This indicates the measurable part of what she has contributed and the wealth she has created. Value added is therefore the difference between turnover
and cost of outside supply. 10 What is very important about this format is that you do not account for the labour as a cost, but part of the contribution to create the value-added. In other words, the little old lady is not an external resource for the enterprise to use and dispose of at will. She is a worthy member of the family. If the enterprise was owned by someone else, that party would also be rewarded from the value added. The key advantage of not seeing the employee as a cost is ideological. There is nothing positive about treating people as costs. A cost is a drain on one’s enterprise. It is something that needs to be minimised. Appealing to people to be value-adding and then to account for them as costs is a contradiction in terms.
The following elements can be accounted for under ‘value-added”: Salaries and wages, reserves, tax and dividends. If, for example, one considers the average South African manufacturing enterprise, the VAS would look something like this:
TURNOVER 100
COSTS 50
VALUE-ADDED (Wealth Created) 50
Value added is distributed as follows:
EMPLOYEES:
In most enterprises, employees take the lion’s share of value added.
This is only fair, since their contribution added most of the value in the first place. 30
RESERVES:
The reserves of a company enable it to keep trading next year. Legally they belong to the shareholder. 10
TAX:
He got away before we could shoot him! Seriously, though the State can be argued to have a legitimate call on value added because they provide an infrastructure within which we trade. 6
DIVIDEND:
This is a legitimate reward to the shareholders for their risk. 4 This way of accounting for the numbers places the interests of the shareholder in perspective. It becomes very difficult to convincingly argue the primacy of the shareholder’s interests. Let us return to our previous insight – that a business exists to enrich the owner of the business. Already we see that the employee in most enterprises gets more than the shareholder. We could make a far better case for putting forward the idea of primacy of the employee since, proportionally, more resources are dedicated to the employee than the shareholder. From this viewpoint, we could phrase the primary motive of the enterprise as ‘providing employment’.
We could also say that the business exists to accumulate reserves, like a savings scheme for the shareholder. This frequently happens in family owned businesses. Under the Methven 18 rule, for example,
Rainbow Chickens had precious works of art adorning their administrative buildings.
While the reserves technically belong to the shareholder, one cannot ascribe the reserves purely to the interests of the shareholder. The reserves concern everybody’s direct interests, particularly the employee, because a company that does not invest in its future has no future.
The shareholder possibly has a few shares on a portfolio tied up in the company but the employee has his livelihood tied up there. In most cases, the demise of the company has more serious repercussions for the employee than the shareholder.
The only thing that directly interests the shareholder is the dividend, the smallest slice of the value added cake. One could make the case for the company as a tax collecting mechanism, since the tax man, in fact, gets more out of the enterprise than the shareholder directly. If we argue that the business exists principally to produce a bottom line, or a reward to the shareholder, we are literally trying to account for all of the elements of the enterprise on the basis of the smallest one.
Metaphorically some people view the company as an enormous still, the point of which is to produce the tiny droplet of congealed blood called reward to the shareholder.
When the company is viewed in this way, the only logical outcome is that everything that is not part of the shareholders’ interests becomes hostile to it. If anything else rises, the shareholder’s piece must be reduced, and this cannot be allowed to happen. So we maintain the shareholder’s slice at the risk of alienating the other parties, even the customer. This is the natural consequence of making the company ‘bottom line driven’.
What we are arguing for is to make the company top line driven. This means that the company does not exist to serve a shareholder, it exists to serve customers. If the top line is healthy, the turnover is healthy. It means your customer is satisfied with your service. If this happy condition prevails there is a place in the sun for everyone and the employee and the shareholder will no longer be at odds with
each other. They will not be facing each other with a basically hostile demeanour, each wanting to get more out of the other. They will be facing the customer together wondering how they can serve him better.
If one teaches every employee in the organisation about the value- added statement and communicates the financial performance of the company in these terms, the foundation will be laid for transforming the company from a corporation that employs wage slaves to a guild of personally accountable masters. You will have laid the base for doing away with the wage and wage employment, and established an alternative and far more just reward system.
Assume that we took the VAS as it stands and made the proportion of reward to shareholders and employees fixed, irrespective of turnover realised by the company. In the above example, the proportion of value added would look like this:
EMPLOYEES 60%
RESERVES 20%
TAX 12%
DIVIDEND 8%
If we have a spectacular year and double our turnover and value- added, all parties would still get the same portion of value-added, which means everyone will get double the amount. However the converse is also true. If we have a bad year and our value-added is halved, everyone gets half.
