobs, they must put in the eight hours. Now they produce four toasters during the working day. The owners earn $96 on the daily output of each worker. They still pay $24 per worker in wages and now need $48 to cover the other costs of the toasters each worker makes-for a total of $72 per worker. That leaves a profit of $24 per worker. If 1,000 workers enter the Short Circuit gates every day, the company earns a cool $24,000 profit every day of the working year. This example suggests one possible way of thinking about the origins of profits: the ultimate source of profits in a capitalist economy is the extra time that workers spend on the job after they've produced enough goods to cover their own wages. A different angle on the same example helps make this clearer. Each worker can make $12 per toaster-or $6.00 per hour. That means that workers can "earn" a net of $6.00 per hour toward their own wages. Since their daily wages are $24, they can produce enough toasters to cover their wages during the first four hours of the working day. If they have to work more than four hours, they're working to produce extra products which, when they're sold, provide pure gravy for the boss.
These examples are hypothetical. But they are played out every day in our economy. Figure 3.1 provides data for General Motors for 1979. As the chart shows, GM workers worked 3 hours and 41 minutes each day to cover their own wages and the other 4 hours and 19 minutes for the bosses and owners. No wonder GM could afford to pay out $1.5 billion in dividends to its stockholders who earned their income through the strenuous exercise of endorsing their dividend checks.16
We need a few definitions to develop this idea for further discussion. The time workers spend making enough products to cover their wages can be called necessary labor time. (It's the number of working hours which is "necessary" to cover the costs of "producing" that critical resource-workers' labor power-without which production could not take place.) The rest of the working day can be called surplus labor time. (It's "surplus" because workers' wages, the necessary costs of production, could be covered even if these additional, or surplus, goods were not produced.) The goods produced during surplus labor time have a value, since they'll fetch a price in the market. This can be called surplus value. It is equivalent to the amount of money which could be earned by selling these extra goods in the market.
How to Divide GM's Revenues:
Once you take out what GM pays to its suppliers, what's left is often called value-added.
In 1979, GM's value-added was $31.6 billion. Of that total, only $14.6 billion went to production workers.
Using these definitions, our discussion thus far suggests that the foundation for corporate profits in U.S. capitalism is the surplus value which workers produce. We know that capitalists wouldn't earn a profit if workers spent only necessary labor time in the factory or office-only enough hours to produce sufficient goods to cover the necessary costs of production. And we know that production wouldn't take place if there weren't any profit-because the bosses wouldn't have any incentive to open their factory gates and office doors. But we know that production does take place. And that corporations earn profits. So we can conclude that workers put in extra hours-beyond necessary labor time-producing surplus value for their bosses. No wonder they won't let us leave work after lunch!
How to Divide (continued) After paying $14.6 billion to production workers GM had 17 billion left from total value-added. That surplus provided for: $2.9 billion in profits 4.2 billion in management salaries and 5.4 billion for investment and tools 4.5 billion in taxes
Source: Based on GM Annual Report; see note #16
Why Don't Wages Wipe Out Surplus Value?
Not so fast, the DUPEsters reply. Don't workers' earrings depend on what they produce? How can they not get paid for this "surplus labor time?" "We know that as the value of efforts grows," as the DUPE film guide puts it, "our compensation grows along with it. People are paid for the value of their economic contribution.''17
In order to respond to this DUPE argument, we need to study wages more carefully. We began the Short Circuit example simply by assuming that workers earned $24 a day. Why won't their wages keep increasing the longer they work?
We saw earlier that labor power is exchanged in the labor market. In this respect, it is a "commodity" like apples and oranges and toothpaste. There are buyers and sellers, prices and quantities, a deal and a purchase. For most commodities, as we learned in the previous section on "rip-off," prices are likely to stay very close to the costs of producing those products. If they drop too low, the sellers won't be able to provide the product. If they rise too high, competition will push prices back toward their costs or the buyers won't be able to afford them. Does the price of our labor power-our wages and salaries-follow similar rules?
The first part of the rule seems to apply quite directly: if the price of our wages-falls too low, we won't be able to continue providing the product-our labor power-for long. Why? We can't expend work effort unless we eat adequately. We can't show up for the job unless we can afford to get to work. We can't be productive if we can't stay healthy. We'll have trouble cooperating with others if we can't afford minimal necessary cultural means of subsistence-things like television, movies, and books which give some definition to our lives and help us understand the attitudes and perspectives of others with whom we work.
