What I wrote in my previous comment is a general, worldwide problem that applies to Western companies too. It’s a fundamental fallacy to think that we live in a system of truly free economic relations.

Yes, the market is (mostly) free. But this doesn’t mean that our economy is truly free because the market is only a part of the system where trading takes place, not the whole of it. We forget a huge domain of economic activity – namely production, that takes place within businesses. This domain is governed by what I call “redistribution monopolies”.

Redistribution monopolies are most common in companies:

If you are an employee you are not allowed to reward your colleagues with whom you have direct working relations (e.g. employee A provides input to employee B so the latter can do his job). You may say `thank you’ to a colleague for a contribution he made to you, but you’re not allowed to pay him any money. Monetary reward is instead reserved to certain roles in management. The resulting system is one where everyone contributes, but only certain people distribute and reward – a monopoly.

I don’t know about you, but to me it feels unnatural to have restrictions on people to reward each other freely.

You may also ask yourself what economic sense redistribution monopolies within companies make.

This anomaly is of course going to go away. It may still not be understood, but its hurting effects are widely felt. I dedicated my (currently somewhat neglected) blog http://TheTransactionCompany.com to this topic.

I am asking because of this:
“…you’ll have to give people a possibility to have fulfilling and complete economic relations, to connect and reward one another as they see fit.”

It seems that people are still not allowed (or still unaware how) to trade freely… or to be remunerated for the work they do. They should do their best to fit in a certain hierarchical system?

Technology has always fascinated me. But for the past few years my curiosity shifted to larger, living systems – our society and economy – how they work, and most importantly – how to make them tick better!

After I graduated it didn’t take much time in industry to find out that the limiting factor how good our machines and software become is not the brilliance of the engineers, or technical know-how, but the organisation. A product cannot be any better than the collaborative environment that makes it, no matter what! Many occasions contributed to reaffirming this belief of mine.

If you look at how companies are formed you’ll see that their blueprint is the family. But modern companies have outgrown their precursor – the family business, and this familial model of organising them is no longer economically feasible.

If you want to have an organisation that prospers in the economic sense you’ll have to give people a possibility to have fulfilling and complete economic relations, to connect and reward one another as they see fit. A good way to do that is by allowing monetary transactions; and then let these transactions define the business structure and hierarchy – and not the other way around. This is, by the way, how the market works – more or less.

But this, in my opinion, does not mean that sodas, liquors and coffee in general are products with a high value added. Coca Cola is actually selling two things: drink with lots of (artificial) sugar and a feeling of being part of something great. These are two seperate products sold together…

Producing cars to sell adverts is obviously a lot more complicated than drinks. This reduced efficiency is my explanation for the difference in margins between Coca Cola Co and VW AG :)

The teacher told us the formula goes approximately like this:

For every dollar you spend on a Coke:

> 10 cents go to cover the cost of the advert “carrier” – a plastic bottle with a soft drink

> 60 cents go for the advertising

> 30 cents is the profit from the advertising

The problem lies within the “Proletariat, unite!” I think. Suppose you would consider the opposite: we, as consumers, organise and force companies to produce without making profit, or to produce at a loss. For the producer the competitive opportunities disappear. For a society as a whole it eventually implies that its technological advantage will fade: there is less (no) capital left for new investments (recycled profits).

Mmm… I just realised that consumers are organised quite well in some markets. The biggest consumer interest group is created through the government, as people vote for parties that nationalise production and services!

I would say that grosso modo cheap products have low margins. But, to put it the other way around, products made with the most recent technology mostly have high margins. I can imagine that from a marketing perspective this does not hold true in all markets.

I guess that Coca Cola has a very strong brand and operates in a market with few real competitors. For VW on the other hand, there is a lot of competition and production is more labour intensive? How would you explain the differences in their profit margins?

I feel curious to find out how the two pressures – workers on pushing wages up vs. consumers on lowering prices resolve. In any case, the two forces seem asymmetrical to me – workers seem a lot more organised than consumers. Workers have their unions, but there has been no such thing on the consumers’ side; we’ve heard the slogan “Proletariat, unite!” but no such come-together-and-start-a-revolution cries of disgruntled consumers.

Of course, it’s not that consumers don’t have a group effect on prices – it’s just that their effect is rather uncoordinated and unconscious. Also, people tend to identify themselves a lot more with what they work than with what they buy. And finally, the industrial revolution brought people into factories to work together (and hence the possibility to unite) on a scale never seen before.

Does “cheap product” necessarily mean “low margin”, and “expensive and advanced” – “high margin”? Consider two companies, one does soft drinks (Coca Cola), the other cars (VW group): while the last quarter’s operating margin of Coca Cola was 30%, VW posted a margin of 6%. Both numbers are rather typical for their type of products.