Just to isolate one line, this is a common misconception of how the government is supposed to work. The government is not a business - it’s not supposed to generate a profit.
The government provides a service. You can argue that the value of the service isn’t worth how much society pays. But it’s not a profit issue. A police department or a fire department or a school system isn’t there to turn a profit.
This is it. And when computing expenses for a product, the fixed costs have to be factored in some way, which isn’t all that easy. I’ve seen cases where low runner products get penalized because the fixed costs of capital equipment divided by fewer products There was something called “Activity Based Costing” which tried to figure out the actual contribution of design and manufacturing processes to the cost of manufacture, sans overhead. It turned out to be very hard to figure out.
Specifically, it is easy to charge electricity and operator cost to a product, but a machine depreciates just as fast whether or not it is being used. One thing we worked on was moving production from a big, expensive machine to a smaller, cheaper machine. It never really worked, because the big expensive machine was still there and you weren’t saving a lot if it was idle.
I must say it was fun going to meetings populated by engineers and accountants.
Did you see good and productive engineers turn themselves into bad and unproductive accountants and salesmen in order to not hire useless people?
Mostly I saw very bright and creative entrepreneur/owners self-limit themselves and the company by refusing to delegate any of the administrative load. It can be a hard barrier to get past, and the majority of those with the guts, gumption and drive to start and build a small company do not have the ability to let any of it go.
I was with one company run by such an individual, and lived through two earnest attempts to break through to the next level. They were disasters, as he could only keep his hands on his own desk so long and then started meddling with work delegated to head programmers, business managers, etc.
As someone who’s an engineer by training but works in accounting, I can’t imagine those meetings being hugely productive. Did they at least provide interpreters so the two sides could communicate?
Marxism, I think. The basic idea is you’ve got productive workers, and everybody else. The workers produce everything, while others consume without producing. For Marx, it was the capitalists, or profit takers, who were the parasites. You seem to be identifying management as the culprits.
It’s called efficient allocation of resources and it’s the job of a free market to encourage such. And while it generally does do a fairly decent job of it, it’s by no means perfect as any of us can point to numerous areas not only of imperfection but also of abuse.
But to take the OP’s example, if widgets are essentially a commodity business like say toilet valves or something of that nature where as long as it works, people don’t really care about much else except how much it costs, then every person in the organization will either a) have have a function which justifies their salary or b) has a privileged position that is justified by surplus value provided by other employees.
Otherwise, that company will cease to be competitive in the widget business inasmuch as they will no longer be able to produce widgets at a competitive price comparable to the prices of their competitors.
However all this changes if widgets are not a commodity product and if the company can, through product differentiation, either by providing a superior product, superior marketing or both, convince their customers that their product is unique among widgets and therefore deserving of the premium that they demand.
In such a case, this allows for a great deal more flexibility in the organizational structure.
The same is true when a company has a true or virtual monopoly on a product. Google was and to a great extent still is a good example of this. So too are patent based companies such as pharmaceutical companies.
Well, yes, in undergrad business theory. In practice, companies can get by for years, decades, forever with far less than optimal efficiency. A company’s survival in a market depends on far more than their internal efficiency and resource management.
I thought the OP was looking for “value-added” versus “non-value-added” .
For instance, I work in Quality Assurance. This is generally regarded as a non-value-added division because we don’t make money for the company. You can argue that we would have angry, unhappy customers if we started selling them widgets that were out of specification and that would cost the company, but most consider QA non-value-added.
I know some people try to break it down that way but I don’t really agree with it. The biggest reason is that there isn’t anything about the jobs themselves that makes them value-added versus non-value added except in the context of that particular company. Quality assurance might be considered non-value added at a company like yours and yet would be value added if you worked for an outsourcing firm that provided QA consulting services. Taking care of the landscaping is manual labor and can be considered non-value added to most companies except if you are a landscaping service company and then it is your main business model. Categorizing a particular job one way or the other doesn’t change the fact that each of those jobs still has to be done for the company to function.
I work in IT but usually consult for mega-corps who don’t want to be in the IT business themselves. I am value added for my consulting company and, if I used that terminology, I would be non-value added to the companies where I physically work but I know that isn’t true. I work in industrial facilities and am way more important personally to the production process than any given dozens of people producing things on the shop floor. If I don’t do my job well enough, nothing is getting produced.
