Skip to: Content
Skip to: Site Navigation
Skip to: Search


Corporations Make Too Much Profit? Wrong! GUEST COLUMN

By Anne B. FosbreSpecial to The Christian Science Monitor. Anne Fosbre is a professor of accounting at Pace University in New York. / March 21, 1989



NEW YORK

RAISING the consciousness of public opinion about corporate profits has been a problem in the United States for nearly a half century. In polls taken by the Opinion Research Corporation since 1940 asking ``Do corporations make too much profit?,'' the public has increasingly responded yes. Although profits may be the force that energizes business, opinion toward them has shown marked swings. Efforts by educators and the business community to educate the public about corporate profits have failed.

Skip to next paragraph

One corrective method is to initiate profit-sharing plans in industry to educate and provide greater productivity. These plans motivate employees to care about the basic functions of the profit-and-loss system.

From an economic viewpoint, profit-sharing plans are also timely for workers. These plans help soften the impact of plant closings, ``give-backs'' (wage cuts urged on unions by management), and low wage increases.

Not only is profit sharing an opportunity to increase income, but more important, it will help educate employees on the inadequate profit share that corporations receive. Despite the plant closings, give-backs, and low wage increases, there is still that very basic and persistent need to greatly increase plant-and-equipment spending if the United States is to compete economically with the rest of the world.

Although profit-sharing plans have failed in the past, there is a renewed interest in them. Ford Motor Company has one of the larger such plans. Under this plan, Ford paid its employees more than $1 billion from 1983 through 1987. In 1986 and 1987, General Motor Corporation's profits were not sufficient to generate profit-sharing payments. But GM is giving its salaried and hourly workers profit-sharing payments for 1988 amounting to about $200 an employee.

If extended profit-sharing plans could help modify employees' attitudes about corporate profits, US business might be stimulated to become more competitive in the world economy - something the new administration hopes to achieve. Although the Bush administration considers education to be of primary importance, it has demonstrated little concern about public understanding of corporate profits. Yet this is as important to the economy as the level of reading, writing, or mathematics is to individual achievement.

Spending for plant and equipment is the key to economic growth. For many decades prior to the 1960s, the US was one of the world leaders in capital investment. Since 1960, our ability to compete in international markets has dropped sharply. In a large measure this can be traced to a greater emphasis on investments by many industrial nations abroad.

In 1988, business did step up its capital investment by 21 percent. Sixty percent of the spending was for high-technology and information-processing equipment. Little capital spending went for expansion, relatively little for manufacturing. With tax reform and the elimination of the investment-tax credit, incentives for long-term capital investment disappeared.

A low rate of capital formation serves to aggravate inflation, increase obsolescence of productive plants, and, over a long period, cut our living standards.

The US trade deficit, especially with Japan and West Germany, is testimony to the noncompetitiveness of American industry. Lagging productivity and the need for plant modernization and expanded research remain critical, yet the role of corporate profits is still not widely appreciated or even identified.

Profit-sharing programs could be a powerful tool to strengthen incentives and increase productivity, both key factors in controlling inflation and reestablishing leadership in a competitive world economy.