Tuesday, August 08, 2006

Corporate Three-Card Monte

Ben Stein is puzzled.
We have all heard corporate executives say that American workers are paid too much; that our industries cannot compete with foreign makers because our labor costs are so high that if we used American union labor, we would see profits evaporate.

And yet, hourly wages in this country, adjusted for inflation, are below what they were in 1972 (when my pal, Richard Nixon, was president) by a substantial amount. But to hear corporate leaders tell it, this is still far too high to allow competition with foreign entities.

Now, you would think that if this high-priced American labor were in fact pressing corporate backs to the wall, profits would be stagnant or falling. But in fact, in the last several years -— and especially the last few quarters - corporate profits as a percentage of sales were the highest they have been since 1965 -— roughly 9.6 percent before tax and roughly 7.4 percent after tax.

In total, profits are by far the highest they have ever been, running at a rate of very roughly $1.38 trillion in the first quarter of 2006. As a percentage of gross domestic product, profits are also the highest they have been since the statistics began being kept in 1959 -— roughly 12.7 percent. [Emphasis added.]

Don't get me wrong. I like profits, a lot. They are what the capitalist society is all about. But why are we outsourcing, why are we moving our work overseas, if our corporations are so profitable? And if our corporate world is so profitable, how come so little of the growth goes to workers' wages? How come -— as an average number -— basically none of the growth goes to the ordinary worker's wages? I am not saying this to encourage strikes. I am genuinely puzzled about it.

Could it be that just the threat of moving jobs overseas (very few have in fact actually been moved as yet) keeps labor cowed? [Emphasis added.] Is the vast labor force of Asia and the Third World in fact something like "“the reserve army of the unemployed"” that Karl Marx described in his critique of capitalism?
Stein brings up some good points and asks some interesting questions, which leads me to wonder about something too: If profits are the highest they have been since statistics began being kept in 1959, then why are corporations taking government money to pad their bottom lines?
In a sophisticated version of the street corner "“three-card monte" hustle, many employers are taking government money that was supposed to be used for retiree health care and putting it in their corporate pockets. [...]

So while employers are crying about health care costs, many of them are taking taxpayer money that was clearly marked to help pay for retiree health plans and shifting it around to cushion their bottom lines instead and leaving workers and retirees empty-handed. [Emphasis added.]

The Labor Research Association (LRA) looked at several corporate surveys and found widespread use of subsidies provided under the Medicare Modernization Act and the final Medicare Part D regulations released in January 2005 for large employers to discourage them from eliminating private prescription coverage for retired workers. [Emphasis added.] At the same time, a huge majority of the private-sector employers surveyed by the global business consultant Watson Wyatt Worldwide are planning to cut their retiree medical plans for current and future retirees over the next five years. [...]

It gets worse! Another survey from Towers Perrin shows 82 percent of private-sector companies receiving the federal subsidy have used it to lower their costs, while only 14 percent have used it to either reduce retirees'’ costs or shared the cost savings with retirees. [Emphasis added.] For example, IBM in its 2005 annual report estimated it would receive a $400 million subsidy during the six-year period beginning in 2006. Yet, in the first week of 2006, IBM, along with Sears, Verizon Communications and more than 67 other companies, froze or closed their defined-benefit plans to newly hired workers.
One thing is perfectly clear and not puzzling at all - the American worker is the real loser all the way around.


Ron Nasty said...

Corporate America is just a bunch of dirty bottom dealers.

Lew Scannon said...

I'm just amazed at how no one can see the inevitable economic collapse caused when jobs are cut and wages don't rise, prices go up and so do the deficits. Who will they sell their product to if no one can afford to buy anything?

kathleen said...

Amen to that, Kathy. Back in the late 70s my husband was making $1,400 a year in a union shop a year out of high school. Me? With a teaching certificate in hand I was making $9,600. Over the years (I moved to the private sector), my salary increased more than 7 fold. His? No more union shop (of course!) and his hourly wage ... has NOT EVEN DOUBLED in all this time. And that's not adjusting for inflation or cost of living increases. The worker of today is definitely screwed.

abi said...

If profits are the highest they have been since statistics began being kept in 1959, then why are corporations taking government money to pad their bottom lines?

Because there's no such thing as enough profit. Corps are like a child - "More...More..." Keeps those CEO salaries fat.

Does anyone doubt BP should have cut into its profits slightly and checked that 30-year-old pipeline in Alaska?

Kathy said...

Ron, how ironic that these dirty bottom dealers portray themselves as having values and morals. What "Good Book" are they reading?

Lew, I've been saying the same thing for quite some time now. I think big business CEOs will eventually have to raise wages, but in the meantime they want to grab as much for themselves as they can.

Kathleen, the worker of today is also working at jobs with fewer or no benefits, and I'm not just talking blue collar jobs. If that gets added into the equation, then workers are earning even less.

Abi, people should also be questioning why BP (and other oil companies) got such big fat tax breaks, especially since they didn't use the savings to maintain their pipeline.