European Tribune - Community, Politics & Progress.

So, how much more 'reform' do we need?

by Jerome a Paris
Mon Jun 5th, 2006 at 05:56:57 AM EST

By now, we all know the logic of 'reform': make markets, especially labor markets, more flexible in order to improve company profits; they will then be able to hire more people and spread the wealth.

Whether 'reform' has taken place, the official intermediate goals, corporate profits, has certainly been reached:

US companies boost share of economic pie
US companies have increased their share of the economic pie at a faster rate over the past five years than at any time since the second world war.
Recent government figures show that profits from current production as a share of national income have risen from 7 per cent in mid-2001 to 12.2 per cent at the start of this year. This rate of growth is unprecedented since collection of these figures began in 1947.

Now that we are a point where corporate profits are no longer a worry, but lack of domestic demand is, can we focus economic policy on that side of the equation (and no, cheap consumer debt is NOT the solution)?

Just a few more numbers:

Profits have climbed by 123 per cent over the same period, soaring from $714.5bn (€552.57bn, £378.89bn) to $1,595.4bn - also the fastest increase since records began. Other official data have shown that profit growth by manufacturing companies, often seen as one of the weakest sectors, has outstripped the rest of the economy. The figures suggest corporate America is enjoying one of its best periods despite more competition from low-cost countries and tougher corporate governance and disclosure rules.
Even during the boom of the late 1990s, companies only managed a 90 per cent increase in profits over a four and a half year period. Annual data on profits go back to 1929; there were faster rates of profit growth in the 1930s, as the US emerged from the great depression. "Companies have had an extraordinary winning streak, that has lasted longer than most expected,"

To put things in perspective, here's how corporate profits looked in earlier decades (from this document, pdf):

And here's the recent evolution for all G7 countries.

(these graphs are not directly comparable to each other or to the numbers quoted in the article above, but they give an idea of the trends...)

So, where's the trickle down? Or is is just a trickle up scam? Hmmm...

. Home
. About
. Contact
. New User Guide
. FAQ
. ET Editorial Guidelines
. Search
. Search (Google)

Username:
Password:

. Make a new account
. Reset password

So, how much more 'reform' do we need? | 13 comments (13 topical, 0 editorial, 0 hidden)

Re: So, how much more 'reform' do we need? (none / 0)

A rational economic policy maker might well decide to adjust the balance of policy as you suggest. As a non expert it seems to me that the right goal is a balanced economy which pursues a sustainable spiral of growth.

However politicians, dependent for campaign funds upon those self interested in a particular policy, may not be rational decision makers. Pursuing a formerly successful policy until it causes catastrophe is a terrible temptation.

by Gary J on Mon Jun 5th, 2006 at 06:28:32 AM EST

Re: So, how much more 'reform' do we need? (none / 1)

What we need is a policy that does not criticize profit making by corporations, but reflects the fact that it is in the corporations' very own long term interest that these profits be reinvested in the economy to boost demand. That investment can take the form of actual investment by corporations, wage increases (investment in the labor force), or transfer to others (taxes) for them to invest on bahalf of the collectivity.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jun 5th, 2006 at 06:32:43 AM EST
[ Parent ]

Reform here. Investment there. (none / 0)

The corporations usually want the reform in the wealthier countries, but all their investment goes into coontries with low labor costs, and usually potentially huge markets.

by observer393 on Tue Jun 6th, 2006 at 03:57:20 AM EST
[ Parent ]

Re: So, how much more 'reform' do we need? (none / 0)

You don't understand... we are now transforming into an ownership society, the trickle-down goues to you if you are a stock owner... </snark>

Never mind that small investors usually lose.

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Mon Jun 5th, 2006 at 06:47:00 AM EST

widespread ownership (4.00 / 4)

It might, just might, work if ownership was indeed widely distributed, but (i) we know very well that this is not the case (wealth distribution is even more unequal than income distribution, inevitably), and (ii) it does away with the safety net role which is the core role of the State.

Basically, the 'reform' model only works is everybody is above average. After all, that has been made to work for CEO remunerations (who all get their "above average" remuneration packages which nicely contribute to an upward spiral)...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jun 5th, 2006 at 06:53:35 AM EST
[ Parent ]

Re: widespread ownership (none / 0)

BTW, I recall you had a diary on this subject, which I wanted to link for newer readers, but can't find it.

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Mon Jun 5th, 2006 at 07:57:24 AM EST
[ Parent ]

Re: widespread ownership (4.00 / 2)

Basically, the 'reform' model only works is everybody is above average.

Perhaps if we all moved to Lake Woebegone...

Somewhere in cyberspace, the ghost of de Chardin is smiling.

by budr on Mon Jun 5th, 2006 at 08:47:10 AM EST
[ Parent ]

Re: widespread ownership (none / 0)

the 'reform' model only works is everybody is above average.

Or, the 'reform' model embodies a justification for penalizing (writing off) those who are not above average.

Jesus died for somebody's sins but not mine - Patti Smith

by dvx (dvx.clt ät gmail dotcom) on Mon Jun 5th, 2006 at 09:20:16 AM EST
[ Parent ]

Re: So, how much more 'reform' do we need? (none / 0)

I always found... ironical... that a system that assumes that you must own, in the end, the means of production, is so frontaly against another that postulates that very same thing, only at the beginning. If i understand both..

by Torres on Mon Jun 5th, 2006 at 10:07:24 AM EST
[ Parent ]

Re: So, how much more 'reform' do we need? (none / 0)

Before I make a fool of myself ranting here, I should say that I'm not completely understanding the measure "corporate profits as a percentage of GDP." It looks simple at first, but I have no idea what the historical forces are.

In particular, what are the other major parts of GDP?

I guess wages. But there must be something else?

In the 60s, unions were stronger in the US, wages seemed to be at a relative high, but on this graph, corporate profits were too (as a % of GDP.)

Since then, wages have been stagnant, so it's hard to believe they have increased as a % of GDP. We have the figures for fluctuating corporate profit. Where did the other bit go?

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jun 5th, 2006 at 07:02:16 AM EST

Re: So, how much more 'reform' do we need? (none / 0)

Most of it (60-70% or so) is in the form of wages. I need to check for the rest.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jun 5th, 2006 at 08:04:40 AM EST
[ Parent ]

Meanwhile, in the Silicon Valley... (4.00 / 3)

In today's San Jose Mercury News:

Wider abuse of options feared
One thing appears certain as investigations broaden into whether Silicon Valley executives rigged prices on stock options: There's no end in sight.

When I was living in the valley, the talk at the water cooler was all about stock options millionaires and the spreading of the wealth. Everybody believed they could get "in" easily and be next to buy a mansion in Atherton.

Of course, the game was rigged. Those in the boardrooms and the executive suites have ensured they were served first. And for the rest of the folks, oh well... Mc Donald's is still hiring.

Europeans think a hundred miles is a long way. Americans think a hundred years is a long time.

by Bernard on Mon Jun 5th, 2006 at 03:27:17 PM EST

Re: So, how much more 'reform' do we need? (none / 1)

You must be channeling Henry Ford, Jerome.

Bout time someone remembered his solution.

"When the abyss stares at me, it wets its pants." Brian Hopkins

by EricC on Mon Jun 5th, 2006 at 09:41:19 PM EST

So, how much more 'reform' do we need? | 13 comments (13 topical, 0 editorial, 0 hidden)

Go to: [ European Tribune Homepage : Top of page : Top of comments ]