COST VERSUS VALUE and some other thoughts about the economic crisis.

PROFIT MARGIN COST ACCOUNTING IS WORLD’S MOST EVIL DEVIL:
THE OTHER SIDE OF REAL VALUE ECONOMICS

Sometimes what we take for granted, without question, as necessary and
right, conceals one of the worst evils in the world. It is an evil
taught in every capitalist business school. It is something that is
valued more highly than most other functions in business today. It is
routinely compensated more richly than most other functions. It has
risen in status, particularly in recent years. Nevertheless, the
accountant’s main function, within American capitalism, is what we
need to reconsider. How cost accounting is done is where we can find
one of the world’s worst evils. That evil becomes even more malignant
in any economic downturn or recession, making its pressures and
influences felt even more strongly than in good economic times. That
is one of the most powerful forces forcing the world toward its total
ruin.

Profit margin cost accounting, with its demands to forever cut costs
and to increase margins, dictated to accountants by dividend hungry
shareholders, cannot ever serve the best interess of humanity. This is
because it does not consider real costs. It only considers paper
values according to accepted formulas of calculation. The real costs,
not the paper values, include costs to the environment and costs
accrued to reduced quality of life that have no dollar values assigned
in the equation. They also include waste, which is acceptable where
the cost of reducing waste has a negative impact on margin, rather
than cost recovery. Waste tends to be reduced only where and when it
costs more to waste than it does to conserve or recover something from
waste.

Air, water, and soil pollution, and also conservation, have no dollar
values assigned to them in the typical cost accounting formulas. The
long term health and quality of life impact of those factors never
appears in the accounted cost of manufacture. The remedies for those
problems and the cure for their effects, cannot appear in the cost and
profit margin formulas because it increases the cost and erodes the
margin. In many instances there would be no margin, and the goods
would no longer be produced, being considered completely uncompetitive
in the world marketplace. Clean air, water and soil are too expensive,
and uncompetitive, when it comes to conventional cost accounting, and
the unending fight for profit margins in a globalized competitive
marketplace. Business schools do not each real value accounting.

Factors affecting worker lives are largely, if not completely,
ignored. The physical, mental, cultural, and social costs of overwork,
work related stress, unbalanced lives, one dimensionality (as defined
by Herbert Marcuse), all add up, but never appear in the costs
tabulated by the cost accountants. Some of those factors could have
dollar costs attached to them, but calculating those is extremely
difficult. Instead we only see productivity demands, for less and less
people working ever harder and faster, to make more and more product
with fewer and fewer mistakes. This becomes the definition of
“quality”, which is purely cost driven and thus profit margin
driven.This is also greatly worsened in every downturn or recession.
Not to mention that each recession has brought with it demands for
more productivity that are then never reversed after the recession
ends. Each recession acts like a cat of nine tails whip lashed across
the backs of the workers, and often lower and mid management as well.
Whatever is lost in a downturn or recession is never really regained.
Each exacts its toll upon the workers. It is the workers who are
always told that they are too expensive, and not productive enough.
The share holders, owners, and senior executives have never yet been
required, by the accountants, to shoulder the blame. Only the workers
get the blame.

Similary the environmentalists, and others concerned with those
social, political and cultural values not directly and immediately
accounted for into material and labor costs for manufacturing and
sending product to market. Whatever little gains the environmentalists
and others made, are also blamed for the downturn, and progress is
usually halted or pushed back, with a tough, long, fight to regain any
of the lost, ground. Even cultural activities tend to get blamed for
economic downturns as if they somehow took the profits out of mass
production manufacturing and the need for ever increasing sales
volumes of ever more mass produced goods. There is an ever increasing
sensitivity to these unaccounted for factors somehow haunting the
accountant’s tally of costs and profit margins, along with various
attempts to exorcize these contrary spirits.

Passing mention to quality of life, and effects on well being, types
of issues are usually limited to the calculation of overhead costs in
manufacturing, which take into account the negative effects of
absenteeism, illness and injury, resulting in pressures to reduce
those related costs on the job. In some countries, and in some
industries, those pressures are minimal or non existent. Replacing a
worker is considered the lowest cost remedy for any problems that
might occur as to the failure to increase productivity. In bad
economic times the pressures for greater productivity tend to
increase. Cost cutting and productivity increases, become the
emphasis. Quality of life tends to lose whatever ground it might
previously have gained. People become more afraid of losing their jobs
and what little they have from them, and at least some are willing to
work even harder and faster to produce more for less cost, believing
that that will result in having work. Not only that, but we already
have companies where workers avoid using benefits and do not dare take
a day off, afraid to be ill to the point that they are becoming ill
due to that fact. We already have companies where taking holidays is
frowned on, as something irresponsible and unnecessary negative impact
on the accounting balance ***. And to have a life outside of one’s
work is now often seen as the worst among the deadly sins.. These
changes are not really evident from the balance ***, but they are
included in the final numbers.

