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Unemployment for the Many for the sake of Profits for a Few


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Unemployment for the Many for the sake of Profits for a Few




The Social Costs of Unemployment

The social costs of unemployment to people as individuals, to their families, and to the community as a whole, are:

INDIVIDUALS
Poverty, lack of spending money
Frustration, despair
Young people without full-time work experience
Social disillusionment
Ill health
Reduced life span
Mental illness
Increasing suicide rate
Drug abuse, crime

FAMILIES
Increased family breakup
Homelessness
Domestic violence

COMMUNITY
Higher and rising crime rates
Brutalisation of lifestyle
Lost Income:
(1) Loss of income tax from those now unemployed.
(2) Loss of National Insurance contributions which would have been received from both employees and employers.
(3) Loss of Value Added Tax as the unemployed reduce their spending.
Increased Expenditure
(4) Increased cost of Unemployment Benefit (Among developed countries, the British rate of benefit appears to be one of the lowest).
(5) Increased cost of Social Security support payments.
(6) Increased costs for Health Service, Police and Prisons.

The social cost of unemployment to the community is the total cost to the community, is the sum of all the items listed here.

It is an accepted principle of economics, that the social costs of an enterprise's operations have to be paid by the enterprise, expressed by the maxim 'The polluter pays'. In other words, the social costs of unemployment have to be paid by the enterprise which caused the unemployment.
See   Community Economics: Principles


Importing Unemployment for the Sake of Private Profits

Prices used to be based on 'cost plus reasonable mark-up', and unhindered competition was meant to ensure that the mark-up was reasonable. Prices are now based on what people can be persuaded to pay for what they can be persuaded to buy. The mark-up between producing in a low-wage country, and then selling in a high-wage country, can be enormous.

Manfred Davidmann pointed this out in 1996, also saying that imports were now being priced at what the market will bear, or just under. The enormous profit margins then cause production to move from high-wage to low-wage countries. The consequence is a lowering of standard of living in high-wage countries to that in low-wage countries, instead of a raising of standard of living in low-wage countries to that in high wage countries.

The large additional profits which result from transferring operations abroad then do not result from doing a better job, or from providing better, or more needed, or more effectively produced, goods or services. These additional profits result from importing unemployment into the high-wage country, are the result of dismissing employees in the high-wage country.
See   Exporting and Importing of Employment and Unemployment


To the extent to which an enterprise fails to allow for, and pay, the social costs of its operations, to that extent are its profits derived from passing its operating costs to the community, is it making profits at the expense of the community, is it exploiting the community and its members.


The social costs of unemployment, however, are in the end paid by the unemployed (who are part of the community) and to some extent by the community as a whole. So the enterprise has passed on to the community this part of its operating costs, is making a profit at the expense of the community.

Owners and directors in this way profit from the unemployment and the lower standard of living their operations cause in the home-country. They will continue to profit from increasing unemployment and its consequences as long as they do not have to pay these social costs of their operations. In other words, as long as they are allowed to pass this part of their operating costs to the community.

Note that persistent lack of care and consideration towards its members leads to a view of society as being hostile and unrewarding. We now see this taking place and see its effects.


Limited Liability

What owners of Private and of Public companies have in common is that the liability of the owners for the debts of their companies is limited. Their liability is limited to the paid-up value of the shares they own and this means that it is limited to the amount they agreed to pay for the shares when they bought them.

When a company becomes insolvent, which means when the company cannot pay its debts, then it ceases to trade because it cannot pay its way. It is liquidated, that is its assets are sold and the resulting moneys used to pay at least some of its debts. The remainder, if any, is paid to its owners.

When companies become insolvent and cease to trade, they often owe enormous sums which they cannot repay. But the owner's liability is strictly limited by law to the amount he agreed to pay for the shares when he bought them. The owner is protected by law, his personal possessions cannot be used to repay the company's debts.

So there is now a much greater risk for those dealing with such enterprises if the enterprise becomes insolvent. The owners have transferred much if not most of the risk to suppliers (creditors), customers and employees.