All this costs money. If our wages aren't high enough to cover those costs, we won't be able to work effectively for long. Employers will soon be forced to find other workers-and probably to pay them enough to sustain their labor power-or begin to pay enough to keep us going.
One way or another, employers will eventually have to pay wages high enough to cover the basic costs of workers' physical and cultural subsistence. They'll run out of workers if they don't.
But couldn't wages keep rising above the costs of producing labor power, eventually eroding the foundations for corporate profits?
Many of us can answer that question from our own working and bargaining experiences. Sometimes when we push for higher wages, corporations simply fire us and hire other workers who feel that they have no other choice than to work at the going wage. Or employers occasionally decide that the enterprise is no longer worth their while, shutting the gates and leaving us to pound the pavement for another job. Or corporations may pack their bags and move elsewhere, finding workers in another state or country willing to work for less. Back on the streets again.
In the end, the success of all these corporate strategies depends on two connected features of economic control in capitalist economies. 1) As long as there are plenty of available workers with no alternatives to wage-labor...and 2) as long as employers are able to decide unilaterally how and when to deploy their means of production, then the scales of power are tilted steeply in the bosses' direction.
Corporate bargaining leverage hinges, in short, on both the existence of a reserve pool of wage-laborers and on continuing private and centralized ownership of the means of production. When these conditions are fulfilled, employers are likely to be able to keep pushing wages back toward the costs of workers' subsistence. For us, too often, it's a choice between those wages or the unemployment line.
Some conclusions about wages are now at hand. Our paychecks can't fall much below the costs of subsistence (or employers begin losing employees), and capitalists' power advantages tend to keep wages from rising much above that same level. In general, as a result, workers' wages will depend primarily on the costs of producing labor power, not on the "contribution" which workers make to production. Our earlier ideas about profits remain intact: it is very likely that capitalists can keep workers' wages from rising as high as workers' output, preserving the possibility that bosses can hold on to their precious surplus value. And the key to this possibility is the uneven balance of power between those who control the means of production and those who don't.
So where do profits come from? They obviously don't come from accidents or magic tricks. We've also seen that they don't come reliably or completely from rip-offs in the market. Rather, it appears that corporations make money off our backs in production because they control the means of production:. Profits come from corporate power over workers, not from the stork. They are rooted in the basic structure of the economy. The DUPEsters try to disguise these conclusions however and whenever they can. But our own daily experiences as working people continually remind us that we're the source of their profits and wealth.
DON'T PROFITS ALSO COME FROM MACHINES AND RISKS?
"The founders of our Republic believed in the fundamental importance of an individual's being able to profit from his labors....They believed that enterprise was the key to a happy prosperous society. And they believed that the rewards of enterprise were a good thing, enriching people's lives and encouraging more enterprise."
Textron Corporation pamphlets
The DUPE argues that profits come from risks (which entrepreneurs take) and from machines (which corporations own). Aren't corporations just as entitled to their profits as workers to their wages? How can workers lay claim to either the badges of entrepreneurial courage or the fruits of corporate property?
In order to compare this argument with our own discussion of profits and surplus value, we need to look at the DUPE assertions about risks and machines very carefully.
1. The DUPE on risks is straightforward. According to the DUPE booklet, "Investors and entrepreneurs take on the risks of financing and owning on-going businesses and starting new ones.''19 Why do they take these risks? "If successful," the DUPE film teachers' guide suggests, "the enterprises earns a profit. The risk is that there may not be a profit."
Why are they entitled to these rewards? "It's a fact," the DUPE film guide concludes, "that we would not enjoy the freedoms and benefits we do if it were not for the 'movers and shakers' who made America happen."20 The least we can do to show our gratitude is to grant them their just rewards.
Their are two main problems with this argument.
