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The Militant, 3 January 1942

How British Bosses Get Rich on Cost Plus 10%

From The Militant, Vol 6 No. 1, 3 January 1943, p. 4.
Transcribed & marked up by Einde O’Callaghan for ETOL.


(How the leading British industrialists have been milking huge profits out of the war program and safeguarding their monopolies at the expense of production is told in the following excerpts from the pamphlet, Production Committees and the Soviet Union, published by the Revolutionary Socialist League, British Trotskyists.)


The British Iron and Steel Federation includes all the biggest armament firms and before the war was built up with the aid of the banks into “one of the tightest and most restrictive monopolies this country has ever known.” (Economist, May 10, 1940) It is directly represented in the War Cabinet by Sir Andrew Duncan, its former executive head and director of the Bank of England. If, therefore, profiteering and inefficiency are established, the Government, the banks and the industrialists are all implicated.

The industry was built chiefly on imported iron ore from Scandinavia and Spain. These sources are no longer available but there is a determined resistance to developing home produced ore. This would involve a change of technique and reduced profits. The steel monopolists also hope that after the war there will be a return to the old methods, and the foreign ore-fields in which they are financially interested will resume paying them dividends.

Monopolization and Government subsidies have prevented the modernization of the notoriously out-moded British blast furnaces. The number in operation dropped from 394 in 1922 to 200 in 1937. Even as compared with 1937, the Daily Mirror estimates that present production is less by 20 per cent. It can clearly be seen that this “restrictive monopoly” is responsible for the shortage of steel.

Cost Plus 10 Per Cent

In the transformation of the steel into armaments the profit motive is still more glaringly demonstrated. The “cost plus 10 per cent” contract is no worse than the “Target Price” or “fixed price” contracts but it is the best known and will serve for the purpose of illustration.

Ten per cent is indeed a high rate of profit and when we recognize that 20 per cent of the excess profits is to be refunded to the capitalists after the war, it becomes even more generous. But on the face of it there appears to be a limitation of profits. In practice this is not so. Cost plus 10 per cent becomes cost plus 100 per cent or more.

The capitalist intentionally increases costs so that his profit will increase. This is done in a great variety of ways, open and obscure. Additional directors are created and the fees of the older ones increased. Members of the family or friends are enabled to avoid military service and are paid a princely sum for doing so. All sorts of additional executive posts are created for nonentities whose only function is to get in the way or run around in powerful cars paid for from “costs of production.”

Excessive sums are put aside for “depreciation” with Government sanction. Money spent on extending or improving the factory (thereby adding to the real assets of the owners) is calculated as costs and profits allowed on it. All income tax and surtax is paid before the dividend is declared. Other huge sums are put aside for exceptional war risks.

All modifications to new types of armaments are included in costs. Production is held up for months while ridiculous modifications suggested by so-called experts are piling up costs. Expert legal advisers are engaged to falsify the books and seize on every loophole for increasing profits. This is called “robbing the National Exchequer”. It is a game reserved entirely for capitalists.

But this is not the end of the profit making. The big firms sub-contract much work. Several different sub-contracting firms complete one part in the process of production. These smaller firms are usually subsidiaries of the larger one. At each stage in the manufacture the same process is gone through and the cumulative profit piles up to record heights. And the representatives of this gigantic swindle occupy directing posts in the government.

The Chaos Extends

Even the scrap iron merchants have their federation which insists that no scrap can be sent directly to the factories. This means that hundreds of trucks and wagons are engaged in centralizing scrap before taking it back again, often to the district from which it came. It is also a common practice for firms controlling various stages in different plants to have their steel supplied only by their own subsidiaries. These may be located hundred of miles away and adds to the chaos in the transport and railway systems. It may be that ample supplies are quite close at hand but this would mean yielding some of their profits to a rival and that is out of the question.

The government, of course, has power to prosecute firms for gross mismanagement and, in fact, several prosecutions have taken place. But these prosecutions have been against small firms which the monopolies want to drive out of business.

And now, in the interests of witholding information from the enemy, a number of firms are to be exempted from publishing accounts. The enemy in this case is the workers in the war industries who are becoming suspicious of the orgy of profiteering. Despite all the tricks of the legal experts and accountants the published figures show a continual rise in profits. This, plus the inefficiency and mismanagement of which every engineering worker has experience, is causing deep dissatisfaction.

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