Companies don’t drive the economy

Capitalists insist that making sure companies have profits is what drive the economy. Here’s why that’s a myth.

We already see companies replacing workers with automation. We see it everywhere: self-checkouts at grocery stores, robots on vehicle assembly lines, automated trains on mass transit lines, large machinery on farms or on road-building projects. And so on.

This automation is designed to maximize profits. By reducing the number of workers you need, you reduce how much money you pay in wages, and wages are often a company’s largest expense.

But what if we went all the way?

Imagine a world where everything is automated. Companies have no need for human labour. This eliminates the need to pay out wages at all, which should lead to drastically higher profits, right?

Except if no company is paying out wages, then doesn’t that mean that no one is receiving wages? And if no one is receiving wages, then who is buying the products the companies are producing?

Expenses aren’t the only variable in determining profit: revenue is equally important. And if you have no revenue, then it doesn’t matter how low your wage costs are; you still won’t have profits. And if companies have no revenue, then they have no money to buy from other companies.

You see, it’s not companies that drive the economy; it’s consumers. The more money consumers have, the more they spend. The more they spend, the more companies must produce. And to increase production, companies must hire more labour.

Consumers drive the GDP. Consumers increase jobs. And the best way to encourage them to keep driving the economy is to pay them higher wages.

Originally published at siever.ca/kim on 4 April 2020.