The first is becoming more and more familiar. Corporations argue that they deserve profits because they take risks. In fact we're almost always the ones who bear the costs of failure. When business slackens, we get laid off, not them. When one region declines, they pack up their stock certificates and move somewhere else; we're left behind to sift through the ruins. When their businesses approach bankruptcy,-as Penn Central, Lockheed, and Chrysler (among others) have in recent years-they scream for government bail-out and often get it. When we fall into debt, our creditors are rarely so considerate. As a boardroom philosopher once remarked, according to Forbes magazine, "Socialize the losses and keep the profits private!'' 21
The second problem is even more important. Entrepreneurs need money in order to "take risks." Where does the money come from? It comes either from workers' savings or from profits. If it comes from savings, why shouldn't the savers get the full benefits of its application? If it comes from profits, why shouldn't the workers whose labor made those profits possible get full benefit from their use? We can think of it as a kind of insurance; insurance systems are supposed to work so that people are protected against unpredictable disasters and recoup their premiums if the accidents don't occur. Why couldn't risk-taking in the economy operate as a sort of social insurance scheme. If our labor and savings make investments possible, why shouldn't we all both share the risks and enjoy the benefits which such investments create?
The answer, in the end, is that capitalists own the means of production and can therefore exclude the rest of us from both their use and their benefits. They don't have any more "courage" than any of the rest of us. Their privileged control of social wealth simply allows them to grab as much of social surplus product as they can.
2. The DUPE on machines builds on three assertions.
DUPE pushers argue that machinery increases output. "The use of machinery improves the productive process and encourages mass production. It also contributes to lower costs, lower prices, and more jobs."
They argue that corporate investment makes machinery possible. "Without these savings, there would be no capital goods."
Finally, they argue that corporations wouldn't make such productive use of their profits if they didn't get something out of it. "The basic incentive for businesses and individuals to invest in new capital goods is the hope of additional future income."22 Corporations therefore have a right to the profits which result from their investments. "It is through human and capital investment that inventions are made available," the DUPE film teachers' guide concludes, "so, the economic rewards that result are justifiable."23
Viewed from our perspective, there are several serious problems with this argument.
Someone has to build the machinery. If machines help improve our standards of living, why shouldn't the workers who build them have a claim on the social benefits which those machines make possible?
Machines cost money. Where does a corporation get the profits to pay for capital goods? Suppose it begins without machinery and wants to buy some. According to the argument of the previous section, the money comes from the surplus value produced by the company's employees. If those workers didn't put in extra hours, the company wouldn't have the "savings" it needs to buy the machines. So why shouldn't workers whose labor makes the purchase possible have claim on the benefits they provide?
Someone has to start, operate, monitor, and maintain the machines. Suppose the installation of new machines at Short Circuit allows the workers in our previous example to produce one toaster every hour instead of one toaster every two. Why shouldn't the workers be able to take advantage of the machines by working fewer hours or slowing down the pace of their work-since they don't need to work as long or hard to produce enough goods to cover their wages? Why should capitalists enjoy the fruits of machines instead of workers whose labor makes those benefits possible? If the bosses want a claim on the machines' output, why don't they come down on the factory or office floor and help us run them?
Now the DUPE arguments about machines begin to crumble. They make three points:
1) They say that machinery increases productivity. Fine, we say. Let the workers who build and operate those machines enjoy the benefits of that productivity.
2) They say that corporate profits make machine investment possible. Fine, we say. Let the people whose labor provided those profits decide how much to invest and how the dividends from those investments should be distributed.
3) Stripped of the first two arguments, they have only their third assertion left. It amounts to blackmail. If you don't give us our profits, they threaten, we won't invest and you won't have any jobs or income. That threat rests on nothing more than their monopoly ownership of the means of production.
They don't earn profits because they built the machines, in the end, or because their own savings bought them. They earn profits because the structure of our economy permits them exclusive control of the social wealth which everyone- except them-has helped construct.
WHAT MAKES PROFITS HIGHER OR LOWER?
