Profit is defined as the financial benefits one receives when the revenue gained from a business transaction is greater than the expenses that were necessary to perform said operation, including costs and taxes required for a business to remain sustainable. Regardless of the nature of the business, the end goal is earning a profit, which means that the largest portion of business performance depends on profitability. The basic formula used for calculating a profit implies subtracting all expenses that went toward doing business from the total amount of revenues in the same accounting period. Usually, companies disclose their profits at the very end of their income statements and are viewed as the final amount of financial resources left after all expenses have been paid. For this reason, the net profit of a company is often referred to as the ‘bottom line.’
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Assets can be differentiated into productive and non-productive on the basis of whether they can yield profits and cash flow (Backman). Productive assets allow businesses opportunities to generate returns. Stocks are examples of productive assets that can increase in price over time as well as be instrumental in increasing cash flow. Non-productive assets cannot bestow profits and dividends to businesses. Since most assets can be described as appreciating and depreciating, it is important to mention which productive and non-productive assets possess these characteristics. For example, productive assets that lead to profit and appreciation include real estate rentals, securities that increase in value, and well-run businesses.
Productive assets that depreciate include securities that decrease in value, machinery and equipment, factories, and poorly-run businesses. As to non-productive assets, profitable items such as art, collector cars, stamps, and coins, as well as vacation properties are considered appreciating in their value (Nelson). Depreciating items include the majority of consumer cars, watercrafts designed for personal use, and electronics such as computers, mobile phones, and so on. An example of such depreciation can be illustrated through the most popular gadget – iPhone. Apple has built its business model in such a way that with every release of a new iPhone’s version, the previous one depreciates in value significantly, which also leads to profits associated with the sales of the newer version (Ho). This allows Apple to keep its customers ‘on their toes’ by making sure that the depreciation of older technologies leads to revenues from new.
Under the economic system of capitalism, the dominant class (i.e., companies-employers) achieve control over the surplus. Companies use a variety of resources such as people, tools, machinery, and materials in order to produce an output that belongs to a specific company. Laws of capitalism dictate that a business has the legal right to own what it produces and sells later to gain revenue (Nilsson). From the acquired revenue, a company is required to pay the necessary amount of money to cover costs incurred during the production of a product or service. Again, under capitalist law, a company is legally obligated to pay all necessary costs to remain with a profit. It is important to mention that a single capitalist firm may specialize in selling a range of products to get a profit; moreover, some companies can also earn an income from financial investments such as stocks. In a completely capitalist economy, the formula for calculating profit is as follows:
Profit = Revenue – Cost.
Capitalist economies suggest that earning a profit is the main goal of companies’ owners. However, in order to earn a profit, a company must seek a source. The source of capitalist profit is not associated with surpluses that have been extorted from labor. Rather, profits are gained when companies use their capital in a proper way. In return, losses are linked to the improper use of capital. Proper uses of capital can vary depending on a company’s capabilities. For example, when a business is succeeding in selling its products or services and wants to optimize its profits, adding new products or services to the available range. For example, the Extra Space Storage company added new options such as charging stations of electric vehicles to the locations in order to promote the message of environmental sustainability and attract clients with e-cars (Rampton). Adding new sources of capitalist profits is possible when companies ensure that such sources align with existing offerings.
Exploitation and Profit
In the traditional Marxist ideology, capitalism is considered inherently exploitative (Obo and Coker 38). Governments use their power and surplus value for generating the exploitation of people, predominantly workers, to develop a capitalist societal formation. Despite the fact that the exploitation of people by other people has always existed, the capitalist rule has transformed this practice into something unique and to some degree, acceptable. As the productive forces of society developed, social labor expended in its production. Workers started to produce more products than were needed for consumption, leading to a surplus. According to Obo and Coker, the appearance of the surplus product on the market made it easier for an entire class of people to live without participating in the production of necessary products thus facilitating private property and exploitation of others (40).
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Therefore, exploitation leads to profit because it implies taking advantage of the position of vulnerable populations that need minimum monetary resources to survive (Skillman 30). Unequal bargaining power is the main part of exploitation since it is associated with the improper payment for labor that exploited individuals provide. It is important to mention that the relationship between the exploited and the exploiter is rooted in social characteristics rather than any others. In order to calculate the rate of exploitation, it is necessary to firsts determine the surplus-value. The following formulas demonstrate how the necessary calculations are performed:
Surplus value = total value of products – constant capital
New value = required amount of labor + surplus labor
Rate of exploitation = surplus value/required amount of labor
Rate of profit = surplus value/(constant capital+ required amount of labor).
