Superprofit

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Superprofit (or surplus profit or extra surplus-value; in German: extra-Mehrwert), is a concept in Karl Marx's critique of political economy, subsequently elaborated by Lenin and other Marxist thinkers.

The origin of the concept in Marx's Capital

The term "superprofit" (extra surplus-value) was first used by Karl Marx in Das Kapital. It referred basically to above-average enterprise profits, arising in three main situations:

technologically advanced firms operating at above average productivity in a competitive, growing market.

under conditions of declining demand, only firms with above-average productivity would obtain the previous socially average profit rate; the rest would book lower profits.

monopolies of resources or technologies, yielding what are effectively land rents, mining rents, or technological rents.

We could - although Marx does not discuss this in detail (beyond referring to international productivity differentials in the world economy) - also include a fourth case, namely superprofits arising from structural unequal exchange in the world economy. In this case, superprofit arises simply through buying products cheaply in one place and selling them at a much higher price elsewhere, yielding an above-average profit margin. This type of superprofit may not be attributable to extra productivity or monopoly conditions, and represent only a transfer of value from one place to another.

Leninist interpretation

According to Leninism, superprofits are extracted from the workers in colonial (or "third world") countries by the imperialist powers (in the "first world"). Part of these superprofits are then distributed (in the form of increased living standards) to the workers in the imperialists' home countries, in order to buy their loyalty, achieve political stability and avoid a workers' revolution, usually by means of reformist labor parties. The workers who receive a large enough share of the superprofits have an interest to defend the capitalist system, so they become a labor aristocracy.

Superprofit in Marxist–Leninist theory, is the result of unusually severe exploitation or superexploitation. All capitalist profit in Marxist–Leninist theory is based on exploitation (the business owners extract surplus value from the workers), but superprofit is achieved by taking exploitation above and beyond its normal level. There are in Marxism–Leninism no profits that could result from an activity or transaction that did not involve exploitation, except socialist profits in a Soviet-type economy.

Criticism of Leninist interpretation

Critics of Lenin's theory (including many Marxists) hold a different view. Their argument can be summarised in the following points:

the average rate of surplus-value is typically higher in rich countries, because of higher labor-productivity;

high-paid, skilled workers can be very militant and display class consciousness;

the existence of reformist labor parties in the Third World;

the differences in wages between rich and poor countries are far greater than the differences in wages within rich countries, so, if anything, the whole working class in rich countries is a "labor aristocracy" from a global point of view.

it is not clear that workers in the imperialist country directly share in repatriated profits from overseas dominions;

the actual amount of repatriated profit from overseas investments that could "trickle down" to the working class as salary income is not large enough to sustain a "labor aristocracy", if there is one.

Probably the main economic benefit that workers in rich countries obtain directly from poor countries is cheap consumer goods, but in fact the monetary value of these goods is statistically only a small part of their total budget. The "big ticket" foreign-made items in working class budgets are foreign computer hardware, foreign-made appliances and foreign cars (i.e. durable consumer goods). But out of that total expenditure, only a small fraction represents goods from poor countries.

Leninists reply that cheap consumer goods are precisely the method through which global capitalists allow workers in their home countries to share in their superprofits. The capitalists could sell those consumer goods at higher prices and obtain higher profits. But they choose to sell them cheap instead, in order to make them widely available to workers in their home countries and thereby spread a consumer culture that erodes class consciousness and removes the threat of revolution.

In other words, capitalists sacrifice some of their superprofit, either consciously or unconsciously, for the sake of increased stability at home. Once a worker owns a foreign-made fridge, car, stereo, DVD-player and vacuumcleaner, he no longer thinks of revolution and thinks capitalism is the best of all possible worlds.

Other Marxists however regard this line of thinking as a vulgar economic reductionism, and regard it as a fallacy to think that capitalists "choose to sell goods cheaply" for some political purpose. That would be only an exception to the rule, which is that goods are sold at the highest price that enables those goods to be sold.

Mandel's theory

Ernest Mandel argues in his book Late Capitalism that the frontline of capitalist development is always ruled by the search for surplus-profits (above-average returns). But, he argues, the growth pattern of modern capitalism is shaped by the quest for surplus-profits in monopolistic and oligopolistic markets, in which a few large corporations dominate supply.

Thus, the extra or above-average profits do not arise so much from real productivity gains, but from corporations monopolising access to resources, technologies and markets.

It is not so much that enterprises with superior productivity outsell competitors, but that competitors are blocked in various ways from competing (for example, through cartellisation, mergers, fusions, take-overs, government-sanctioned licensing, exclusive production and selling rights etc.). ]

In that case, the extra profits have less to do with "reward for entrepreneurship" than with market position and market power, i.e. the ability to offload business costs onto someone else (the state, consumers, other businesses), and force consumers to pay extra for access to the goods and services they buy, based on supply monopolies.

Tibor Palánkai however argues that while superprofit can be monopolistic profit, abusing monopoly position is regulated by rigorous competition policies in developed democratic countries. Superprofit coming from other sources like comparative advantages or technical innovation contribute to public welfare.^[1]

References

Lenin, Imperialism and the split in socialism

http://www.marxists.org/archive/lenin/works/1916/oct/x01.htm

Karl Marx, Das Kapital Volume 3.
Ernest Mandel, Late Capitalism.
Makoto Itoh, Value and Crisis.
Victor Perlo, The Empire of High Finance.
Victor Perlo, Militarism and Industry.
Michael Barratt-Brown, After Imperialism.
Michael Barrat-Brown, The Economics of Imperialism.
Robert Biel, The New Imperialism: Crisis and Contradictions in North/South Relations" Zed Press, 2000).