The Good Capitalist.

Some twenty five years ago I was going through a rough patch. In addition to difficult personal circumstances, I was broke. Much more to the point, I desperately needed a job.

That’s when I met Kevin (not his real name). Kevin hired me.

Before that meeting, I would describe myself as no more than vaguely leftish. After it, I was on my way to becoming a Marxist.

But this is not your usual Dickensian tale of misery.

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(Source.ABC News: Michael Mackenzie)

Kevin was a small businessman. Specifically, he was what Aussies call a tradie. His business was himself, his van and the gear it carried within. I became the other half of his permanent workforce (occasionally he would employ one or two casual workers).

To my knowledge ABS started publishing data about the “demographics” of the Australian population of businesses in 2003. Based on that data, I can say that Kevin’s profile isn’t uncommon today. There are hundreds of thousands of similar small businesses run by plumbers, electricians, painters, pest controllers, cabinet makers, gardeners, tilers, removalists, security contractors, cleaners, locksmiths. Many are self-employed or work as sole traders, with very few employees, often as subcontractors in construction and real estate.

(Source)

That inequality (my apologies to academic Marxists, who often seem to have a pathological, almost allergic reaction when that word is used) extends to finances[*]:

(Source)

With so many sardines in the sea, that’s a very competitive environment, particularly around the smaller end: for businesses in the market sector, sole proprietorships had the highest entry and exit rates (23.8% and 16.5%, respectively).  (This recent ABC report deals with the kind of environment affecting businesses like Kevin’s).

Although similar data for late-20th century Australia -- when I worked for Kevin -- aren’t available, I think it reasonable to assume his profile, common today, wasn’t uncommon back then.

As for me, I was employed on a permanent, part time basis Monday to Friday. Extra time, although often available and always welcome, wasn’t guaranteed. The relevant award ruled wages, penalties and working conditions.

Working in such close contact, we talked a lot: if we didn’t, we wouldn’t have talked at all. More importantly, Kevin was personable. To be sure, he wasn’t a die-hard Leftist, not even a card-carrying Laborite. But, forced to choose, he’d probably lean Left.

Understandably, given what data tell us, one of Kevin’s constant concerns, manifested in our talks, was competition. That also concerned me.

It is worth a quick explainer about how tradies work. Upon learning of a job, tradies are required to submit a quotation to prospective clients. Whatever else tradies might offer, the job they are required to do remains the same: the same roof repair or the same paint job, or bathroom renovation, or carpet cleaning/installation, or whatever. Other criteria may intervene, but price is the main criterion determining clients’ decision.

So, to calculate the crucial price, tradies formulate an internal estimate of what the job would cost them. And labour, in addition to other expenses, is usually a major component: so many man-hours work (including Kevin’s, because he also did work: that needing higher skills) at such and such hourly wage rates. That accounts for what book keepers call “cost of goods sold”; it doesn’t account for “operating costs” and profits (see example of profit and losses statement below).

To that end tradies add a reasonable markup (a notion some non-Marxists, with evidently little business experience, seem to believe is enough to explain profits).

Kevin worried -- rightly or wrongly, I can’t say -- his competitors were underpricing him. As I said before, that also worried me, for less working hours meant less wages -- at best.

(Although not strictly necessary for my purposes, but quite apposite recent news, his argument was that non-union workers, often east- and south-Asian recent migrants, employed by his competitors, were being underpaid, making it possible lower competition prices. To pre-empt unwarranted conclusions: Kevin wasn’t a Caucasian).

The first thing to suffer, Kevin explained, was markup: he was increasingly constrained in his discretion margin. It couldn’t go down to zero, for he still had bills to pay, but his profit (net income in the example) was squeezed.

I remember telling him something to the effect that perhaps he would have been better off going back into working for someone else. He was very experienced and could have aimed for a foreman, even maybe mid-manager position.

Kevin was an honest man and boss and I thank him for that. From being in the reserve army of the unemployed, I was about to join the lumpenproletariat. People drift apart with time and we mostly lost contact. Yet, at times we still stumble upon each other and we remain in friendly terms.

He was always scrupulous in all money matters: he paid on time, never an underpayment complaint. More: he was at least as careful in OH&S matters and in a physical job that’s important. He wasn’t a Scrooge, or -- more to the point -- a Calombaris. It explains why I stuck with him. By today’s standards, I think it would be fair to say bosses like Kevin (and Jackson Davie, of whom I’ve read about recently) are exceptionally good bosses.

His reply to my comment, however, would eventually make a Marxist of me: shaving off some hours, by working faster, he said, would restore his profit margin. Economists would have said by “increasing productivity”, as in the chart below, representing Australian data.

(Source)

Or in the chart below, representing American data:

(Source)

Suppose Kevin charged his client 10 hours of work and by working faster we finished the job in 8 (implicit the assumption that such saving didn’t come at the expense of quality, for quality was another of his selling points: he wasn’t a rip off). That would reduce labour expenses by 20%. Even if markup was 0%, he had enough to cover operating costs and get a positive profit. (Sorry, anti-Marxist economists, so much for markup as the source of profit).

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But there is more to it than that and it took me some time to digest the full implications of what Kevin taught me: two less hours of work, of course, would have meant one less hour of wages to both Kevin and I (and remember, I’ve emphasised the fact Kevin and I worked equally hard alongside).

But what Kevin lost as wages, he gained as profit -- as he gained as profit what I lost in wages, as explained above. I, on the other hand, lost one hour of wages. Full stop.

We both shared an extra non-monetary cost (the added stress of working faster), but that was only because Kevin was not just a capitalist, but also a worker. Small and even medium-sized businesses like Kevin’s (and millions of others: about 99% of all firms in Australia) would have been immediately recognisable by 19th century economists as capitalist firms. So much for the claim that capitalist firms have changed dramatically in the 20th century.

Increased productivity and the profits it entails, had Kevin been only a capitalist, would have been achieved without any extra cost for him.

That didn’t happen because Kevin was a bad bloke, or a racist, or what have you -- he wasn’t -- but because that’s how things are under capitalism.

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Sorry, Marc Dean: much to learn you still have, young padawan. That story, by Ben Schneiders and Royce Millar, is a good, important read.

[*] Readers with an eye for details may be wondering why the totals for Pest Controllers and Painters and Decorators differ in the employment and turnover tables. Frankly, it beats me. Ask the ABS.