Felicity Lawrence\’s ignorant twaddle

Ho hum, it\’s not just the stringing together of the buzzwords, it\’s not just the ignorance, it\’s the simple failure of logic.

We may be deluded enough to think that successful manufacturing is still about making things, and that growth is about making more of them more profitably, but in fact for the last decade \”growth\” has meant freeing up more and more cash to be handed out to shareholders and top executives in the form of share buy-backs, dividends and bonuses. It has been achieved by taking on debt, closing factories, even profitable ones, selling off assets, and eliminating direct employment. In the upside-down world of impatient finance capitalism, manufacturers\’ \”growth\” has actually required the destruction of companies\’ productive capacity.

That last clause.

So, taking as our examples Kraft and Cadbury (for they are who is being talked about). Has their output (measured either by value or tonnage) been decreasing?

If it has been decreasing then perhaps we might indeed conclude that their productive capacity has been destroyed (whether this is a good thing or a bad thing is another matter. If they\’re making less because fewer people want to buy it then it would be a good thing.).

If however their output has been increasing then it would be impossible for us to conclude that their productive capacity had been destroyed. For the amount of production of course depends upon the capacity to produce.

Now I\’m pretty sure that both Kraft and Cadbury have been growing. Thus all the layoffs, the factory closures, the handing money back to shareholders, these have been happening while productive capacity has been growing.

That is, they are becoming more efficient at using resources to make their end product: they are becoming more productive.

And as Paul Krugman says, productivity may not be everything but in the long run it\’s pretty much everything. So this is a good thing.

But back to Dear Felicity. How can anyone write like this without testing the most basic part of the logical chain? \”Destruction of companies\’ productive capacity\” depends upon those companies actually having less productive capacity than formerly. And they don\’t, they have more.

3 thoughts on “Felicity Lawrence\’s ignorant twaddle”

  1. It’s like attempting a conversation with no common concepts.

    There is an argument that those manufacturers’ capacity is reduced, in that by reducing cost hugely but holding output steady or increasing it just a little, they have chosen to take the cash to be invested in other things and not to produce tons more maltesers instead, presumably because they don’t want to drive down the prices they can charge for this product by increasing supply by much more than existing and likely competition requires. I suppose they’ve also concluded that shareholders can do a better job of allocating that capital than they can in either existing businesses or new ones they could start. Manufacturing capacity somewhere overall should be increased as the capital is reinvested, but that’s not necessarily back in chocolates, or York, or England.

    The gaping hole in her argument is the idea that money paid to shareholders disappears. It doesn’t – it gets used for something else, which gives us both maltesers and something else as well, all for the same capital that used to produce chocolates only. Equally that money that goes “offshore” disappears, and that money generates tax only once instead of over and over as it gets used. it’s as if people were papering their bathrooms in the Caymans with unspent five pound notes, and even then, wouldn’t the Exchequer be laughing as it sold wallpaper at 50 pounds a square foot (can’t be bothered to do the maths)?

    the alternative is a kind of subsidized zoo for inefficient manufacturing whereby I pay much more than I need for chocolates and so lose the opportunity to have chocolates and something else besides. Oh, and competition, domestic or foreign, is somehow kept out by law or cartels, because otherwise anyone else would spot the inefficiency and sell cheaper malted chocolate balls.

    Money circulates, which means it comes back if you attract it. What a silly column!

  2. Sorry Tim, can you please explain what you are doing looking for logic or any understanding of business in the Guardian?

  3. Happened on your site as I was looking for F Lawrence’s stuff on radio recently. But twaddle seems to be your speciality: Kraft has not been growing; hence much head-scratching from the likes of Warren Buffett etc – but I’m sure you’re such a better investor than he. I see you don’t address the issue of national interests, so I suppose you’re some kind of spiv who couldn’t give a fig. Can’t be bothered to go on; too much is wrong with you, little saddo.

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