‘The Profit’ Socialism Challenge

My very favorite TV show ever is The Profit, because it so well concretely illustrates the essence of capitalism. (My favorite board game is Imperial, for a similar reason.) Season 8 is airing now, and supposedly it will be the last. (See 10min episodes.) Alex summarizes:

The Profit, a reality-TV show on CNBC featuring businessman Marcus Lemonis. In each episode Lemonis buys into a failing small-to-medium-sized business and works to turn it around. …

A typical firm on The Profit, for example, has decent revenues, sometimes millions of dollars of revenues, but it has costs that are as high or higher. What happened? Often the firm began with a competitive advantage–a product that took off unexpectedly and so for a time the firm was rolling in profits without having to pay much attention to costs. As competition slowly took hold, however, margins started to decline and the firm found itself bailing. But instead, of going out of business, the firm covers its losses with entrepreneurs and family members who work without pay, with loans which grow ever larger, and by an occasional demand shock which generates enough surplus revenue to just keep going.…

One of the first things Lemonis does in almost every episode is get the numbers right so he can calculate which products are selling and which have the highest price-to-cost margin. Concentrate production on high-margin, big sellers. Drop the rest. Simple; but many firms don’t know their numbers.

Second, in episode after episode, Lemonis cleans up shop. Literally. He cleans the shop floor and gets rid of inventory that isn’t selling. He then arranges the floor to improve process flow (made easier by concentrating production on fewer products). He then creates an inventory system, tracks orders and the inputs needed to create those orders, and takes advantage of costs savings through economies of scale in input purchases. …

Another lesson from The Profit is that firm problems are personal problems. The son who can’t step out from the shadow of the father and the father who can’t let go. The two brothers who haven’t gotten over the death of their father and the problems this creates in the firm they have inherited. The siblings who are still fighting to get their parent’s attention. If Lemonis has a genius skill it’s in keeping his temper and working through bullshit problems to get to the real festering issues that are at the root of inefficiencies. …

It’s difficult to run a business like a business. The analytical mindset that can separate business problems from personal problems isn’t natural. Many people cannot separate business decisions from their own preferences and emotional biases, which is one reason why great business leaders are rare.

The Profit does a great job of illustrating common small business problems and solutions. Furthermore, it shows why capitalism tends to do a good job of getting people to actually adopt such value-increasing solutions to these problems. It is the capital that Marcus has to offer that makes business owners listen to him; he’d mostly get ignored if he were just a business consultant asking instead to be paid for his advice.

In fact, I’m so impressed with how well The Profit scenarios illustrate the value of capitalism that I now build upon it a challenge to socialists: please describe in detail how The Profit style enterprise reform would happen under socialism.

I’ve heard that, under socialism, workers would vote on who they want to be managers, or that some government agency would allocate capital to applicants asking to create or expand their ventures. But I just can’t see those processes going well in these concrete cases, getting someone to look in detail at their problems and then use the prospect of capital as a lever to get venture managers to change their ways. Show me some plausible stories of how these or other socialist processes could achieve such value-increasing changes remotely as well as does Marcus Lemonis, and I’ll pledge my support and allegiance to socialism.

Added 3Nov: Bizarrely to me, many have interpreted my challenge as “offer some good arguments for socialism”. No, I asked for something very specific, namely plausible scenarios for how socialist mechanisms would help in these very particular cases. 

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