Plonka's Blog: profiteering

I was arguing with a friend about this just the other day. The argument concerned the cost of water and in particular, recycled water.

A 25,000 litre truck can be filled with recycled water for about $25. If I wanted that water to be delivered to my house, it’ll cost me in excess of $2000. I know this because I watched a short article not long ago about a water carter and it seems to be true enough with my enquiry to fill a 1000lt tank resulting in a cost estimate of about $100. When they asked him why he charged so much for the water, he said “People pay it if they want the water” which translates to “because I can”. At that point I wanted to take a gun and shoot the fool.

I mentioned this to my mate and he said “So what’s wrong with that?” I tried to point out that it offers a disincentive to which he said “Bullshit!”. I damn near fell off my bike, but you can’t argue with that kind of logic, so I didn’t.

The markup here is about 8000%. That, in anyone’s language (except my mate’s) is profiteering on a grandiose scale, and he can do it because there are no laws to prevent it. The thing that really irked me about this bloke was that he was quite happy to charge up to $3000 for 25,000 litres of recycled water to fill a pool, but was prepared to drop it to $2500 if you are trying to grow food or own a business that needs it and don’t have a tap yet. Big hearted of him I thought.

Not long after, my brother in law was around for a barby and told the story of his mate. This bloke had recently had an 85,000 litre pool installed. Of course, he didn’t have the $8000 needed to do the right thing and fill it with recycled water, so he rang the water company and told them an engineer had just told him he had to fill the pool or it would collapse, but he couldn’t afford the recycled water. So without so much as a “can we see the engineer’s report please”, they told him to turn the tap on. $80 later he had an 85,000 litre pool full of beautiful, clear, sparkling, pristine drinking water.

Now in a state that’s having serious water issues, with stage 3a water restrictions in force, which means we not allowed to fill pools, no matter the size, we can’t water lawns or gardens at all, trees can only have a bucket twice a week, etc, I think that deceiving the water company like that is probably a bit rude, so shame on him. But double shame on the carter for making it prohibitively expensive NOT to deceive the water company.

But once again, this is the problem and the result of our “profit at all costs!” society. Profits soar as prices rise and the economy booms and we have good times. Then slowly it creeps up, because in the final analysis, one man’s gain is another man’s loss, and then it hits and a wave of home buyers go bust. Usually it’s because they’ve over extended themselves, but where was the check to make sure they didn’t, or the check to stop the unscrupulous mortgage broker? Well they’ve been removed because they interfere with profit.

We seem to talk a lot about silly people buying things they can’t afford and somehow manage to almost completely avoid talking about the smart people who convinced them to do it and these days, that's business. It no longer has anything to do with the usefulness or value of a product, but everything to do with whether you and I can be convinced to buy it. Why we do that I don’t know. It seems all ass about to me but then I’m not profit driven, except where my employer is concerned and that’s only because I’ve seen the workplace change so drastically over the years. There was a time I was treated like a person, now I’m treated like a commodity so I’ll do my best to act like one.

Excellent stuff! Gimme more...

The NAB recently announced that it would raise its mortgage rate by 0.12% with business to pay an extra 0.15%. Why did this happen? Did the Reserve Bank raise official interest rates? No. They’ve cited “higher funding costs” as the reason.

Last year, the NAB made $4.4 billion in cash earnings. Lending increased to $394.7 billion and deposits to $268.4 billion. Ok then, that 4.4 is pure cash earnings, separate from “assets”, which according to that statement are clawing their way back from record lows and “cash earnings” are interest generated. The bank sells money and reaps the profit via interest charged. It’s a simple equation really. So I’d like to know how the market influences that particular figure. It doesn’t seem to me that it can, so I’m inclined to say that it’s more likely that if the banks do well then the market MUST do well, not the other way around.

So it seems to me that this is purely an exercise in profit garnering. No-one’s bothered to mention how much funding costs have risen or whether it would cause significant losses if they didn’t raise rates, and considering that the NAB has a record of high “cash earning” results along with being first to raise interest rates, I’m of the opinion that they could probably have waited for quite a while before it caused the bank any real problem. The problem is though that the banks and I have a different idea as to what constitutes a loss.

