The 'recovery' from the recession is proof of the dark side of capitalism - greed. It is disturbing evidence the rich will not altruistically help the needy, drive the economy, or, as some might have you believe, create jobs.
As a business school graduate and a successful banking professional, I truly believe in capitalism and the opportunities it creates for innovation, competition, and success in terms of profits. However, as a social liberal, I also believe in helping those less fortunate, the right of healthcare for all, fair and equitable treatment of employees, and the duty of government to assist in provision of these. It is unfortunate we see so much evidence these two views are widely considered mutually exclusive rather than complementary.
Where do we start?
We've probably all read/heard about how corporate greed and government encouragement/ineffectiveness led to the recession - bad mortgages, credit default swaps, relaxed regulation/oversight, etc - all of which, in tandem, tanked the economy. Though the collapse was caused by a few corporations, the effects hit all Americans. House values, where the majority of American people derive a huge amount of their net worth, dropped 30%; the unemployment rate jumped from 5% to 10% (from 7MM to 15MM unemployed); and residential private investment (basically, the Average American’s net worth) was cut by 50%. The nation as a whole bore the brunt of the recession.
But we are in the midst of a strong recovery, right?
A recent Bloomberg report and article has some disturbing revelations into the economic 'recovery.' While many are raging against major corporations such as WalMart and McDonald's for greed and unfair employee pay, this is less a phenomenon of a few large corporations and more a widespread fact of the economy as a whole (italicized words are my own emphasis):
Five years into a rally that has restored $14 trillion to share prices, U.S. payrolls remain 1.5 million below the level in 2008, according to data compiled by Bloomberg. Resistance to hiring… will help push… profit margins above 10 percent next year, the highest ever, data show. […]Recovery for the corporations means “job creation,” right?
While American workers struggle, investors are benefiting as expense reductions and record low borrowing costs drive profits and underpin a 167 percent advance in the S&P 500 over the past 57 months.
Unfortunately, no. While corporations are making larger profits than ever before – there is still no impact tor the job market. Actually, the opposite is happening. Further to this point:
ConocoPhillips, the largest U.S. independent oil and natural gas producer, cut its workforce three of the last four years, while profit margins expanded to 15 percent in 2012. That compares with 3.3 percent in 2009, data compiled by Bloomberg show.Seems “job creators” are reaping huge benefits, but not creating jobs. No job creation for those looking to work for these profitable organizations.
Walt Disney Chairman and Chief Executive Officer Robert Iger has spearheaded a widening of operating margin, a measure of profitability, to 21 percent of sales in the most recent fiscal year from 13 percent in fiscal 2005, according to data compiled by Bloomberg. At the same time, the media company has fired hundreds of workers and closed offices.
So, the people with jobs at these companies are obviously raking in all the money.
No, not necessarily (italicized words are my own emphasis):
Employee compensation has declined relative to net corporate profits. The ratio of U.S. wages to earnings dropped to 3.2 in the second quarter, the lowest since 1966, according to data from the Bureau of Economic Analysis. Wages were the highest compared with earnings in 2008, just as the financial crisis was taking hold. The measure averaged 4.5 from 1947 to 2008, BEA data show.And so while corporations are turning record-breaking profits, they do not even pay their own workers who drive profit out of the windfall.
Profitability at S&P 500 companies has increased, with each dollar of sales estimated to generate a record 9.9 cents in net income this year, data compiled by Bloomberg show. […]
Northrop Grumman Corp., the fifth-biggest U.S. government contractor, raised its profit outlook in October for 2013 after boosting net income by cutting jobs. The Falls Church, Virginia-based company’s workforce fell to 68,100 last year from 123,600 in 2008, data compiled by Bloomberg show. The profit margin was 7.8 percent in 2012, compared with 5 percent in 2009.
So, who’s got all the money?
Well, the owners of the corporations. And who owns the corporations? Goldman Sachs would tell you it’s, well, you, me, and your friends and family:
Households directly own 38 percent of the US equity market. However, the total effective household ownership is closer to 80 percent when combined with indirect ownership in the form of mutual funds (20 percent), pension funds (16 percent), and insurance policy holdings (7 percent).How is that true? I don’t own corporations, and my friends and family don’t own corporations. We barely have a few thousand dollars invested, if at all.
According to the Levy Institute (the italicized words are my own emphasis)
In 2007, the richest 1 percent of households held about half of all outstanding stock, financial securities, trust equity, and business equity, and 28 percent of non-home real estate. The top 10 percent of families as a group accounted for about 85 to 90 percent of stock shares, bonds, trusts, business equity, and non-home real estate.The top 10 percent own about 90 percent of the stock market, and thereby, corporations.
So, the top 10 percent own the corporations. The corporations are making record profits, are paying their employees less in relation to profitability, and are actually cutting jobs rather than creating them, all so they can make more profit.
Sounds like greed to me.