Sabotage in the Industrial System

The Technocracy Movement was a bid to replace politicians with scientifically-trained engineers, and to replace production for profit by businessmen with production for people’s needs by engineers.

Many of the ideas of technocracy were inspired by a now almost forgotten American economist by the name of Thorstein Veblen. Veblen’s ideas have been boiled down to just one single idea: that of conspicuous consumption, while all of is other ideas have been forgotten. Or a cynic might say, suppressed, because he was one of the last of the economists who were interested in observing how the economy around them actually worked, rather than simply work out sophisticated mathematical descriptions of markets that existed nowhere in reality.

Veblen made a sharp distinction between business and industry. Simply put, business is the process of making money, industry is the process of making things. If the things are made expressly to be sold, then they are called commodities.

Veblen argued that the goals of business and industry were inherently at odds with each other.

Let’s take masks and ventilators as an obvious example. The technical process of making masks and ventilators is the industry. From an industrial standpoint, you would want to make as many masks and ventilators as you are technically capable of producing. That depends on a number of factors: how efficient your factory is, how many raw materials and supplies you can procure, whether you have adequate energy and employees, whether you have sufficient technical know-how, and so on.

Veblen described this as the engineering challenge, which was solved by various types of engineers.

The express goal of the engineers, then, was to make the process of making masks and ventilators as efficient and effective as possible. To do this they would look at the process and do everything in their power to allow the factories produce as many masks and ventilators as possible from a technical standpoint. To do this, they might design a more efficient manufacturing machine, streamline the production process, redesign the masks and ventilators with fewer parts and pieces, automate as many repetitive steps as possible, and so on.

In a time like that of COVID-19, the need for masks and ventilators is very great. You would want factories running at all-out capacity to make as many of these things as they possibly can, to the point where there are so many that we can never run out. In times like these, you might even want a ventilator for every person in the entire country, and several masks per person.

In normal times, however, business—as opposed to industry—decidedly does not want to make as many masks and ventilators as it possibly can. Why not? The answer is simple.

Business is the art of making profits, not commodities. In order to make a profit, you have to charge an adequate price for the thing you are selling. And if something becomes too common, it’s price goes down. That is, if you make too much of something, its price declines, because it is no longer scarce. And the more you make, the lower the price goes. Lower prices mean less profits.

Thus, in order to keep the price level high enough, you need to make sure that there is not too much of what you’re trying to sell.

From that standpoint then, you would decidely NOT want the factories pumping out as many masks and ventilators as possible, because then the market would be flooded with those things and the price would go down. If the price goes down, you make less profits.

And so, from a business standpoint, then, you want to produce only so much of what you are selling as to keep the price level at an adequate and stable level so that you can make appropriate profits.

Veblen classified this group as the businessmen, as opposed to the engineers. The businessmen and the engineers, then, are at cross-purposes. The driving force of the engineers is to make the process of producing masks and ventilators as efficient and streamlined as possible, while the driving goal of the businessmen is to only make enough to keep the profits high. That means the businessman’s profits are actually jeopardized if the engineers are too good at their job.

Thus, the businessmen want to hold back maximum production capacity—to make sure that the factories do not go all-out at producing whatever commodity it is they are selling, whether masks, or ventilators, or anything else. To do this, they engage in what Veblen described as sabotage: making the production process less efficient, and/or deliberately producing below capacity. This ensures that the price of the commodity is kept sufficiently high so as to make adequate profits.

Thus, Veblen concluded, in many areas we are operating the means of production far below its potential capacity on a regular basis. That is, because of the price system, businesses were in the process of regularly sabotaging the industrial process.

The price system ensured that would never produce all were capable of producing. This meant that a good portion of the cleverness and inventiveness of the engineers was going to waste, so that businessmen could make profits. It was the businessmen—the people making the money—who were driving the production process, he argues, not the engineers—the people actually responsible making  things.

The logic is so simple that even a child could grasp it.

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In the example above, I’ve used the example of masks and ventilators because it is so timely and apropos: we need as many as we can possibly get our hands on to responsibly get back to semi-normal (note the word responsibly).

But in actuality, the same rule goes for basically everything in our society that our factories and workshops are capable of producing: we don’t manufacture the amount it is possible to produce; we manufacture the amount it is profitable to produce. Those are not the same. The price system virtually ensures that we will never produce all that we are are capable of producing from a pure technical and engineering standpoint.

In some instances, we may be able of producing enough of something for everyone on our planet, such that no one would have to go without. Under the price system, however, we cannot do so, because if we did that, it would be practically free, and no profits would be made.

The price system, once a logical means of rationing scarce resources, becomes the very thing that causes the resource to be scarce at all!

Put a different way, profits are the cause of scarcity.

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Here is a good article from the L.A. Review of Books making the same point:

BY NOW, the shortage of medical supplies in the United States is a notorious fact. The nation has between 160,000 and 200,000 ventilators; it may need a million. Masks, gowns, face shields, gloves, bottles of hand sanitizer, and tests for the virus are all in short supply.

The shortage has come as a great surprise, because the government has been contracting with private firms to make these supplies for years, and private firms, as everybody knows, will provide more of any product at a lower price than any central planner ever could. Responding to market signals like greyhounds leaping out of the gates, they race after efficiencies, pushing down costs and boosting productivity.

Yet every day brings fresh evidence of market-based inefficiency. To pick only one example, The New York Times reported on March 29 that a medical supplies company in Costa Mesa, California, which had won a competitive multimillion-dollar contract to make ventilators in 2008, had yet to deliver a single unit. How could a private firm fail so spectacularly to meet the public demand?

