Today we have another story typical of our times, another episode of our favorite daytime soap opera The Rich Get Richer. Corporations are piling up huge profits and sitting on huge piles of cash even as they lobby for lower taxes and avoid hiring new workers. McClatchy gives us the story in Strong corporate profits amid a weak economy - what's up with that?
WASHINGTON — U.S. corporations continue to post strong profits quarter after quarter, even as the unemployment rate remains high and the U.S. economic recovery plods along in fits and starts. What gives?
Corporate profits grew 36.8 percent in 2010, the biggest gain since 1950, according to Friday's latest report from the Bureau of Economic Analysis. No sign could be more clear that U.S. companies see the so-called Great Recession in the rearview mirror.
The strong profits, however, mask the continued difficult terrain for businesses. Yes, profits are high, but that doesn't mean business is strong.
[U.S. Chamber of Commerce chief economist Martin] Regalia and other analysts think several factors are behind the strong profits, which seem to contradict other indicators of an underperforming economy, especially the 8.9 percent unemployment rate. These factors include record low interest rates since late 2008, muted demand for borrowing by companies and a surge in productivity that has allowed companies to do more with the same number of workers or fewer.
Profits aren't rising solely because companies are making and selling more widgets to keep up with customer demand, which would be the case in a healthy, booming economy. Instead, they're more profitable because it now costs less to make the same widget, often because there are far fewer workers needed to make it...
According to the Gallup polling, unemployment is 10.2%, but more importantly, worker productivity is on the rise.
Another explanation for strong corporate profits has been growth in productivity, or hourly output per worker. The Labor Department reported on March 3 that annual average productivity rose by 3.9 percent in 2010. Aside from that strong productivity growth, unit labor costs fell during the same period by 1.5 percent. That reflects that worker compensation didn't keep pace with rising output. Put another way, businesses produced more than compensation rose.
Normally, companies can squeeze only so much out of workers before they must hire more of them or fall behind competitors. Many economists thought hiring would have picked up by now as productivity rose, yet job creation continues to lag.
You gotta' love it! Why hire more workers or properly compensate current workers when you can squeeze more work out the poor bastards, who probably feel lucky to have a job at all. Don't you love capitalism when it's firing on all eight cylinders? When profits are high and workers have no bargaining power? It's like a wet dream for grossly overpaid corporate CEOS. If we just wait a little longer, we'll be back to the glory days of the 1890s.
And let's not leave out those overseas sales.
Another factor in today's strong corporate profits also might mask how sluggish the U.S. recovery has been — the growing percentage of profits from foreign sales by U.S. corporations.
That number climbed steadily over the past decade and peaked at 45.3 percent in 2008. That underscores how globalization has made it harder to define winners and losers. Americans are wrestling with high unemployment, but overseas sales have boosted U.S. corporate profits.
That, in turn, lifts the stock market, which lifts the wealth of workers with 401(k) retirement plans and company shareholders alike.
We should recall here that approximately 83% of stocks and mutual funds are owned by the wealthiest 10% of Americans, as I discussed in Our Outrageous Bubble Economy. McClatchy gives us the Big Picture—What Gives?
As bad as this picture is, McClatchy's graph (lower right) does not show us the longer-term trend in worker productivity. For that, we turn to the Economic Policy Institute's The Sad But True Story Of Wages In America.
Essentially, economic policy has not supported good jobs over the last 30 years or so. Rather, the focus has been on policies that were thought to make consumers better off through lower prices: deregulation of industries, privatization of public services, the weakening of labor standards including the minimum wage, erosion of the social safety net, expanding globalization, and the move toward fewer and weaker unions. These policies have served to erode the bargaining power of most workers, widen wage inequality, and deplete access to good jobs.
Whole lotta' squeezing going on!
Even this graph does not do the situation justice, because the EPI economists have committed the "One Economy" fallacy: they have calculated wage increases for all workers without taking into account America's growing income inequality. See my post America's Invisible Poor.
There are so many atrocities here that I can't cover them all in one post. The McClatchy article also talks about how American corporations are not investing (in new plant, equipment, etc.) in the United States. And why would they? America has been bled dry, as I described in Invest In America? Why Bother? And I haven't even mentioned jobs outsourcing.
There are few moments when I am more embarrassed to be a human being than those mornings when vacuous newsreaders on National Public Radio tell me that American worker productivity has surged once again. And they're so proud as they say it! As they crow about our astonishing productivity, I am looking for a place to hide.
Excellent analysis, Dave. My thoughts, exactly. In fact, I have observed and thought this for years.
Also, one has to ask "productive at what, exactly?"
There's the crux of it. So many, if they're productive at all, and not in the way these bozos define or measure it, are productive at digging the grave of every living thing on the planet, including themselves, and they delude themselves into thinking they are doing something noble and being responsible, creating nauseatingly euphemistic titles for themselves like Human Resources Coordinator. Let's call all corporate sycophants what they really are.......Little Eichmans doing their part in liquidating the planet of the menace that is life.
Posted by: Morocco Bama | 03/29/2011 at 10:55 AM