The formulas above are based on the key definitions utilized by Marx when explaining the implications of surplus-value, variable capital, and constant capital. Calculating the surplus-value is an essential step in measuring the rate of exploitation and the rate of profit because it requires comparing the surplus labor time with the time necessary to perform a task in general terms. Therefore, these calculations will provide a perspective on what part of the workday is given to capitalists, and what part is spent effectively on reproducing the value of labor power. To understand how exploitation is connected to profits, an example of the modern manufacturing industry was chosen for analysis.
Today, western corporations hold a great advantage over their competitors from emerging markets due to the high quality and high performance of products that they offer to the market. However, recently, the South American and Asian markets are catching up to the Western ones, creating tensions and significantly influencing the rates at which labor is utilized (Schuh et al. 680). As the reduction of costs is a priority for companies that want to gain profit from manufacturing, seeking out ways to use cheaper labor force has become a widespread practice despite its unethical implications. For example, in The Guardian report prepared by Chamberlain, it was mentioned that Chinese factories exploit the labor of their workers to manufacture Barbie dolls. The reporter wrote, “an investigation with the US-based NGO China Labor Watch revealed that toys including Barbie […] and Hot Wheels were made by staff earning as little as 86p an hour.” In addition to earning extremely low wages, workers at manufacturing plants were subjected to overtime three times the legal limit, which meant that some shifts were as long as twelve hours. It is essential to point out that even such organizations as the ICTI Care Foundation, which monitors the labor practices of toy manufacturing facilities, is unable to prevent factories from exploiting their workers.
Another Guardian report prepared by Kaur illustrated “the unfair labor practices in the clothing manufacturing industry”, which uses 80% of women workers. Despite the fact that garment-related manufacturing provides women in developing countries with the ability to earn some money to provide for their families, workers face such challenges as extremely low wages, flexible contracts, and dangerous work conditions. These issues appear because of the lack of large corporations’ attention to the labor practices at factories that they use for manufacturing clothing. Groups that protect workers’ rights have extensively criticized brands for paying employees less than the required living wage (Kaur).
In addition to the mentioned issues, the industry of garment manufacturing is subjected to the problem of migrants and refugees who flee their countries to seek shelter and earn a living. Women and children make up the majority of refugees, which makes them even more vulnerable in terms of being exploited for labor at low wages. The pressure women-refugees experience to feed their children is often so extreme that they are highly likely to agree to work in hazardous conditions, earn low wages, and be susceptible to sexual harassment with no to little recourse (Kaur). Thus, exploitation in the manufacturing industry is deeply rooted in workers’ inability to protect themselves against unethical practices as well as withstand the complicated political and economic climate of countries in which they live.
It can be concluded that in a capitalist society, the main goal of any business is earning a profit, which allows to extend operations, diversify the business, and provide even more opportunities to earn money. However, earning a profit means to cut costs, and in the environment of surplus, many companies that deal with outsourcing labor choose to use workers in third-world countries that do not have much choice but to earn low wages. This issue is especially prevalent in the manufacturing sector because a bigger portion of all items sold on the mass market is produced in Asian countries that do not have fair labor practices. It is widely suggested that corporations use their power to enforce ethical work practices at facilities they use for manufacturing and ensure that workers are treated in accordance with the labor they input.
Backman, Maurie. “What Are Productive Assets?” Fool. 2018, Web.
Chamberlain, Gethin. “The Grim Truth of Chinese Factories Producing the West’s Christmas Toys.” The Guardian. 2016, Web.
Ho, Timothy. “How Quickly Does the Value of Your iPhone Depreciate?” Dollars and Sense. 2016, Web.
Kaur, Harpreet. “Low Wages, Unsafe Conditions and Sexual Harassment: Fashion Must Do More to Protect Female Workers.” The Guardian. 2016, Web.
Nelson. “The Difference Between Productive and Non-Productive Assets.” Financial Uproar. 2014, Web.
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Nilsson, Eric. “Capitalism: Power, Profits, and Human Flourishing.” Economics SCUSB, 2017, Web.
Obo, Ugumanim, and Maurice Coker. “The State, Surplus Value, and Exploitation in Contemporary Capitalism.” Journal of Humanities and Social Science, vol. 13, no. 2, 2013, pp. 38-43.
Rampton, John. “10 Ways to Get More Profit Out of Your Business Today.” INC. 2015, Web.
Schuh, Guenther, et al. “Exploitation-Oriented Manufacturing technology Development.” Procedia CIRP, vol. 17, 2014, pp. 680-685.
Skillman, Gilbert. “The Role of Production Relations in Marx’s theory of Capitalist Exploitation.” Semantic Scholar, Web.