The calculation of labor-hour cost of producing treated drinking water
In proposals for a rudimentary method for calculation labor costs associated with a socialist economy, we operate under the assumption that the labor-hour will be adopted as the unit of choice. This has the strongest tradition in socialist literature, however in the 21st century different units, such as the kilowatt-hour, being a bit more scientific in that they are derived from actual physical measurements in addition to time, may prove to be more universal and accurate as an accounting tool. In any event, I would like to use the production of treated drinking water as an example not just because I have experience in the field but because it is typical of an accounting grey area which will arise in any accounting method involving labor time – a product which is both a finished one ready for consumption and a raw material for other productive processes.
I.
It has been shown that a socialist accounting system based on labor hours can calculate the total labor time involved in anything from the simplest productive process all the way up to the aggregate of all the work done in the entire world, by simply adding up the total labor time involved production. This is not as simple as it seems, as more labor than just that expended by the workers toiling in any one process needs to be considered. Also necessary to accurate calculation would be the labor-time invested in the machinery, equipment, raw materials and energy necessary for each individual process. Some accounting systems may call for a reckoning of the labor-time required to reproduce itself, however in a free-access society predicated entirely on meeting needs, I feel it can be safely assumed that the mere existence of a socialist economy assures that all labor will automatically be replaced by the efforts of all the world’s workers, and to factor replacement costs into specific labor-time calculations can be considered redundant. Therefore for the purposes of demonstrating a model of a socialist economy, I will only consider the amount of directly involved in production that which is necessary to meet human need, with this point of view emphasizing making happy, healthy humans and not replacing labor.
Let’s begin with the following basic formula, customized to the water treatment process:
LP + LE + LM + (W – R) = LT
Where:
LP = labor hours required to produce the average daily output of water by water plant workers. This includes the labor time contributed by all employees in the treatment & pumping of the water itself, as well as the maintenance and administration of the plant.
LE = labor hours required to produce the energy (electricity, etc.) needed to operate the plant
LM = labor hours required to produce and maintain the “raw” materials needed to treat and distribute the water
W = labor hours required to deal with the waste and negative consequences produced in the process
R = labor hours expended in recycling the by-products of the process (i.e. sludge being used as fertilizer)
LT = Total labor cost in labor hours
Determining the unit cost of say, 1 million gallons of water, would simply involve adding up the labor time wrapped up in the above variables for one day then dividing by the average daily production (say 70 million gallons). However, the main obstacle to performing this type of calculation in any type of economy or production system is that each variable in this equation except LP relies on data which would be provided by the results of similar calculations from other productive processes, which in turn may be dependent on even further processes, any of which could paradoxically be dependent on the cost of treated water! In a modern industrial economy, where most production processes (even those producing raw materials like mining, farming and forestry) require energy, machines and raw materials which themselves have labor time inherent in their own existence, an accurate reckoning of labor time spent in total production has to account for this cyclical nature of labor application and its products. It could be that the process of labor time calculation would most likely have to be iterative, in that much productive activity results from or requires other productive activity, therefore no single tabulation of labor hours will be accurate. (Hopefully this claim would be considered meritorious enough to be considered in any future attempts to produce a model of a socialist economy.) Even production of basic materials, in this case clean water, not only requires the production of energy and other raw materials, machines, equipment, vehicles and buildings, but the labor required to keep workers alive and healthy, plus to transport them to the jobsite, keep them comfortable and safe on the jobsite, and even to train them. Thus the accounting of labor costs of any product must necessarily search out and take into account the pre-existing costs of other contributing products, digging deeper and deeper into what may appear and endless cycle of production processes. The trick is to determine where to start the calculation, which amounts to at some point deciding which of the chicken or egg comes first.
In order to provide some starting point for the sequence, it maybe necessary and advantageous to assume that most truly raw materials are unlimited (such as calcium oxide mined from the earth in the case of water treatment). Raw materials are not really unlimited, as is being made painfully aware to us right now in the case of fossil fuels, but for the purposes of a starting point, it may be safe to assume that the relative ease of obtaining these raw materials, reflected in the labor-hours involved in doing so, will necessarily incorporate the “scarcity” of each resource. It is worth pausing to consider here that the scarcity attributed to most raw materials and resources under capitalism are a direct result of property law, where things like diamonds, fossil fuels and even fresh water are considered scarce because access to them is restricted by ownership and not because the resources themselves exist in small quantities. In a socialist economy, however, private property does not exist and therefore everyone has equal access to anything, and thus the concept of scarcity becomes a more literal one and will be surprisingly much less of a problem both in terms of actual production for the meeting of needs and in determining labor costs therein.