We have one more question to answer. Any analysis of the origins of profits should also help explain what makes profits higher or lower. Can we use our analysis of surplus value to answer that question as well? How Much Do They Pay Us? The first factor which influences profits is obvious from the previous discussion. The higher our wages, other things being equal, the lower their profits. The toaster example shows this obvious effect. When we left them, the workers were earning $24 a day and the bosses were earning a profit of $24 per worker. Suppose the workers finally manage to form a union and, after a long strike, boost their earnings to $30 a day. Assume that the bosses are not able to push the workers any harder on the line. Daily output stays at four toasters per worker. Total revenues per worker therefore remain the same, and so do other costs per toaster. This means that the $6 increase in daily earnings comes straight out of the bosses' pockets. Where once they banked $24 per worker per day, their profits have now dropped to $18 per worker. Pull out the crying towels again! This conflict between wages and profits has continually threaded the fabric of relationships between employers and employees in the history of capitalism. When workers have tried to push their earnings above subsistence level, employers have looked for new sources of labor-often importing low-wage strikebreakers. And the quest continues as capitalism has spread into many corners of the world. Like major league scouts checking out ballplayers in the sandlots, corporations scour the globe for less expensive workers. One U.S. corporate executive recently explained the advantages of cheap labor in Singapore: "You could hire a girl for $20 U.S. a month, forty-eight hours a week. They don't mind sitting down and doing very tedious jobs on a continuing basis." If and when those workers protest they face continuing blackmail threats. As one Mexican worker reported on their own mobilization: "We have 1,000 women sitting in here. The company said it will move to another country if we keep up our demands."24
How Long Is the Working Day?
Another factor has an equally simple effect on profits. The longer the working day, other things being equal, the higher the profits.
Our toaster example shows this effect very simply. Workers were earning $24 a day. When they worked eight hours a day, the capitalist earned a profit of $24 a worker. If workers stayed an extra two hours and their wages did not rise, profits would jump to $36 per worker. In this case, profits depend on the power of workers and bosses to determine the length of the working day. If bosses can force workers to put in more hours, profits will rise. If workers can shorten the working day, profits will fall. This contest over working hours has played an important role throughout the history of capitalist economies.
When owners first organized factories in England, for instance, they often tried to regulate the length of the working day by keeping the track of time to themselves. As one English worker complained at the beginning of the nineteenth century:
There we worked as long as we could see in summer time, and I could not say at what hour it was that we stopped. There was nobody but the master and the master's son who had a watch, and we did not know the time. There was one man who had a watch...It was taken from him and given into the master's custody because he had told the men the time of day....25
In the United States, artisans had been used to six or eight-hour days when they controlled their own work. Once they entered the factories, their bosses insisted that they stay as long as possible. In 1839 in Massachusetts textile mills, the hours of work varied from a minimum of 11 hours and 24 minutes a day in winter-without a breakfast break-to a maximum of 14 hours 31 minutes a day in April-counting a half hour each for breakfast and dinner.25 When the steel industry was reorganized in the late nineteenth century and craftworkers' power was broken, the same thing happened. In 1880 the average skilled steelworker worked 12.8 hours a day. By 1910, the average working day for a skilled worker had stretched to 14 hours a day.26
Workers in capitalist factories have always struggled to shorten the working day. The ten-hour-day movement began in the United States in the late 1840s. By the 1870s, many workers had started demanding the eight-hour day . After World War I, many began demanding a five-day week. And now, demands for the 30-hour week are just beginning to surface. The purpose of the movement has always been clear: the shorter the working day, the less time we spend in the service of our bosses' profits.
How Hard Do We Work?
Corporate profits also depend on how hard we work. The more energy we expend, other things being equal, the more surplus value they're likely to get.
We can extend the previous example to show this effect. Let's assume that workers are still earning $24 a day. When they worked eight hours a day, Short Circuit earned a daily profit of $24 per worker. Workers were making one toaster every two hours. Suppose the boss finds a way of forcing his workers to pick up the pace-by turning up the speed on the assembly line or by threatening to fire slower workers. Say the workers now finish one toaster every hour and 40 minutes. If they still work eight hours, they'll produce an average of five toasters a day. Other necessary costs total $60 and wages are still $24. Total costs now come to $84, the five toasters are worth $120, so the capitalist has increased his daily profit from $24 to $36 per worker, an increase depending entirely on the workers' greater exertion.