Paper value based cost accounting can never really tell us what the
real cost of any thing really is. Least of all the long term cost of
making it, in the manner that it is being made. That is, it fails to
calculate in the long term impact on humanity and environment, on well
being, and on future quality of life. It fails to factor in the costs
of remediation of the wrong doings that led to damage to the air,
water and soil, as part of the cost reduction based accounting system.
Someone has to pay for it all, at some point, but the cost accountant
will have closed that factory, and scrapped its machines and
facilities, long before any tally of actual costs would ever be
presented for inclusion in its accounts. After all, it would be
unprofitable, having no profit margin remaining , due to the increased
costs accrued to its activities.

Ultimately the devil of cost accounting tends to foster the belief
that if there is no profit in it, within the rules of the cost
accounting calculation, it cannot be done. Not only cannot, but must
not be done. There is the business accounting belief that progress
only comes from increased profits, and never otherwise, in any way.
There has to be some profit in it to enable the doing of it. That
belief is being promoted as the most fundamental principle governing
the basic functioning of society and its economic activity which is
the core of its existence. We need only assess how much is not being
done, and how much is immensely delayed, that we know is of value or
necessary. The cost being calculated as being greater than the benefit
to be gained, there is less and less chance of there being any
interest in getting it done. So we witness the steady and alarming
deterioration of much of the world’s condition, and see conditions in
many places reaching a critical level, both in terms of human quality
of life, well being, conservation of Nature, and the degradation of
the environment.

The question we must then ask, is how do we get done, what needs to be
done, that is not being done, overcoming the cost accounting barriers
that stand as a fundamental obstacle. We must remember too that taxing
the system, to gain revenue for funding such programs as are outside
of the cost accountant’s ability to justify in terms of cost and
profit margins, is restricted by the fact that those taxes are also a
cost, and as soon as they are increased, they have the same impact as
any other increase in cost, impacting on margins, and cumulative
margins based on sales volume, which is the other portion of the
existing formula that controls justifications. Taxation no longer
provides a viable economic answer to the problem. Every increase in
taxes tends to cause a reduction in economic viability, as an increase
in costs, or a decrease in sales volume, negatively affecting margins,
and resulting in negative economic pressures.

Of course we can always treat the planet as lacking the funds for
renovation and repairs, and simply let it deteriorate, due to lack of
fiscal means for any maintenance or improvement in its currently
deteriorated condition. As goes the recessionary neighborhood, so goes
the whole planet. Perhaps the cost accountants will soon tally up the
costs of those repairs and order the planet Earth demolished, as too
costly a project to contemplate, necessitating its being shut down
like an old, run down, manufacturing plant, deemed too costly to
maintain and repair. There might be a market, somewhere in the
universe for recycled waste carbon. Humans are in fact
18% carbon. That’s quite a tonnage of carbon, considering population
growth.

After all, the obviously rapidly deteriorating values of this planets
real estate, in the universal market, would lead to the decision that
the costs of all the materials and human labor, necessary to remediate
the planet, are far too high a cost to ever allow for any real profit
margin. The investment in this planet could never be recovered and it
now seems that no serious minded accountant would ever stand for
that ! Think too of the rising taxes that it would inflict upon the
inhabitants ! Particularly the wealthiest inhabitants. The bill for
repairs to planet Earth is quickly exceeding their ability to pay. At
least in a paper value economy that becomes the truth. In a real value
economy, the accountant can never stop real progress and the repairs
can still get done !

CHILDREN SUFFER RISING PRICE OF SOCIAL MEMBERSHIP:

Children and parents share the difficulty of the rising price of
social membership. Marketing of clothing, toys, fast foods, and
electronics, to a child market has added to increased competition
among children, increased rivalry, a drastic rise in peer and social
status pressures, and to jealousies among children. Children are, by
nature, poorly equipped by experience and learning, to deal with
those challenges. Doing without, and not being able to boast about,
leads to not being included, and not being valued by others. This is
something a typical child does not really understand. Parents have
difficulty explaining it, when it happens. Often they cannot. A
child's social membership has risen in price to where many parents
cannot afford it and schools are partly to blame, promoting various
forms of buying in. The new values are taught by various marketing
programs, promoting child participation in buying things, in support
of school programs. More and more children have to supply various
things, at family expense, in order to participate in school programs.

Deferred gratification rather than impulse, learning real discipline,
and the acquiring of lasting values are gradually perishing away, and
in their place schools are tending to support consumerism, as the
social key that opens social group membership. Outside of school the
situation is much worse.

OBAMA AND ABORTION:

I firmly believe abortion should never be used as birth control.
Whereas funding Planned Parenthood is something that needs to be done,
funding abortion as a means of birth control is definitely wrong.
Human life itself is devalued if begin to treat a human life as
something that can be disposed off due to a change of mind. Sex on
impulse and abortions brought about by fear and evasion of the
responsibilities that go with bringing a child into the world and
caring for that child, would seem to send the wrong message.

The only justifications for abortions are when a mother's survival is
in serious jeopardy or where quality of life, of an abnormal fetus,
would be very low due to abnormality. Having sexual intercourse is a
decision that must become universally understood as carrying with it
significant responsibility. To have sex is to risk conceiving a child
and that child must then be born into the world, to be cared for or
put up for adoption.

Robert Morpheal

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