Even if raw materials are temporarily considered unlimited, unfortunately another problem soon would soon arise in our initial calculation of LT for a productive process – the accounting of energy costs involved, the production of which in itself is the result of labor. In particular, the mass-production of energy, something so basic to industrialized society, has also been shown to have varying degrees of costs, in the form of pollution and negative environmental impact, associated with it that are never accounted for under capitalism (these costs are represented by W in the above equation). Under socialism these costs will have to be accounted for since they are going to be borne by the entire population; they may either chose to spend labor remediating them (yay!) or simply account for the lost labor due to their negative impacts on the working population (boo!) -this is something for future socialists to decide. So even though the cost of raw materials is going to have to eventually include the costs of other processes, assuming they are unlimited in quantity would provide us with a starting point for calculation. As a result, a socialist system of production will have to perform successive repetitions of calculations, with previous results being plugged in, to provide more accurate assessments of labor costs – with the overall goal increasing productive efficiency. The effect of this accuracy on efficiency would be the key advantage of a needs-based production system held in common over a privately owned one based on profit generation.
II.
If this whole process is to remain scientific and objective, then some sort of objective hierarchy of productive processes might need to be established, which would control at which step of the process each of them would be factored into a new labor hour calculation, and then, in turn, modified themselves by later iterations. It may be useful to look now at a hypothetical list for illustrative purposes. Let us imagine that the administrative bodies of a socialist economy, with democratic approval, enacted that all productive processes would be assigned to one of the following groups and then placed them in this sequence:
1. Raw materials production
2. Energy production
3. Productive Equipment and Tools
4. Facilities, Infrastructure and Transportation
5. Human Needs
6. Waste Management
Let’s then apply this to our water treatment calculation. Since the abundance of raw materials is assumed to be unlimited (at least at first), we can start with just the basic labor hour calculation of extracting/producing the raw materials that are necessary to treat water (the LP) of each chemical: activated carbon, lime, alum, etc. At some point the production costs of those raw materials would also be iteratively calculated according to the same hierarchy, and new results then being carried over to the processes coming after them in the list. This hierarchy is not supposed to in any way indicate relative social value or importance of the processes, but merely their primacy in terms of successive iterative calculations. In any event, once the labor cost of raw materials for the treatment of water were totaled, then the LP for energy required (electricity, heat, mechanical) would be added. At first, this too would be the basic labor hour cost to produce the energy. Next is the LP for construction and maintenance of the treatment plant, the roads to needed to transport chemicals, pipes, cables and other things needed to enable workers, energy and raw materials to get to the jobsite, plus other things necessary to operate like security guards, vehicles, etc. (Under capitalism LP would include raw overtime but not include unpaid labor performed by employees such as travel time to the jobsite and its costs.) So, the different components of LP for any given labor time calculation would be added from data obtained according to the above hierarchy.
In addition, it is at step 3 that the concept of reduction of labor costs through collective action really becomes a factor in not only the calculation of production costs, but the efficiency and success of the socialist economy as a whole. For example, if all of the workers and raw materials at the plant traveled the same road to the plant, then the cost of infrastructure necessary to the production of water would be less than if more than one road were necessary. A detailed explanation of the effects of collective action on reducing labor costs and meeting needs in a socialist economy is beyond the scope of this article, but whatever methods a socialist economy could come up with to collectively meet needs would likewise start to reduce the labor hour cost of any productive process (most likely, they would not have as much as an impact on the costs for step 1 and 2 as they would for successive steps). In the case of water treatment, reduction of labor costs through collective action in water use might appear through water recycling, sharing, or changes in water use patterns, thus reducing LT by reducing the overall need for water. Internal reductions on plant LT (per million gallons) might come in the form of shared transportation to and from work, collective tool and equipment use, and automation. These reductions would eventually ripple through the whole economy and be enjoyed by virtually everyone on earth to some extent. When all of the labor time reductions of each of the world’s productive process are totaled, the benefits in the form of reduced work time can be spread out over the whole population. Likewise, increases in labor costs (including those caused by pollution and waste) can be borne by the labor pool in general rather than the just workers currently engaged in a particular productive process. In the case of a water treatment plant, increased costs of chemicals or demands for water can be met easily with the application of more labor in the form of new workers. This is an advantage not available to property-based economies which use competition as the means to reduce costs (and labor) on a small scale only, and where wages and the money system provide obstacles to applying labor power to areas of the economy where profit is not made. To be fair, since changes in labor costs are borne by the whole of socialist society, then positive impacts are just as “diluted” as negative ones, but the dilution of negative ones is one of the main reasons for getting socialism in the first place.
