One of the core ideas of Marxist economic theory is the notion that business owners exploit the workers, that is, they profit off the work of the workers. The reasoning is that the things produced by a business are not produced by the business owners, but rather the workers as it is their labor that created the product.
Essentially, the business owner does nothing and earns a profit by stealing the products created by the workers and selling them.
But is this theory right? Is it true that business owners do nothing except steal the products created by the workers and sell them for a profit?
The answer is most certainly no. Business owners play an important role in producing goods and services, and to say that they do nothing but exploit workers and steal from them is simply not true.
To produce anything at all we need to have four factors: land, labor, capital and entrepreneurship. If any of these factors is missing we cannot produce anything. Thus, the idea that business owners (enterprise) do not contribute to the creation of products and services contradicts this basic law of economics.
So how do business owners contribute to production?
First of all, it is the business owner who decides what to produce and how to produce it. It’s the business owner who has the idea for the business in the first place and lays down the blueprint of how the business will operate.
It is the business owner that creates a management structure, ensures that raw materials are available, buys/rents a place where production can take place, and handles the legal issues of the company such as paying taxes and ensuring that regulations are being followed.
The business owner is the brain behind the company, and the body cannot function without the brain.
But some people argue that the business owner does not create the products themselves, they hire workers to do that and for that reason, it is the workers who deserve ownership of the product since they made it.
But this view is flawed. Let’s think of the products produced in a business as a dish. Chef Gordon Ramsay has many restaurants around the world where they serve recipes created by Chef Ramsay. Now, of course, Chef Ramsay does not personally make all the dishes in all of the restaurants all the time, that would be impossible. He instead hires other cooks to work in his restaurants, and they are the ones who physically make the dishes. But while the hired cooks do prepare the food, it is still Chef Ramsay’s recipe. It’s his idea, his concept. He is the one who had to come up with the dish in the first place. The hired cooks simply follow his instructions, his recipe, and re-create the dish.
This is the role that entrepreneurs play in a business. They are the ones who come up with the idea. The business is their concept, and the whole enterprise operates on the instructions of the entrepreneur. The entrepreneur acts like the brain of the business.
The entrepreneur also takes the most risk in the business. If the business fails, it is the entrepreneur that will lose money. The labor force may get fired, but they will be paid for the amount of work they did. On the other hand, if the entrepreneur fails to satisfy the needs and wants of the people, he will lose money. This is why the entrepreneur gets the profit, they take the risk and so they get the reward.
For those that argue that profit earned by the entrepreneur is simply value stolen from labor, I have one question. If labor is responsible for generating profit, are they also responsible for generating loss if a loss occurs? Should labor lose money if the business fails?
Of course, labor should not suffer if the business fails, because that is not their fault. The job of labor is to help turn raw materials into finished products. They do not decide what gets created, how it gets created and who the product is targeted at. That is the role of the entrepreneur, and that is the reason why the entrepreneur suffers a loss when the company performs poorly and earns profit when it does a good job.
To better help socialists understand this perspective, let’s use an example from the Soviet Union.
For his role in the allied victory over the axis powers in World War II, General Georgy Zhukov was one of the many generals who received the Order of Victory, the highest military decoration given by the USSR for the Second World War. It was one of the many awards he received for his role in defeating the Axis powers in the Second World War.
Now the question arises, why did Zhukov receive the award? He did not single-handedly defeat the Axis powers, nor was he present in the frontlines shooting at German soldiers. It was the men who worked under his command who fought the Axis, killed their soldiers and captured enemy territory.
So why does Zhukov get the most credit?
Because Zhukov’s role was similar to a business owner’s role. It was Zhukov who led the soldiers, he created strategies and battle plans, he made the decisions about the men that he led. And if his men failed to defeat the enemy, it was Zhukov who would bear the blame.
This is the reason Zhukov got the most credit, just like the business owner who gets the profit.
This is what Marxists get wrong about business owners. They do play a role in the production of a product, they don’t just simply sit back doing nothing and earn money off the work of others.
To produce anything you need land, capital, labor, and entrepreneurship, and without even one of them, including without enterprise, production is not possible.
This article, What Gordon Ramsay's Success Can Teach Marxists about Entrepreneurship, was originally published by the Foundation for Economic Education and appears here with permission. Please support their mission.