The Profit Motive

Posted on Nov 30, 2010 | 2 Comments

The Commerce Department’s announcement last week that corporate profits hit an all-time high in the third quarter—coming in at an annual rate of $1.659 trillion—would likely have left Peter Drucker wondering one thing: When will all of this dough accrue to the greater good?

Drucker was never shy about stressing that businesses need to make money—and even lots of it. “No apology is needed for profit,” Drucker wrote in his 1973 classic, Management: Tasks, Responsibilities, Practices. What’s more, he flatly rejected Marx’s notion that net income is a “surplus value” stolen by companies from their workers.

Yet, at the same time, Drucker believed that all those dollars falling to the bottom line should ultimately help make for a stronger society. Specifically, Drucker wrote, “profit and profit alone can supply the capital . . . both for more jobs and for better jobs.” Indeed, he declared, it is only with this purpose in mind that capitalism becomes “a moral system.”

“The essential fact about profit,” Drucker added, “is that there is no such thing. There are only costs. What is called ‘profit’ and is reported as such in company accounts” is actually the “genuine and largely quantifiable cost” of, among other things, “the jobs and pensions of tomorrow.”

With the unemployment rate in the U.S. stuck at 9.6%, the question now is: At what point will tomorrow finally come?

A number of analysts maintain that, profits notwithstanding, the economy continues to grow too slowly to cut into the jobless rate. (Some also hasten to point out that the Commerce Department data wasn’t adjusted for inflation and argue that it’s therefore misleading.) Others make the case that the profit surge has been driven by rising productivity—or churning out more with less labor—and suggest that this pattern may not change anytime soon.

Still others, noting that profits have been accumulating for seven straight quarters, assert that companies are simply rewarding shareholders at the expense of workers.

What do you think? Are companies really in a position to hire more workers than they are—and, if so, what’s holding them back?

An unemployment line

2 Comments

  1. DSWilson
    December 3, 2010

    A tad ironic that companies complain that they are not selling enough to expand production, yet, by laying off workers, and not hiring, they limit, who is left, to buy their products. The great debate over extending tax cuts vs. unemployment benefit extensions. If people don’t have job, they also, can not pay taxes…what a mess.

    Reply
  2. Viktor Hadjiev
    December 3, 2010

    If companies are recording an all time high corporate profits then they have to reinvest their capital. The question is whether to invest in the US or abroad. If they expand their production capacities abroad most US companies face the risk of product/technology duplication. Product duplication basically suggests that the quantity of production will sharply increase, whereas the profits of US companies will sharply decrease. In view of the above, US companies may be better off if they invest at home rather then abroad.

    Reply

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