Enterprises whose owners have limited liability are called companies in the United Kingdom and corporations in the United States.

In the UK, for example, a company's name includes specified words, or their specified abbreviations, which in effect state the type of company and that suppliers and customers may lose their moneys if they have dealings with this company. A private company's name ends with the word 'Limited' or 'Company Limited', or their abbreviations 'Ltd' or 'Co Ltd'. A public company's name ends with the word 'Company' or 'Public Limited Company', or their corresponding abbreviations 'Co' or 'PLC'.

In Germany, the letters GmbH are used, for 'Gesellschaft mit beschraenkter Haftung', that is for a 'company with limited liability'. 'Inc' denotes a limited liability company in the United States.

Suppliers provide goods and services on credit, which means they get paid some time after the date on which the goods or services were provided, say two months later. If the company which is their customer becomes insolvent and ceases to trade, the supplier will not get paid for the goods and services he has already provided. He may be lucky and receive a part of the money owed to him but on the whole it is the supplier whose money is at risk and who loses out if the company becomes insolvent. Hence risk has been transferred by owners (shareholders) to suppliers.

Customers make advance payments to secure goods and services. If the company ceases to trade before these goods or services are provided, the customer is likely to lose all of his deposit. Similarly guarantees for goods bought or services provided are likely to be worthless if the company ceases to trade before the guarantee expires. The amount lost by customers at the present time in such ways in the UK is apparently of the order of £18 million each year.

Employees also lose out if a company becomes insolvent. Salaries, wages, holiday entitlement and redundancy compensation can be lost, quite apart from the social costs of the resulting unemployment to employees and to the community.

Banks also lose out when companies become insolvent. But banks are regarded as having much expertise in assessing the risks they take when lending money to their customers including companies. Assessing such risks is their business and they are paid for the risks they take by the interest paid to them for the loans they make.


What is taking place is that suppliers may not get paid, customers can lose their down payments (deposits), customers can be left with worthless guarantees, employees may not be paid for work done, other moneys owed by the enterprise may not be repaid. The amounts involved may vastly exceed the enterprise's capital, the risk to suppliers and customers is often great, suppliers and customers lose very large sums each year.
See   Ownership and Limited Liability


So what we see is that

  1. Owners take the profits but have transferred much of their risk to other people, to suppliers, customers and employees.

  2. A system where owners enrich themselves by using and risking other people's moneys.

  3. This benefits the owners but runs counter to the free-enterprise maxim that owners may earn profits from taking risks with their own money.

  4. This is not really an acceptable situation.


Ownership and Control by Majority Shareholder(s)

Shareholders can elect a board of directors, usually based on one vote per share. A shareholder who owns a majority of a company's voting shares has a controlling interest. His vote decides who, apart from himself or his representative, is appointed to the board of directors and so determines the policy of the business. This applies also when a few shareholders together own the majority.

Hence other shareholders usually have little say or interest in deciding policy or in the running of the company. What is left for them to decide is whether to sell the shares they hold or whether to buy more.

So the majority shareholder has in effect taken possession of the ownership rights of the other shareholders and can use the company's assets for his own ends.
See   Ownership and Deciding Policy: Companies, Shareholders, Directors and Community


Maximising Profits

Shareholders would like profits to be maximised in the short term (dividends) and long term (capital gain and security). And directors take such decisions on behalf of the majority shareholders, and decide how to divide profits between dividends and reserves (capital gain).

In practice directors are generally required by man-made laws to act first and foremost in the interests of the owners, so that it is profit which is maximised. Short-term and long-term profits can be and are being maximised regardless of the cost to others, that is regardless of the cost to the community.

Profits can be increased by reducing labour costs, for example. Those wishing to increase profits regardless of the cost to others, will thus aim to reduce the standard of living of the working population, will aim to increase the needs of the working population so that people will work for less.
See   Social Responsibility, Profits and Social Accountability.
Also see    Style of Management and Leadership,
and see    The Will to Work: What People Struggle to Achieve.


Using Taxpayers' Moneys to Increase the Profits of Companies (Corporations, GmbH's), of their Owners.

