Business Insider: The Profit Obsession

Henry Blodget wrote an excellent piece for Business Insider entitled “Sorry, It’s Not a ‘Law of Capitalism’ That You Pay Your Employees as Little as Possible.” Much of it could best be described as common knowledge among working folk, but the story is buttressed by some telling charts (see below). Nothing surprising here:

One of the big reasons the U.S. economy is so lousy is that big American companies are hoarding cash and “maximizing profits” instead of investing in their people and future projects.This behavior is contributing to record income inequality in the country and starving the primary engine of U.S. economic growth — the vast American middle class — of purchasing power.

If average Americans don’t get paid living wages, they can’t spend much money buying products and services. And when average Americans can’t buy products and services, the companies that sell products and services to average Americans can’t grow. So the profit obsession of America’s big companies is, ironically, hurting their ability to accelerate revenue growth.

One obvious solution to this problem is to encourage big companies to pay their people more — to share more of the vast wealth that they create with the people who create it.

The companies have record profit margins, so they can certainly afford to do this.

But, unfortunately, over the past three decades, what began as a healthy and necessary effort to make our companies more efficient after the malaise of the 1970s has evolved into a warped consensus that the only value that companies create is financial (cash) and that the only thing managers and owners should ever worry about it making more of it.

This view is an insult to anyone who has ever dreamed of having a job that is about more than money. And it is a short-sighted and destructive view of capitalism, an economic system that sustains not just this country but most countries in the world.

Of course, the repug response to anyone espousing such views is “suck it up, buttercup,” with the requisite prattle about yanking on your bootstraps, generally followed by some reference to communism. But as Blodgett notes, there’s a choice:

It is not a law that they pay their employees as little as possible.

It is a choice.

It is a choice made by senior managers and owners who want to keep the highest possible percentage of a company’s wealth for themselves.

It is, in other words, a selfish choice.

It is a choice that reveals that, regardless of what they say about how much they value their employees, regardless of what euphemism they use to describe their employees (“associate,” “partner,” “representative,” “team-member”), they, in fact, don’t give a damn about their employees.

These senior managers and owners, after all, are earning record profits while choosing to pay their employees so little in many cases that the employees have to live in poverty.

And the senior managers and owners add insult to injury by blaming the employees for this: “If they want to get paid more, they should start their own company. Or get a better job.”

It is no mystery why America’s senior managers and owners describe the decision to pay employees as little as possible as a “law of capitalism”: Because doing this masks the fact that they are making a choice.

And the proof is in the pudding:

CHART ONE: Corporate profits and profit margins are at an all-time high. American companies are making more money and more per dollar of sales than they ever have before. Full stop. This means that the companies have oceans of cash to invest. But they’re not investing it. Because they’re too risk averse, profit-obsessed, and short-term greedy.

CHART TWO: Wages as a percent of the economy are at an all-time low. Why are corporate profits so high? One reason is that companies are paying employees less than they ever have as a share of GDP.

CHART THREE: Fewer Americans are employed than at any time in the past three decades. Another reason corporations are so profitable is that they don’t employ as many Americans as they used to.

Not to mention that Americans are working harder than ever and are far more productive…

CHART FOUR: The share of our national income that American corporations are sharing with the people who do the work  (“labor”) is at an all-time low.  The rest of our national income, naturally, is going to owners and senior managers (“capital”), who have it better today than they have ever had it before.

Read the whole story here.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s