A hundred years ago, the economist and satirist Thorstein Veblen was pondering a similar question. In his 1921 book The Engineers and the Price System, he noted that the recent war had demonstrated the tremendous industrial capacity of the advanced nations, yet after the war, unemployment rose and production fell, pushing the industrial world into recession. Machines and men stood idle everywhere, to the great detriment of the public. “[P]eoples are in great need of all sorts of goods and services which these idle plants and idle workmen are fit to produce,” he wrote. “But for reasons of business expediency it is impossible to let these idle plants and idle workmen go to work.”

“Business expediency” meant nothing more than profitability, which Veblen thought was not at all the same thing as productive capacity. In fact, the executive’s job was to reduce the latter in order to ensure the former. “[I]t has become the ordinary duty of the corporate management,” Veblen wrote, “to adjust production to the requirements of the market by restricting the output to what the traffic will bear; that is to say, what will yield the largest net earnings.” Contrary to popular belief, corporate management doesn’t spring forth like a greyhound; it dawdles like a Great Dane.

Veblen had a name for this kind of foot-dragging: sabotage. He pointed out that the word itself derives from the French for “wooden shoe” (sabot), and so it denotes “going slow, with a dragging, clumsy movement, such as that manner of footgear may be expected to bring on.” Because profitability required scaling back production to maximally profitable levels, it followed that economic sabotage “is the beginning of wisdom in all sound workday business enterprise.”

Even if the industrial supply chain is more complicated in our day than it was in Veblen’s, it is still possible to catch the economic saboteurs at work. Returning to the Times story, the original bid-winning company was bought up by another, larger company called Covidien, which begged the federal government for more money, shuffled key employees around the firm (effectively gumming up the gears), and then demanded to be released from the contract. As a result, they received millions of public dollars but provided not a single unit. Veblen would insist that this was not a failure of the free market “price system.” On the contrary, the price system had worked according to its basic laws. As industry observers and government officials explained to the Times, “building a cheaper product […] would undermine Covidiens’ profits from its existing ventilator business.”

Who will save our economy (not to mention countless lives) from these vandals? In order to frighten financiers, “absentee owners” of capital, and other guardians of the status quo, Veblen suggested that they should all be replaced by a “Soviet of technicians.” It was the engineers, he argued, who actually knew how to run the factories…

Who Sabotaged the American Economy? Thorstein Veblen Knows (L.A. Review of Books)

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Another from of sabotage caused by the price/profit system is planned obsolescence.

This is when manufacturers deliberately slow down the performance of the goods they create; deliberately design them to fall apart or stop working after a certain period of time; or hold back the release of new technology in order to ensure future sales.

Although most economists argue that the free market prevents this from happening, there is evidence that some manufacturers engage do in this activity. A few years ago, Apple admitted to deliberately slowing down their products. That is, Apple sabotaged their own devices!

Apple fined $27.4 million in France for slowing down older iPhones without warning (ZDNet)

There have been other notorious cases; perhaps the most notorious is the Phoebus cartel, which was a consortium of light-bulb makers who all agreed to setting a maximum lifespan for lightbulbs to encourage continual replacement, and thus continued profits.

Apple is not in the business of making computers, it is in the business of making profits, and it just happens to do this by making electronic goods. This is true of every corporation in the world (except for non-profits). What they make is a means to an end, not the end in itself.

Product Longevity and Planned Obsolecence (Conversable Economist)

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The upshot is that we do not produce all we are capable of producing in almost every instance. This leaves all sorts of shortages that need not be there. In the case of masks and ventilators, this can be fatal. In the case of housing it’s also a serious problem.

Thus, the cornucopia of goods that our society is theoretically capable of producing will ever be denied to us. A post-scarcity society will never be a possibility as long as the price system exists and maximizing business profits is the ultimate goal for producers.

7 thoughts on “Sabotage in the Industrial System

  1. I’ve never heard of business men slowing production down to keep profits higher. However I have heard a lot of about destroying excess products to keep prices high,shred/burn what wont sell for a good profit, to keep prices high. The workers don’t benefit from a more leisurely pace of work as any excess either.

    1. Enron. Enron would temporarily shut down power plants so that they could negotiate energy contracts at famine prices, then resume usual production.
      The public cost was the loss of production in all the other industry while energy was cut back.

    2. It’s less slowing down production, and more a lack of maximizing production to the greatest extent possible, if I understand Veblen’s arguments. Of course, none of this is necessary so long as profits are sufficiently high. There are examples in the article I cited, as well as the one of Enron cited by the other commenter.

  2. I really liked your words: ” A post-scarcity society will never be a possibility as long as the price system exists and maximizing business profits is the ultimate goal for producers.”Thank you for your analysis of the current situation!

  3. Thank you for sharing this; I hadn’t come across this before.

    It makes perfect sense—the market depends on artificial scarcity, and hence everything from enclosures and zoning laws and vagrancy laws to create scarcity in land.

    As noted above, this immediately made me think of the way our system will ensure artificial scarcity by literally destroying unprofitable overproduction, like restaurants that pour bleach over leftover food in dumpsters or the mountains of potatoes that were bulldozed into the ground at the start of the pandemic. It’s so utterly perverse I don’t know how anyone doesn’t lose their minds watching this system, much less support it.

  4. Thank you for sharing this; I hadn’t come across this before.

    It makes perfect sense—the market depends on artificial scarcity, and hence everything from enclosures and zoning laws and vagrancy laws to create scarcity in land.
    This immediately made me think of the way our system will ensure artificial scarcity by literally destroying unprofitable overproduction, like restaurants that pour bleach over leftover food in dumpsters or the mountains of potatoes that were bulldozed into the ground at the start of the pandemic. It’s so utterly perverse I don’t know how anyone doesn’t lose their minds watching this system, much less support it.

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