Employers should pay wages which will provide a good life for employees and their families. But the lower the wage paid, the higher the profit. And there will be employers who are more interested in their own profits than in the welfare of their employees.

Some employers may then pay wages which are so low that employees are forced to work long hours merely to survive.

A government may then make up such wages with income-support benefits to a poverty-existence level. Which is apparently what happened in the UK while minimum-wage requirements ceased to be applied. And which is also being done in Germany.

In such ways taxpayers' moneys are used to subsidise the profits of companies (corporations), of their owners.
See   Taxing the Population for Private Profit


Decision-taking, Responsibility, Accountability:
Company, Directors, Employees

A company (Co. Ltd, PLC, corporation, GmbH) is apparently a legal fiction. In law it is an entity which can be sued in a court, or sue others, for matters such as money owed or breach of contract. Although a company does not take decisions it can be held responsible and can be held to account for decisions taken by individuals. To that extent it serves as a cover for those who take the decisions.

Note that a 'company' cannot act. It is individuals who act, who are responsible and so accountable for the policies they decide on or omit to decide on, for the decisions they take or omit to take, for what they do or omit to do, and for the resulting consequences.

Owners appoint directors to take decisions on behalf of the owners. Directors in turn appoint senior managers to have the decisions carried out. A company's employees are employed to put into effect policies decided by its directors.
See   Ownership and Limited Liability.

Hence it would seem to be owners and directors who are responsible and who should be held accountable for actions of the company.
See   Social Responsibility, Profits and Social Accountability.


Sources, with Descriptions

Title   Description
     
Exporting and Importing of Employment and Unemployment   Discusses exporting and importing of employment and unemployment, the underlying principles, effect of trade between low-wage and high-wage countries.

Shows what is required to halt and reverse the trend towards increasing unemployment and falling living standards in high-wage countries.

There are sections about transferring operations abroad, about importing from low-wage countries, about social costs of unemployment, about community objectives and community support for enterprises, about ownership rights and about ensuring that the way in which enterprises operate is socially responsible.

See 'Press Notices'.
     
Ownership and Limited Liability   Discusses different types of enterprises and the extent to which owners are responsible for repaying the debts of their enterprise. Also discussed are disadvantages, difficulties and abuses associated with the system of Limited Liability, and their implications for customers, suppliers and employees.
     
Ownership and Deciding Policy: Companies, Shareholders, Directors and Community   A short statement which describes the system by which a company's majority shareholders decide policy and control the company.
     
Social Responsibility, Profits and Social Accountability   Incidents, disasters and catastrophes are here put together as individual case studies and reviewed as a whole. We are facing a sequence of events which are increasing in frequency, severity and extent. There are sections about what can be done about this, on community aims and comunity leadership, on the world-wide struggle for social accountability.
     
Style of Management and Leadership   Major review and analysis of the style of management and its effect on management effectiveness, decision making and standard of living. Measures of style of management and government. Overcoming problems of size. Management effectiveness can be increased by 20-30 percent. See 'Press Notices'.
     
The Will to Work: What People Struggle to Achieve   Major review, analysis and report about motivation and motivating. Covers remuneration and job satisfaction as well as the factors which motivate. Develops a clear definition of 'motivation'. Lists what people are striving and struggling to achieve, and progress made, in corporations, communities, countries.
     
Taxing the Population for Private Profit   Shows how taxpayers' moneys are used in different ways to enlarge the profits of companies (corporations). These are in effect allowed to tax the population and to pass large parts of their operating costs to taxpayers.
     
Community Economics: Principles   Allows for the needs of the community and for the basic causes of real-world problems and global needs. Includes sections on owners, directors and managers, actual rewards and differentials, social responsibility, social costs and accountability, misuse of the system, irresponsible behaviour, motivation.
     


Manfred Davidmann

Manfred Davidmann is an internationally well-known and respected scientist and author of a number of books and reports which have had and are having considerable impact. His work usually breaks new ground and opens up new understanding and is written in meaningful and easily understood language. Outstanding is that his work is generally accepted as factual, objective and unbiased.


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