Capitalists have used speed-up to increase their profits throughout the history of our economy. When profits first began to fall in the early textile mills in the 1830s, for instance, bosses responded by increasing the workers' load from two spindles to three or four.27 Later in the nineteenth century, as the ten-hour movement gained momentum, employers answered by brutal speed-up in sweatshops. As the pace of work raced ahead, accidents became more and more frequent. Historians estimate that industrial accident rates were higher between 1900 and 1910 than ever before.25
Workers have never accepted speed-up willingly. The young women working in the early textile plants "turned out" on marches to protest their deteriorating working conditions in the 1840s. At the turn of the century, workers organized strikes to protest their aching muscles and the risk of injury. By the 1920s, workers inside and outside unions had nearly perfected the art of resisting speed-up. As one study found during the 1920s, workers' deliberate "restriction" of output was a "widespread institution, deeply entrenched in the working habits of American laboring people."29
And, as every worker knows, the struggle over speed-up and stretch-out continues. One recent eruption in that struggle gained great notoriety. In 1971, General Motors gave its General Motors Assembly Division (GMAD) managerial control over its Lordstown Vega plant. As Business Week reported, "The need for GMAD's belt-tightening role was underscored during the late 1960s when GM's profit margin dropped from 10% to 7%.30 GMAD resorted to crude force. They increased the speed of the assembly line from 60 cars an hour to over 100. At the former pace, workers had about a minute to complete their tasks on the line. Now they had to finish in 36 seconds or less. The company's incentive was obvious: they hoped to save $20 million a year from the speed-up alone.31 And the workers' response was predictable. "People refused to do extra work," the local union president reported. "The more the company pressured them, the less work they turned out. Cars went down the line without repairs."32
How Productive Are We?
Profit levels also depend on the general level of workers' productivity.
We've already seen that capitalists can increase their profits by forcing employees to work faster or harder. Suppose that capitalists can double workers' output by redistributing jobs or making the division of labor more "efficient." A worker's average daily output increases to eight toasters but wages stay at $24. Costs rise to $120, revenues increase to $192, and profits increase to $72. All that's needed is some effective reorganization.
These kinds of productivity increases can come from either new machines or new methods for organizing the production process. Either way, what matters is a) that workers need less time to produce a given amount of output than before (without exerting more effort); and b) that the new machines or methods cost less than the value of the additional output they make possible.
The advantages for capitalists of such increases in productivity are obvious. Necessary labor time is reduced because it takes workers less time to produce enough goods to cover their wages. If capitalists can keep hours and work pace at the same levels and prevent wages from rising as fast as worker productivity, then the share going to the capitalist will increase. Surplus value will rise.
Added productivity also permits great flexibility for employers. On one side, they can lay off workers. If one worker can produce twice as much because of a new machine or work process, then the capitalist can get away with employing half as many workers in order to produce the same quantity of goods.
Or, the company can take advantage of increased productivity by expanding output. As long as they can keep finding new markets, they can produce as many more products as their more productive workers can churn out of the factory. Worker s' wages will be covered early in the day and all the rest of the products will go into surplus.
Workers have usually been suspicious of capitalist innovations designed to "increase productivity."
Is this suspicion still justified? We will study closely in Chapter 7 the effects of productivity increases in the U.S. during the years of prosperity after World War II. For the moment, a much more general conclusion is apparent. As with increases in our working hours and our working effort, capitalists seek increases in our productivity in order to bolster their profits, not to express their gratitude for our continued and loyal service. Their success in reaping those productivity dividends-like surplus value itself-will depend on the strength of their basic control over the means of production.
ARE PROFITS GOOD FOR US?
"We at General Motors know there is no conflict between corporate profits and social progress. We know that each is necessary for the other."
former chairman of GM36
"The boss is there for one damn purpose alone, and that is to make money, not to make steel, and it's going to come out of the workers' back."
steelworkers local union official37
The DUPE analysis tells us that profits are good for workers and other living things-that corporate profits, as the GM executive puts it, are "necessary...for social progress." Like motherhood and apple pie, profits are the key to the good life. We're now ready to evaluate this position.
Corporate profits depend, first of all, on corporate control over labor in production and on their power to make us do what they tell us to do. Who is prepared to argue that the more control they have over us the better off we become?
Corporate profits also depend on low wages. We're told that future growth in the economy depends on our moderating our wage demands. But future growth seems to benefit them, not us. Workers' real spendable earnings, as we saw in Chapter 1, were no higher in early 1981 than they were in 1956. So we're supposed to put up with lower wages while we wait...for what? (We return to this question in more detail in Chapter 7.)
