Nomad economics: pro-markets, anti-profits

Abe Burmeister sums up his renegade economic thinking as “pro-markets, anti-profits”:

In classical economic theory, profit was deeply associated with the figure of the entrepreneur. Profit was how these idealized people would make their way in the world, they would purchase goods, transform or move them and then resell in a market. The difference between their expenses and the selling point, provided it was positive, was profit and this profit functioned as the entrepreneur’s reward, salary and means to continue their business. It’s quite a positive viewpoint of profit, and unfortunately it has little to do with the reality of how business is conducted and profits actually calculated today.

The entrepreneur as mythologized by classical economics barely exists anymore. Even those bold individuals who embrace the title today tend to wrap their enterprises in the protective skin of some form of limited liability corporation rather than proceed as sole proprietors or in traditional partnerships. Profits that pass through these organizations take on a radically different form than they do in the naive view of an entrepreneur. In fact even in a sole proprietorship or partnership profit transforms the minute that salary is introduced to the equation. For salary is after all an expense and profit is from a legal standpoint what occurs after all the expenses are paid. As soon as an entrepreneur is getting a salary, suddenly profit is no longer their just compensation for effort and risk, but in fact what is left over after they have been compensated for their time and work. Some of this profit is reinvested back into the enterprise of course, but all to often it is extracted from the system and into the hands of a limited set of individuals.

Full Story: Abstract Dynamics.

Also, he takes aim at the corporate reasponsibility mania gripping many pundits:

Jim Sinegal, the CEO of Costco, at least talked real numbers as he accepted an award of some sort. He proudly threw up a quote about how it was better to be a Costco employee or customer than a shareholder. The Costco philosophy is to cut costs everywhere except when it comes to employees, who if I remember his sliders correctly represent 70% of the companies operating cost! But even as he deflected personal credit away from him and out towards his entire management team it was quite clear this approach is merely an iteration of the age old concept of the enlightened dictator. The employees/serfs may be happy, but only because the situation is enforced from the top. Like his counterparts at the head of Starbucks and American Apparel, Sinegal has no structure in place to ensure that his enlightened approach can be anything other than a management decision.

This situation has deep roots in the history of management theory, it’s something of a Taylorism versus Fordism approach. Happy employees is clearly a successful business style, but so is the far more exploitative bean counting tight ship way of management. Costco might be better for employees than Wal-Mart, but both still are out there and both perpetuate hierarchies that pump money into a small upper class. Some kings were better to their serfs than others, but either approach meant the existence of a kingdom. And I don’t think it’s a coincidence that the corporate organizational form emerged just as democracy began to unstabilize the aristocracies of old.

Full Story: Abstract Dynamics.

1 Comment

  1. “unstabilize” ?

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