If we refer again to the basic formula for treated water, we can see that the costs associated with nos. 1-3 of the hierarchy happen to be encapsulated in its first three terms, LP + LE + LM. Since LM also would include the cost of maintaining the plant, as well as the labor cost to produce the machinery, computer control equipment, lab materials and instruments and so on, that variable would at some point be modified during the 4th iterative step dealing with Productive Equipment and Tools, as in other labor-made things which may be maintained or replaced more often than larger infrastructure units such as buildings, pipelines, and roads. By now we are starting to get a better picture of how much labor it costs to produce drinking water, but it is a picture which is not at this point much different from the one considered in capitalism. All of the costs accounted for so far are considered and reckoned in dollars on the balance sheets for any capitalist enterprise (perhaps to a less accurate extent). However, the next variable, W, goes beyond the typical accounting methods of private property economies in that the costs of dealing with the waste produced must at some point be factored into labor-hour calculations, since these costs are being borne by the same people whose needs are being satisfied. This is so because in socialism, both groups happen to be the whole of humanity. Under capitalism, the consumers of a product are rarely made to pay directly for the negative consequences of their use. That negative cost is usually transferred to society as a whole in the form of taxes or healthcare. Thus waste costs almost never come out of the bottom line in capitalism. In socialism, they must! In regards to the production of water, W is comprised not only of the waste produced by the plant itself (garbage, spent chemicals, etc), but the special case of entire wastewater treatment process which is required to ensure public health standards. It may be that future socialist economists may find it more advantageous to consider waste management as separate productive processes and calculate their own LT; I claim it would be better to include it as variables in calculations for individual processes since the opportunity for reducing W lies chiefly within the processes that produce it.
III.
Perhaps at this point we should stop and clarify what we have stated so far.
1. Labor time calculation for not only a global socialist economy, but each productive process making it up, would probably have to be an iterative one, meaning the results of rudimentary calculations are fed back into a series of successively deeper (and more accurate) calculations for the purposes of taking into account all of the interdependent labor costs inherent in any one process.
2. Since you have to start somewhere, socialism can perhaps assume that raw materials are in infinite supply. Of course this is not true in most cases, but the finite nature can then be expressed in their LP values.
3. Therefore the steps in the iterative process could then start with the simple labor hour costs for actual production, which are then are summed with the labor costs inherent in the other physical quantities necessary for production (energy, machinery, transport etc).
4. Some labor costs can be reduced by collective action.
5. Waste is factored into the overall labor-time calculation for any given process, as well as the overall socialist economy. The method for doing so is flexible.
6. At the same time an overall socialist economy is performing iterative calculations of the labor costs necessary to meet human needs, individual productive processes have to undergo similar calculations to arrive at an ever-increasingly accurate labor cost for their product.
The last variable in the hypothetical equation for producing water is actually subtracted from W and therefore LT – because in this example, the sludge produced as a by-product of settling solids out the treated water is used as fertilizer due to the high calcium and organics content. Since this is actually saving labor by reducing labor spent on fertilizer production processes, the people administering socialist production may choose to subtract the labor time saved from the production cost of the water. Alternately, any productive process using that fertilizer could claim a zero labor cost for the sludge when calculating its own LM. Either way, socialism benefits from this example of collective action would definitely take advantage of the rare cases where the W of one particular productive process is actually useful for something else.
