WHY CAPITALISM NEEDS PROFITS
The recent debate over Seattle raising its minimum wage to $15 dollars an hour is interesting and misguided. Keep in mind liberals love such nonsense ideas, and they are communist, so you have to forgive them for never actually thinking how the capitalist paradigm works. In other words, the ultra left wants to make the omelet but don’t realize that they might just kill not just the chicken, but the henhouse while they are at it. Yes, how they, Seattle ( one the smartest cities i’ve read ), plan to do it is multi factor or some such nonsense. But Starbucks, ironically founded in Seattle, is the general model I would like to consider, that shows the general futility of such approaches.
Starbucks pays 9 to 10 dollars per hour for a Barista. What does that actually mean? Starbucks had a banner year in 2016. Obviously if anyone watches the coffee industry they realize after some digging that the labor cost of actual farmers is close to zero. So the raw commodity cost of the labor in the beans is less than 1% of he final value price at retail (i.e. $1.50 is the cost of a pound of raw coffee but it can make 50 to 100 cups or about $200 to $400 revenues off of that $1.50 raw commodity input). In either case, they, Starbucks have 250,000 employees globally. If they paid all of their 2 billion plus profits in 2016 to their employees then they would each get an additional 17,000 dollars. That is actually not that impressive since the per capita income in the US is $50,000 dollars. Obviously all the employees would like $17,000 dollars more. However, keep in mind, these Starbucks workers have less skills than a spot welder in a Mexican auto plant but get equivalent or more money nominally. For what its worth I am not hating on Starbucks, I also have less skills than a spot welder at a Mexican auto plant and so does nearly every one of the New York times reporters who recently walked out for fear of losing there jobs.
But back to Starbucks. What would be in it for investors of the company had they in 2016 paid out all its profits to its employees to improve their living standards? Zero. Therefore Starbucks as a zero profit entity would have no “investor” class. What would Starbucks capital in stores be worth? it would be worth zero. Since capital is based solely on the proposition of a firm being able to extract some form of labor value that is less than its trade value. Firms must therefore pay their employees less than they are worth if we are to believe in the ownership or investor class.
Who are the investors? retirees , pension funds, speculators, quasi government entities etc. They wouldn’t buy a business that had zero profits. That is the cost of capital in a nutshell. i.e. it is the what else can i do with my money.
Therefore, sophisticated capital based model of business activity requires profits or else what is the point for the people who start and invest in business? If there is no incentive to starting a business besides altruism , then all value rests in the state. The use value of Starbucks coffee and space would be great to have for some people, but outside of politicking for coffee areas, no new stores would be built and only altruistic employees would run the company etc
This is neither good or bad. It is capitalism. Which most people think is good based on tautological arguments. Generally capitalism is only good because there is only capitalism. When that trick, the pro capitalist argument which is self referential does not work, they then say look at the improving per capita incomes of the West primarily. This though excludes sustainability, imperial plunder, slavery, war, military intimidation, , and on and on. So yes it is better but why is it really better? Because we can have Starbucks or McDonalds or something to consume…
Let’s consider then Tesla in the context that it is a entity in a capitalist system. It prints losses. Meaning when it manufacturers a car they, Tesla, are guaranteed to lose money on each sale. Its business therefore has negative value. What companies can operate at negative value in a capitalist society? None of them. Tesla therefore is state company pretending to be a capitalist company , but competing against other mixed state capitalist companies with profits. That logic might not obviously follow but I am anticipating Tesla’s collapse based on the fact that it wasn’t created out of the capitalist paradigm that is driven by profit. It was created by state actors. ( Obama, Steven Chu (Former DOE Head who has is own involvement in battery companies for instance , Nevada, NY, California, Norway – i.e. Tesla is some sort of govt science project hoisted on the markets by bankers and communist do gooders of sorts) )
So then what should it be worth to investors. zero. It should be destroyed and left to die since in a capitalist framework it has no value and is actually extracting value intuitively since it is built to lose money. We may, America, decide we prefer the communist paradigm , even though we are already half there, but fundamentally , America is not operating in that manner just yet.
In other words. capitalism = profit . even state backed capitalist companies need profit.
Which therefore leads to the next proposition. California and Nevada must be pretty stupid states. I say that carefully, but it is the only obvious conclusion. Yes. They may get investors who get conned into the dog and pony show of next generation cars, but they shouldn’t subsidize it. In other words, in simple terms, if revenue comes to California as a tax transfer from a Ponzi scheme, whether it be from the federal government or dice rollers on Wall Street, California might be happy with that outcome, but it is obviously unsustainable.
The next proposition then should be obvious. The larger they (government and bankers ) let Tesla get as an uneconomic proposition the more of the capitalist system the company therefore destroys. My next statement though leaves the possibility for an avoidance of collapse by way of a transfer.
Now the bankers of Morgan Stanley( err Adam Jonas, ISI) is a smart, and perhaps white collar criminally motivated , must have all this figured out right. They, Morgan Stanley, set this racket up to make money on trading and new issue fees. If Jonas and Morgan have any brains they anticipated that Tesla, the penny stock that it is, is fatally flawed. I mean just one walk around the warehouse factory floor should convince them that. It is not that impressive and one shouldn’t believe the You Tube videos.
There just really is not a lot going on there at Tesla factory in Fremont given they are hand building low unit amounts of cars. So what’s Jonas and the bankers obvious exit plan?
Shove Tesla down Apple’s throat. It is very uncreative, and at this point I would love to see it, since it would make Apple the biggest short in the world since to justify the purchase, they would have to spend billions more to lose even more billions. It would be a colossal distraction. In either case, such an exit plan would allow the bankers to leave stage left. Adam Jonas would have one of the biggest bonuses on wall street that year, which is the name of the game. Jonas and Morgan could care two nickels about saving the earth or whether Musk is a lying bastard. Banks know more than anyone that capitalism needs profit, and they are thinking about their own hide when it comes down to it. Dumping Tesla on Apple would mean they wouldn’t have to watch the monstrosity blow up in their face, even though they will have some nonsense good story to tell when it does.
Tesla though is really toxic because what they do have actually really little to do with the real economy yet they are losing money, even with subsidies, by the billions. This compromises the over-leveraged financial markets. It actually really makes a mockery of it since they are bigger than Ford and GM with nothing to show for it but extraction value.
Its a disconnect. Disconnects are warning signs that appear obvious to everyone after market induced crises occur, which ultimately, impair the real economy. Remember, capitalism has only actually survived because the profits have been real , the state has covered up some of its flaws, and because finance capital can absorb shocks to an extent. Weak companies therefore increase the vulnerability and stability of the system to shocks.