When you look at it in the context of the whole economy rather than just the rather arbitrary breakdowns that individual companies make, I don’t think there are many jobs that should be called non-value added. If they really are, then maybe they shouldn’t exist at all. At the very least, non-value added jobs should be truly optional to the company and not essential functions that are hard to quantify as direct sales contributions.
I think any job that might be classified as non-value-added has a similar function to the entry ‘good will’ on a company’s balance sheet. It represents a positive but intangible benefit to the company.
Landscaping, architecture, pleasant looking, helpful people at reception who spend most of the day just looking nice . . . these are all things that say something about your company that in general will create a positive and receptive mental state in prospective clients. It sounds so crass when you spell it out like that, but it is unfortunately a fact.
I think it’s crass when someone says the opposite - that no one not swinging a hammer can possibly be contributing to the company’s success. It’s a fact that they are.
The question is related to economies of scale. As you make more of something, the price per unit (to name just one measure) goes down even as the number of people directly contributing to manufacturing increases. This is generally perceived of as good, but whatever. Eventually though, there can be a point where the support structures of a company start to be crushed by their own weight. This is called a diseconomy of scale, and it’s what I think the OP is wondering about.
Don’t be silly. No company ever has perfect efficiency. it’s an aspirational ideal, but efficiency comes with its own costs, and it’s not always, or even usually, the most effective way of producing profit - i.e., goods or services worth buying. And ehre’s the important bit: “inefficient” methods are not illegitimate.
Some companies go for extreme flexibility, being able to turn on a dime. Some are extremely active about getting out and showing others what the company can do for them, offering goods and services the customer might never have even heard about. Some try to be really, really innovative and focus on the bleeding edge of technology, but may not actually produce anything physical. Some try to go BIG, and do things on a scale nobody else can match. None of these are necessarily monopolies or in any way abusive, and I could easily point to multiple companies which use different ones in different combinations. These may lead to getting monopolies, but the monopoly is something these days normally comes after the big success, and is rarely kept for more than a decade.
The important thing about free markets is not that they’re better at a given point in time than the alternative, but that the tendency over time is more or less inevitable and agrressive improvement through ruthless competition. All monopolies get broken unless they’re forced by law. A hypthetical global monopoly which controled all sources of a critical good (probably not a service) might be maintainable indefintely, but thus far that’s unrealistic. It would also have to have immense influence in a lot of governments to keep from being broken, as any abuse of the monopoly would draw the ire of virtually everybody, everywhere.
However, in theory, with sufficient information and processing ability, you could always construct a more eficient system than free markets. It’s easy: to paraphrase P. J. O’Rourke, write out the mystery than is the human heart and multiply by the number of people alive, and then build a vast megacomputer which takes into account all the possible inventions or innovations for all possible goods and services and predicts how they will alter the ongoing system, while also analyzing the costs for all possible resources. If you can do that, then you can optimize your system. If not, then criticizing any free market for not being optimal in any dimension is a waste of time and good sense.
I’m not sure where I was being silly. Rah on the defense of free markets, though.
It isn’t “casual Marxism,” it is canonical Marxism. It is called the Labor Theory of Value. As might be expected, classical economics has much criticism of the theory.
Most significantly, the value of the labor going into the production of the final product is not at all a driver of the value of the product. The product’s value is determined by supply and demand (labor costs do influence the supply side). You can quite easily imagine a disconnect between labor value and the value of the final product. This is why we would call buggy whip manufacture “a waste of labor.”
The organization of factor inputs is itself a factor input, and profit is the return on entrepreneurial/managerial/organizational skill. Widget assembly line workers don’t just materialize in a factory like some 1960s “happening.” Thanks to diminishing marginal costs, a solitary worker is going to have higher average costs as compared to an organization of workers (economies of scale). Scaling isn’t the result of entropy; it is a result of the organizational structures that the OP misguidedly sees as non-profit generating. In fact, the economies of scale are very likely what makes the enterprise profitable. This is why even though we can all cook, only a restaurateur is going to make any money off of it.
This is what I call the “Henry Ford Fallacy”. Henry Ford could nt understand why there were so many accountants in his organization. Every so often he would walk by a room full of people, look in, and say
“Who are those guys?”