This is existentially correct because it is rooted in a relationship with life that recognises ebb and flow. Any farmer will tell you that there are good years and bad years. The farmer is not in a position to argue with the rain. He cannot insist on fifty millimetres more to save his crop to guarantee the same income that he had last year.
The farm labourer, however, can and does argue, and would never countenance the withholding of his wage, no matter how bad the year was. What we are proposing here will cultivate the consciousness and the accountability of the farmer with every labourer.
This is the only way to contain the spreading cynicism linked with the ongoing retrenchments in corporations associated with business
process re-engineering and so on. The reason for this is that you are making the reward that the employee receives flexible, rather than the number of positions on the organogram. It means that the company can take a punch because the punch is felt collectively, not just by those retrenched. It also means that you can call on the collective ingenuity of all people associated with the enterprise to get out of trouble.
The problem with ongoing retrenchments and downsizing is that the last remnants of honour, loyalty and trust in the society are being whittled away. How can you trust the lord of the manor when he lines up all the peasants on the high street, walks down the line and shoots every fourth one?
When the shocked bystanders ask him why he did this, he says that is so that the surviving peasants can get the same amount of grain that they got last year. There is a drought don’t you know? Should this fellow’s title be ‘Chairman’ or ‘General Manager’ he will still add insult to injury by not understanding why the peasants no longer trust him.
In South Africa the Value-added Statement (VAS) has traditionally been seen to be an employee-reporting tool. I suspect the reason for this is that the VAS presents financial information in such a way that it defocuses the shareholder’s interests and therefore attempts to defuse the animosity of organised labour toward the enterprise. It is as if management was saying to labour, “Look, don’t be so suspicious, we really are one big happy family together”.
This would be fine if management actually did view the enterprise from a point of view that was consistent with the VAS. Sadly, this is not the case. I have still to come across the enterprise that uses the VAS as the spine for their own management accounts. More often than not management accounts are constructed against an Income Statement or Profit and Loss Account.
These accounting formats are shareholder-centric. When management is accounting to employees on the basis of the VAS they are really saying to their people, “We are all here to serve the customer”. When they account for their own business to themselves on the basis of the Income Statement they are saying to themselves, “We are here to maximise the return to the shareholder”.
As we discovered before, this is referred to as ‘white man speaks with forked tongue’.
We would argue that the key advantage of using the VAS as a management accounting tool is that you build a bias for growth rather than a bias for containment with your leadership. How you measure the game does affect how the game gets played. If the principle measure you are trying to maximise is the shareholder’s interests you cultivate a cost-cutting bias with managers. After all, the way I can ensure, with little risk, that I give the shareholder what he wants is to do the same with less. This is a little like saying, “You are not running fast enough so we are going to cut out muscle”.
However, being productive must mean at least two other possibilities, namely doing more with the same or more with more. This requires a view that is broader than just the shareholder’s interests. It is about how we can serve our customers better.
Virtuosity
The key to overturning the dehumanising effect of the technocratic project is to understand what the role of work should be. I would like to quote E.F. Schumacher, who lists three categories of good work:
... we may derive the three purposes of human work as follows: First, to provide useful and necessary goods and services. Second, to enable every one of us to use and thereby perfect our gifts like good stewards. Third, to do so in service to, and in co-operation with, others, so as to liberate ourselves from our inborn egocentricity. (Schumacher: 1979)
Elsewhere he contrasts this purpose of work with technocratic production:
The basic aim of modern industrialism is not to make work satisfying, but to raise productivity; its proudest achievement is labour saving, whereby labour is stamped with the mark of undesirability. But what is undesirable cannot confer dignity; so the working life of a labourer is without dignity. The result, not surprisingly, is a spirit of sullen irresponsibility which refuses to be mollified by higher wage awards but is often stimulated by them.
In a book on the city of Fez in Morocco, Titus Burckhardt gives us a very keen feel for how the current world is at odds with a traditional and ennobling view of work:
In Fez, craftsmanship still retains some of its ancient meaning; it corresponds to a necessity, and at the same time is an art. The heads or trustees of the various guilds ensure that the work of each master conforms to the required standard of excellence, that the materials used are of good quality, and that the prices are just; they also provide for the sick and needy members of their professional community. But today the guilds are threatened by modern economy and driven into a tight corner by political trade unions; if they should ever disappear, something much more than a particular expression of outward solidarity will be lost.