To me, a loss means I didn’t make a profit, period. To a bank, $4.3 billion in cash profit instead of $4.4 billion in cash profit means they’ve made a loss and that they must do something about it because the shareholders will demand it. This ridiculous idea isn’t exclusive to banks either. I was first introduced to it when I worked for an asset management firm when during one quarter, we made a massive company record of $110 million and in the next we only made the standard $90 million. In response, our budgets were slashed, required upgrades had to be put on hold and the mailroom lost a staff member. Now to me, that’s laughable. It wasn’t like we didn’t make a hugely massive and disgusting profit or anything. I did manage to get some value out of it though when I was working on the CEO’s PC one day. He snidely complained about the performance so I pointed out that it wasn’t my idea to slash our budget. I also pointed out that his PC needed to take a lower priority because it’s the traders and fund managers that are actually making the money, so they should come first in a profit oriented firm, yes? Guess what? They had to wait so Maurice could have his new PC, laptop and phone, all paid for out of our (IT’s) budget with no expense at all, not even responsibility for the ongoing phone bill, falling to Maurice himself. Laughable in the extreme.

Shareholders are another problem. They always complain and there’s nothing you can do about it. I think it’s because most of them have nothing better to do. But I don’t own any shares at all except what my super fund may own, and that will most likely be largely eaten by fees and taxes by the time I get it anyway, so I don’t really give a toss about that. What I do care about is that my bank will soon follow with their 0.12%. Yes, I’ll still be able to make the payments so it doesn’t concern me too much. But that extra $20 a month has added up to quite a bit over the last 12 months or so. On top of that, energy has just risen by 17%, public transport by about 3%, then there’s petrol, meat, milk, veggies, etc. Herein lies the real problem and is exactly what big business and business oriented government has seriously dropped the ball on. Over time, the checks and balances that prevented profiteering have been eroded and because of it, we’ve created our own version of a “working poor”.
I’m not doing to badly, but… I don’t get CPI increases and EDS is extremely poor at giving anyone except management (above the middle level) the “performance based” increases they promise, unless you get promoted. I’ve had one promotion that netted me very little, so for the last 6 years my wage has pretty much remained static. This practice is perfectly legal and works well as a cost reducer over time. They don’t have to lay anyone off if they can save the price of a wage over the period of a year or two as job market values rise with the CPI. So people leave to find better compensation and EDS continually have their little think tanks to try and work out why they have such a high staff turnover. No, they never manage to find the answer, I kid you not.

Yet prices rise and interest rates rise and I’m already at the point where I rarely manage to save. I don’t know how long it will be, but I can see that there will come a time, probably sooner rather than later, when I will reach the point of no return and will need to find better pay. No, not a better job, just better pay. I don’t care about the job or “career” anymore, only the money I can make, that’s the corporate attitude, isn’t it? My job has a “market value” and I’m expected to make my company a profit. In that case, my skills and services are sold to the highest bidder with the best conditions. Consequently, I’m no longer and never again will be loyal to the company I work for, only ever to the pay packet they see fit to give me.

The underlying problem to all this as I see it, is that our society has simply become to profit driven. The shareholders always demand that this year’s profit is better than last year’s so companies and corporations must find a way to show an increase. Lay people off, skimp on safety and services, close the crèche, increase the profit margins and in short, generally help inflation along and make it difficult for me.

It’s time to wake up to the fact that higher profits and lower wages don't mix well. You need to pick one or the other. Higher profits mean more expensive products while lower wages mean more expensive products become unaffordable, which in turn effects profits. See the problem? The wheel turns and one man’s gain is another man’s loss and in the final analysis, that simple fact cannot be avoided, only put off for a while.

You know, when I started in the work force as a salesman all those years ago, the standard markup was 30%. That bought the stock, paid the rent and wages and made Ben Douglas (Douglas Hi-Fi) a multi millionaire with just 2 shops. These days the average markup is anywhere between 50 and 80% and in the case of slower moving items, 100% or more. That much profit isn’t really necessary and excuses like “because I can get away with” or “because the shareholders demand it” simply aren’t good enough…