The level of profits also depends, finally, on relations between workers and capitalists in the factory and the office.
_ Profits will increase if workers put in longer hours. Who wants to work longer hours for nothing?
_ Profits will increase if we work harder. Who wants to work harder for nothing?
_ Profits can also increase if workers become more productive. Isn't that at least good for us? It would be if we got to work shorter hours because of our increasing productivity. But our working hours have stayed basically the same for 30 years.
Or if shorter hours permitted others to get jobs. But unemployment hasn't dropped either.
Or if productivity increases were passed on to us through lower prices. But prices have been rising.
Or if our added productivity permitted our wages to rise. But wages have been stagnant for a while and many people are still poor.
It's no wonder that, in a recent poll, almost three-quarters of working people agreed that "company management and stockholders are the people who benefit most from increased productivity."33
Couldn't It Be Different?
It seems fairly obvious that corporate profits come out of our hides. Perhaps we could convince the corporations to have a little more "soul" and to pay more attention to our needs? Maybe some more sympathetic managers could take over the corporate giants?
A vain hope. Whoever runs the corporations in capitalist economies, unfortunately, they can't behave in any other way. No matter how soulful corporate managers might like to be, they have to chase after their profits anyway. They're locked in a two-front war and they can't escape from battle.
The first front involves the constant fights between capitalist-the continuing competition among firms. Throughout our discussion, we will call this capitalist competition. Suppose two capitalists start out from the same position. One of them listens to his workers' complaints and takes pity, aiming to improve their job satisfaction and rewards. The other pushes his workers as hard as before. The softhearted employer's profits will decrease. Suppose the cold-hearted boss uses his extra profits to invest in new equipment, lowering his costs of production. He could lower his prices, driving the soft-hearted boss out of business. Or if he doesn't want to start a price war, he could use his profit advantage to advertise everywhere, urging customers to buy the "real thing." If the soft-hearted boss maintains his "soulful" behavior, he's bound to lose his markets and face even more drastic losses. One way or the other, the soft-hearted employer will eventually have to abandon either his sympathies or his business.
The second front involves the fight between bosses and workers in production-the constant struggle for relative power and control in the factory and office. Throughout our discussion, we will refer to this as the class struggle. Just as corporate profits depend on their control over workers, it turns out that their control over workers depends on their profits. If new machines will help divide workers or help companies outlast a strike, they need profits to be able to invest in new machines. If a slight wage increase will help cool off workers for a while, they need extra profits to be able to grant the bonuses. If they need supervisors to keep track of their workers, then they need extra profits to pay the supervisors' salaries.
The oppositions between workers and capitalists run deep. Corporate control over workers doesn't come cheaply. Higher profits are necessary for corporations to maintain an edge in their battles with workers. And so, the struggles between workers and bosses force corporations to race after profits ever more frantically.
At last we're ready for some final conclusions about profits. We have argued that profits depend fundamentally on surplus in production-and not on either rip-offs in the market or bosses' risk-taking and entrepreneurial initiatives. We've also seen that the possibility of surplus value-and therefore of profits-hinges both on capitalists' control of the means of production and on the availability of a reserve pool of workers with nowhere else to go. And given this relative ceiling on wages, the level of surplus value will then depend on three factors: 1) whether or not corporations can lengthen the working day; and/or 2) whether or not they can force their employees to work harder; and/or 3) whether or not they can make their employees more productive and consequently reduce the part of the working day in which workers are making the goods and services necessary to cover their own wages.
What about the conflicting attitudes toward profits which we highlighted at the beginning of the chapter?
We have seen that profits are increased at a greater cost to working people of either lower wages, longer hours, harder work, or fewer jobs. From the workers' perspective, it is therefore difficult to imagine how profits can directly serve our interests.
From the corporate perspective, such a change would be a disaster: it would undermine corporate control over the means of production and their ability to organize work in a way that serves their interests above all else. For corporations, therefore, profits must come first: they need profits if they are to stay ahead of their competitors and maintain control over their workers.
There seems to be no way that the two sides could agree. Our voyage to the core of the economy makes it clear that this conflict of interest stems from capitalists' control of the means of production-and through that control, of the process of production. How did they get it? And what have working people tried to do about it?