This is Richard Wolff from Democracy at Work responding to another Ask
Prof Wolff question from our Patreon community. This one comes from 'Andrew Miotto' and it is a
question many of you have asked me from time to time - very important and I'm glad to respond.
Andrew asks what happens when the rate of profit goes down,
maybe to zero, maybe even below zero. In other words, what are the consequences of a declining
rate of profit? And I want to answer this because it gives us a window into how
capitalism works and why and how we can do better than that.
So, let's begin. What happens in a business (we're going to assume a private business,
a factory, an office, a store - that really doesn't matter for this
conversation)... What happens if the profit rate goes down?
Well, first thing to understand the reaction of that - to that - is the reaction of whoever owns
the business. The mass of people who work in the business have no say. They are excluded from how
to deal with that problem. It is dealt with by the board of directors if it's a corporation, by the
owner of the business if it's not a corporation, and so on. And that's a tiny minority.
So, let's begin by understanding that when profits go down there's a tiny minority that
decides how to respond. But it's a very important tiny minority because it's the minority that's in
business to make a profit. So we know that minority is going to react (because they're
only in the business to make a profit - profit is their bottom line - they tell us that all the time
and there's no reason to doubt that that's the case)... So what do they do?
Well, now let's see what they do. One of the things a private enterprise is free to do
if the rate of profit goes down is to say 'okay, this business isn't earning us a rate of profit
that we want, it's too low.' It's maybe half what it was, maybe it's zero, it doesn't really matter.
If we're not satisfied we (a tiny minority)... here's what we're free to do: close the business,
shut the doors, tell every one of the workers to go home and get lost, and move our money into some
other business where we hope to make a profit. We are not (we, the board of directors, the decision
makers)... we're not responsible for the damage done to the hundreds, or maybe the thousands,
or maybe the hundreds of thousands of people working for us who just lost their job. They
didn't participate in the decision but they have to live with the results.
That, by the way, is the opposite of democracy. So when profits go down the people who run the
business can react in that way. They are free to. That's what free enterprise means. They are free
to destroy the lives of a large number of people excluded from that decision. Wow.
But, of course, the owners or board of directors are free to make
other decisions. Here's some of the ways they could respond: we're going to bring the rate
of profit back up; we're distressed that it's gone down and here's what we're going to do:
we're going to move our factory to China where we can pay workers a lot less.
Or some other part of the world. They can do that. They often do, they often have.
Here's another thing we can do: automate, bring in machines, fire workers.
If we can make more profit that way we'll do it. We have no responsibility to those
workers nor to the communities they live in. Nor for the social impact of what we're doing.
Here's another one: let's bring in immigrants from other countries. Who might be coming from
a poorer country and willing to work for less. And we'll get our profits back up there. Wow.
But here are some things that we're not likely to see from that small group who make the decision
about what to do when profit rates go down. They could decide to live with it. They could decide
we're going to continue the business because there are thousands of people working here who depend on
it. We're going to continue to buy our inputs, we're going to sell our outputs. We'll be able
to use the money from selling the output to pay the workers to keep production going. But we won't
be able to give dividends to our shareholders. Oh, that's one use of profits. And if you don't
get the profits you expected you'll tell your shareholders we didn't get the profits we expected
so you'll have to do without the dividends. We never see that, do we? Very, very rare.
Here's another thing: we might decide that the executives at the top don't need tens of millions
of dollars in executive pay packages. So, with lower profits, we will just reduce them down to,
say, a paltry two or three hundred thousand dollars a year they'll have to live on. The poor
folks. All of those things are ways to accommodate falling profit rates. Wow.
You know, that raises the interesting question: if a business is run by the government, in many cases
it doesn't have to earn a profit, it doesn't have shareholders who have to be given dividends out
of the profits, it doesn't have super high paid executives. Most executives of large corporations
in America, for example, earn many, many, many, many times what we pay the President of the
United States. So if we need important people to run our businesses but we don't have the profits
we used to we could make them state enterprises. Because then the executives who run them
wouldn't be costing us anywhere near the amount of money that is now flowing into their pockets.
It turns out there are lots of alternatives.
When we don't pursue most of them it's because we're pandering, as a society, to those people
who run those enterprises now. They want to have the exclusive power to decide what to do
when profits go down and they make decisions that are good for them, not for the rest of us.
Profit is a category that exists to reproduce capitalism
and the individuals in it and the inequalities of it. Nobody should imagine that profit
is some neutral category of how you determine whether an economy is successful
or not. Profit is a category that we explain to people because it hides
(in most explanation) the very peculiar service that category does to reproduce the undemocratic
decision-making that governs enterprise in a capitalist system. Don't be fooled.
If discussions of profit and other categories of our current economy like this one strike
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