Do capitalists understand capitalism?

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The criterion for determining whether or not a capitalist enterprise is viable or not is, in essence, very simple. To be viable, an enterprise needs to be able to sell its wares for a price which enables it to cover all the costs of production (labour, materials, etc), to pay all applicable taxes, to comply with all relevant laws and regulations, and to make a reasonable level of profit. In a rational world, the definition would be extended to add an environmental sustainability requirement, but that’s for another day. The corollary is that any enterprise which fails to meet that criterion is not viable in the market in which it is operating.

It probably shouldn’t surprise me, although it does, that so many capitalists seem not to understand the criterion at all. Some claim that taxation is a problem; others that minimum wage legislation stops them making a profit; yet others say that regulation and what they like to call ‘red tape’ prevent them making a profit. But, provided that all the rules and costs apply equally to all, a company which can’t afford to pay a living wage to its employees, or which needs exemptions from taxation, or which can only work if it doesn’t have to abide by environmental or health and safety legislation is a company which is, bluntly, not viable in the market in which it operates. If a company really can’t increase its prices when its costs increase, then one of two things must be true: either there is more supply than demand in the market at a price which makes the business viable, or else its competitors are operating more efficiently. Either way, according to strict capitalist rules, it is not viable as a business and should close.

Now, I’m not really advocating that hundreds of businesses across Wales should close down – but then, I’m not a huge fan of untrammelled capitalist markets either. I’m merely pointing out that capitalism, left to its own devices, requires that non-viable businesses fail. It’s a feature, not a bug, of the system. In the real world, there are all sorts of reasons why government authorities might want to keep some enterprises operating, using subsidies and exemptions in the process. It’s a valid role for government to perform. What we should not do, though, is pretend that the companies being thus supported are successful capitalist enterprises, let alone allow their owners to extract profits and dividends on the back of a subsidised existence. Yet, in industry after industry, that is precisely what we do. Interestingly, some of those who benefit from such government intervention are also the people bleating about the cost of benefits, pensions etc. It seems as though state largesse is only a bad thing when it goes to other people.