“They’re your accountants.”
“They aren’t making anything. Fire the lot.”
When Henry was finally replaced by the US government for the war effort, his son asked the accounting department “How much money does Ford owe?”
The answer was “What number do you want to hear?”
There’s a general feeling in a large organization that “what do those guys do anyway?” In fact, most such orgnanizations they have productive jobs. Unless you have a very automated process, an 8-to-1 ratio of line workers to support staff sounds excessive.
However, the guy ordering Widget parts is necessary. The guy packaging and shipping widgets are doing something productive. Stop paying the bills for raw materials or shipping, stop paying the workers’ paycheques, stop paying taxes, and see what happens. Stop searching for customers, and beating out the Chinese widget importers, and see how long the people work.
Even the front line workers need supervision. In a Marxist paradise, they need no supervision. However, a lot of people need supervision, hand holding, monitoring of attendance and punctuality, handle harrassment complaints, etc. A rule of thumb is for simple sitautions - an assembly line - maybe one supervisor per 20 workers is good. In more complex setups, like software development, engineering, etc. a trained team leader per 5 to 10 employees works good. you still need your HR expert.
A typical “too lean” company forgets that with various reasons - sick, vacation, etc. - you may have 5% to 10% of your workers off at any one time, so running to close to the bone is going to result in trouble. You need someone to fix the leaky faucets, loose hinges, replace lightbulbs, etc. For a business of 20 people, the line worker can do this in the 10 minutes before he goes home. For a business for a few hundred, you need a full-time janitor and maintenance man. If you contract to a cleaning service, or call a plumber, then that is a legitimate expense too.
Also keep in mind, especially today, no business is static. If you make (not cellular)telephones, tires, furniture, breakfast cereal, light bulbs, calendars or toys - your business likely has changed 100% in the last 2 decades. Unless you make a real simple commodity (nails and screws? VHS tapes? 35mm film?) materials and technology change, relative material costs change, markets change. You need R&D to stay abreast of things, and quality assurance to be sure the delivered product is correct. You need CEO-level decision makers to decide what direction the company will go in response to changing markets. it just should not be a 120-to-1000 ratio.
The same fallacy pplies to government costs. Every business that has plate glass windows relies on the presence of police to ensure that they don’t need to pull down metal shutters every night - as do their employees who go to work leave their plate-glass living room windows all day. Your phone system, roads, rail and air delivery systems - all dependent on government to function. Your employees (at least the ones in this country) don’t keel over with melamine poisoning by drinking milk, thanks to the health department. Your 3 biggest federal expenditures are health, social security, and defence - meaning you have happy employees who know they won’t starve in the dark when they hit 65 or be shot by invading armies. Your biggest government expenditure locally is education, which is why you employees could fill out their application forms and you can find engineers and quality assurance people to hire, and the janitor can read the installation nstructions for the new soap dispensers.
yes, landscaping or office carpet is an appaerance thing rather than a necessity; but in some cases, appearance helps sell, which keeps people employed. However, it should not dominate the production costs. If the “appearance” is more than 1% of production costs, check with your accountant if that is appropriate - if you haven’t just fired him.
So the cranky-old-fart idea of Henry Ford’s, that “if they aren’t assembling our product, they aren’t productive” is a complete fallacy in a complex society.
We could communicate fine. We said “this is the information which we want” and they said “this is why you can’t have it.” We do things this way and can’t do it any other way.
To be fair this was when data collection was still fairly primitive, so we couldn’t dump their information easily.
It was a good idea, though.
I’ve heard these value-add discussions, and they almost always refer to value to a specific product. Services are thus never value-added in this sense, which does not mean that they aren’t essential.
The argument for QA not being value added is this - in an ideal world, no one would screw up and processes are perfect, and QA would not be necessary, and the product would be identical to the eyes of the customer. Thus it cannot be value added. In the real world no one argues that it isn’t essential.
In testing people have been moving from just passing or failing parts to collecting data on the parts. If you use that data to tighten up your manufacturing processes, increase yield, and thus reduce costs to reduce prices or increase profits, the non-value add argument is harder to make.
Same thing with landscaping. Replace your lawn with Astroturf, and no one is the wiser and you don’t need the guy mowing the lawn. So he is not value added in the view of the customer, anyhow.
Cite?