I knew a comb-maker who worked in the street of his guild, the mashshatin. He was called Abd al-Aziz (‘slave of the Almighty’) and always wore a black jellaba – the loose, hooded garment with sleeves – and a white turban with the litham, the face veil, which surrounded his rather severe features. He obtained the horns from ox skulls, which he bought from the butchers. He dried the skulls at a rented place, removed the horns, opened them lengthways and straightened them over a fire with the greatest care, lest they should break. From this raw material he cut combs and turned boxes for antimony on a simple lathe; this he did by manipulating with his left hand a bow which, wrapped around a spindle, caused the apparatus to rotate. In his right hand he held a knife, and with his foot he pushed against the counter-weight. As he worked he would sing Koranic sutras in a humming tone.
I learned that as a result of an eye disease which is common in Africa, he was already, half blind and that, in view of long practice, he was able to ‘feel’ his work rather than see it. One day he complained to me that the importation of plastic combs was diminishing his business: ‘It is not only a pity that today, solely on account of price, poor quality combs from a factory were being preferred to much more durable horn combs’, he said, ‘it is also senseless that people should stand by a machine and mindlessly repeat the same movements, while an old craft like mine falls into oblivion. My work may seem crude to you, but it harbours a subtle meaning that cannot be explained in words. I myself, acquired it only after many long years, and even if I wanted to, I could not automatically pass on to my son, if he himself did not wish to acquire it – and I think he would rather take on another occupation. This craft traced back from apprentice to master until one reaches our Lord Seth, son of Adam. It was he who first taught it to men, and what a Prophet brings – for Seth was a Prophet – must clearly have special purpose, both outwardly and inwardly. I gradually came to understand that there was nothing fortuitous about this craft, that each movement and each procedure is the bearer of an element of wisdom. But not everyone can understand this. But even if one does not know this, it is still stupid and reprehensible to rob men of the inheritance of the Prophets, and to put them in front of a machine where, day in and day out, they must perform a meaningless task.
Consequently, the dire straights in which Moroccan craftsmanship finds itself in is not only an outward predicament, but above all a spiritual threat. Even if not every Arab craftsman has such an understanding of his
craft as our comb-maker, nevertheless most professions still have a spiritual content, which will progressively disappear with the innovation of modern industry.
Even the water-carriers, who do nothing else but fill their tarred goatskins at public fountains in order to offer a cool drink to thirsty people in the marketplace, indifferent as to whether they receive a voluntary token or nothing at all, show in their demeanour a human dignity, such as, in European countries, the sower may still have as he contemplatively scatters his seed.
Even the beggars, who squat outside the mosques and on the bridges and who reveal their profession by their much patched garments, do not make their request with shame but, cry: ‘Give what is God’s’ or intone to themselves a pious refrain.
For almost everyone who has not been sucked into the whirlpool of the modern world lives his life here as if it were something provisional which does not definitely engage his soul, but which belongs to the ‘Divina Commedia’ of earthly existence. (Burckhardt: 1992)
It would seem, therefore, that the modern, technocratic view of work is fundamentally hostile to this older view that tries to find in work the ennoblement of the individual. The assumption is that when you use a machine of mass production, you implicitly reduce the worker to a soulless cretin. In other words modern technology and technocracy are mutually defining, and any significant ennoblement of work in the factory is impossible. E.F. Schumacher held this view:
The implicit assumption is that you can get a technological transplant without getting at the same time an ideological transplant; that technolog y is ideologically neutral; that you acquire the hardware without the software that lies behind it, has made the hardware possible, and keeps it moving.
I think it is worth attempting to see whether technology and technocracy can be disengaged from each other, and it would also be worth investigating the possibility of modern, technologically intensive work becoming ‘good work’ in Schumacher’s terms. To do this, let us first investigate the existential condition associated with ennobling work.
If we refer back to the Three Attentions, clearly work can only really be done under a second or third attention. The person in the first attention does not work, but insists that others work for him. In the second attention work is not an end in itself, but is done to achieve some outer reward. In essence, this is the status of the employee, because the employment relationship, by definition, is a conditional trade of effort for money. Technocratic work falls in this category. It is about maximising efficiencies and continuously trying to get more for less. This means that technocratic work is basically malevolent. The status of the self is one that says that the other is there to serve the self. “The world is a resource that I will use to suit my purpose. I change it to fit me.”
When the self has this view, the consequences for both the self and the other are disastrous. If you consistently exploit the other to suit your purpose, you will destroy it. The very nature of using a resource is that, when you use it, you use it up. In so far as life is supposed to be an unfolding journey, attempting to change the world so that the self does not have to change ossifies the self. You literally get off the bus of your life. This is the essence of what the Faustian trade-off is. Technocratic work is therefore fundamentally destructive, both to the inner and outer realities of man.