Profit Bludging and the Long Chain Economy

To attack economic inequality at its source we really need to take on what I like to call ‘profit bludging’.

There are some businesses out there that have a great idea, and find a way to turn cheap resources into a product people really value. These are the wealth creators in our society. They make a healthy profit, and so they should. They have made a contribution to our collective well-being.

But then there is our anti-hero. The profit bludgers.  These are the businesses that boost their profits in ways that don’t add to our wealth at all. They are not making the pie bigger, they are just taking a larger share of the pie.

Examples of profit bludging would be when Coles & Woolies boost their profits by cutting what they pay to farmers for their produce.  If they are paying a lower price for the same thing there is no actual efficiency gain in it. It is just a straight wealth transfer.

The same could be said when big retailers turn their permanent staff to casuals. They boost their profits by cutting what they pay their workers. Instead of having to pay the same wage bill whether it is busy or quiet, they can shift that risk onto their workers. Its low paid workers whose incomes fluctuate.

If the  workers have something excellent they could be doing with their time in their now unpaid hours their might be a gain in it. But most of the time we know that is not the case, it is just harder to pay the bills some weeks.

I would put businesses that manage to gouge their consumers without delivering any value in this camp too.  That is the businesses that get you to sign up for a subscription, and then make all their money off people forgetting cancel. Or Telstra offering 18 different phone plans to overwhelm consumers with choice, but setting the default as the most expensive one.

This is businesses extracting profits without creating any wealth. They are just shuffling money from our pockets to theirs.

Profit bludging is usually achieved through power and manipulation. When the supermarkets dud the farmers they achieve it by flexing their muscle over people less powerful. When Myers downgrade their workers, again it is an exercise in power.

For Telstra it is also about exploiting people’s vulnerabilities.  They know that people’s capacity to cope with complexity is limited. They are using that to trick people into paying for things they don’t want.

In the language of the long chain economy, they are shifting profits along the chain. They are not creating wealth. They are just using power and manipulation to redistribute it.

A new economics needs to distinguish between this good and bad profit making behaviour. We need to distinguish between behaviour that builds efficient chains, and behaviour that just shifts wealth along it.

But mostly, we just need to shame people for being basterds.

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