Before we then attempt to derive a general formula of the labor time cost of producing water, we can wrap up the explanation of the iterative hierarchy by considering the last two steps and water production’s place in it. Step 5 is a deep and complex one, comprised of all the labor costs necessary to meet the needs of the workers themselves, and which would necessarily require accurate data from steps 1 thru 4 to compute. It was mentioned previously that other accounting systems might place this as another L in the labor-time formulas for each productive process, but it seems more logical in a global socialist economy to track them as separate productive processes. There seems to be an inherent simplicity, and even common sense, in treating the reproduction of labor, more humanely referred to as the meeting of human needs, as a function of the entire socialist system and not as costs to each individual productive process (the opposite of what was done with W). Thus the production of food and water, healthcare, entertainment, etc., for human use are treated as the result of many successive productive processes rather than raw materials in a million different LM values. (In the cases where treated water is needed in other productive processes, such as steelmaking, its labor costs would still be included in that process’ initial LM however) Since meeting human needs is what socialism is all about, step 5 could probably be the most complex and controversial step to carry out since human existence is supported by many activities which may appear at first glance to be unquantifiable on an objective basis…however that is not what we are considering here. Suffice it to say, however, that the accurate calculation of the labor cost of meeting human needs is reliant on previous accurate calculation of the cost of the productive processes involved in meeting those needs.
As was mentioned before, the consequences of waste not directly attributable to any one productive process needs to be accounted for in socialism since the costs cannot be surreptitiously transferred to someone else not involved in their production – a scheme regularly employed in the pursuit of profit. Since all of humanity is benefiting equally from a socialist economy, the negative impacts should also be distributed among everyone as well. Such is done in this example in step 6. In any case, these negative impacts must always be accounted for. The case of wastewater treatment was also mentioned, since water containing human waste cannot be released back into the environment without causing undesirable and costly negative health consequences. So it might turn out be a better idea to incorporate the costs of cleaning up the water (again!) into its initial production costs, or maybe not. We will for the purpose of illustration.
Now we can attempt a rough initial calculation with some fictional values.
The daily LP would have to account for the total hours worked by all employees on a daily basis, using values from capitalist economics and factoring in overtime, weekends, and other shift workers. Lets say this amounts to an LP = 350. Divide that by 70 million gallons and LP per million gallons = 5 hours.
LE for electricity = 0.36 hours
Then we start to add basic LP values for raw materials:
Lime = 0.3, Alum = 0.5, Carbon = 0.18 …
And so on. All the costs for building the machinery can be divided by the hours they have been in service. These costs would have to be periodically adjusted, decreasing over time. So, lets say we arrive at an initial LP + LE + LM = 8.5 This is going to increase once the additional costs of all of the component productive processes are refined through successive iterations along the lines of the 6 step hierarchy listed above. Then we consider W and add up the disposal and environmental impact costs of the wastes such as smoke from generators and vehicles. It turns out this is actually small except for the treated water that is used to wash the filters and garbage. Lastly we subtract the LP + LE + LM that was spent on recovering and recycling the sludge.
Then, a total is obtained. Since our total is going to be needed in calculations by other productive processes, they receive our, as well as any other process’s that is needed, initial LT. Then the second round begins, where energy costs are then fed back into initial calculations of the production processes of raw materials, which in turn are then recycled back into every process consuming that energy (raw materials costs will continue to increase with each step). Step 3 has infrastructure and transport recalculated according to the new energy values, which are then passed on. Each successive step works with more accurate labor costs because they have been modified by previously updated calculations, but the key point to remember was that the whole process started by assuming basic raw materials were unlimited and then simply adding up the hours of human labor used in production. Eventually, even the initial assumption that raw materials are infinite will be equalized by the increased labor costs involved in obtaining and allocating scarce ones are factored in. Those increased costs will then be transferred to all successive productive processes using that resource and prompt some hard decision making concerning their continuation.
It is in a manner such as this that a socialist economy may be administered so that a reasonably good means of determining how much (and what type of) labor will be necessary, both in total and from each worker, to meet the needs of a global population. Hopefully, this kind of logic may form the core of a serious attempt to flesh out and make public a possible model of socialist economy, providing what could be our most valuable educational tool as yet created in the quest for a global democratic socialist revolution.
