Value Added

Even though Tobold normally blogs primarily about games, he had an interesting post today about the way companies determine the value they add. In summary, companies determine their value by the amount of profits they make, primarily for their investors.  He makes the argument that how you should determine the value of a company is by how much value they add to society. Essentially, a companies worth is not determined solely by their profits to investors, but also includes wages paid to their employees.

This idea really resonated with me. In away, this speaks to one of the fundamental flaws in how capitalism works today. Workers are treated as a resource. The goal for companies is to keep the costs of their resources as low as possible, so that the increase in value from the final product is as high as it can be. This encourages companies to pay low wages and to trim costs by cutting workers from the payroll entirely.

If a worker wasn’t a resource, they would instead be the same as any other investor. Some investors contribute starting capital, others labor, others skills, etc etc. The only costs to a company would whatever they start with at the beginning (raw iron ore, the need for a plumber unfilled, a pile of corn seeds, etc). Whatever value is added to that resource is the value added (profit), which is then distributed amongst all of the investors.

Some would argue that this is how it works but it really isn’t. Not for most companies. Small businesses it kind of does. But for most companies, a worker is not viewed as an investor but as an expense. It’s a subtle difference, but an important one. Companies often try to pretend it works this way. I worked for a restaurant once and the managers would do this thing occasionally in order to motivate everyone. They would announce how much money the restaurant had made the last hour and encourage everyone to try and beat that record. The idea behind it was that we were all in it together and if we just worked a little harder, we’d make some more money.

The problem with this, was that we as the workers got no benefit from this. If the company made some more money, it was because we were resources, and the company was getting more resources (our labor) for free. If instead, we as workers were actually thought of as investors, if our working harder generated more revenue, we would receive some money back in return for our investment. You could call it profit sharing, but it’s more than that.

This way of perceiving the economy strikes at the issue at the heart of class struggle. You could call it a communist or socialist viewpoint, but it’s independent of economic system. This is nothing incompatible with this way of doing things and capitalism. Right now monetary investors are the primary recipients of a companies added value. Under this view, labor and skill investors would receive the same benefit. Wages wouldn’t be a cost.

Now, this wouldn’t be a solution to income disparity, or economic troubles or class warfare by itself. Done poorly and taken the wrong way, this could turn into feudalism or indentured servitude. But done properly, it could be something that would improve things. Simply by having capital investors view workers not as resources, but as fellow investors, would be a dramatic shift in people’s perception of each other. Instead of workers thinking they are just cattle, they would realize they are just as important as the people with the money. This by itself would bring an improvement to the quality of life for most people. It would also empower people. And instead of capital investors only be concerned with how much money they make, to hell with the workers conditions, they would be concerned with the status of their fellow investors. They would be equals, maybe not economically, but at least as people.