There are strange things going on in the economies
of some of the most developed nations.
Corporations in these countries seem to be earning more money than they
know what to do with. An article in The Economist provides this chart:
The amount of funds that corporations are sitting on is
enormous in these countries. To put this
in perspective, the US has only about 11% of GDP banked in corporate savings,
about $1.9 trillion. In the darkest
hours of the Great Recession the federal government could only put up about
$831 billion to save the economy from disaster.
Now, with low growth still a problem, companies are sitting on more than
twice that with no apparent intention to put it to use.
The problem is actually worse because many companies use
their excess profits to buy back their own shares. There are two ways to attain growth in stock
price. One is to demonstrate a business
model that projects growth and even greater profits in the future, the other is
to purchase your own shares on the market and drive the price higher. This source
indicates that US corporations spent over $500 billion on these buy-backs in
the past year, a near record amount.
What is peculiar about these findings is that high
profits should be associated with a healthy economy that is providing incentive
for expansion. If business is so good,
why are not more companies seeking to reinvest their earnings and go for
greater growth?
Marx thought that capitalism carried within it the seeds
of its own destruction. Could we be
witnessing capitalist economies wandering into some sort of dead end from which
they cannot extract themselves?
There are two obvious explanations for a situation in
which large profits are earned yet there is no incentive to reinvest the
profits in growth. In one case demand
for products is low and there is no expectation that an improvement is
forthcoming. In the second case the
company has essentially a monopoly and does not anticipate any potential growth
in customers.
It is an interesting exercise to consider whether or not
we have true competition in our major industries, or whether we have allowed a
few large corporations to dominate in each arena and pretend to compete while
tacitly agreeing that a huge market can be shared two or three ways and all can
be wealthy. Much is said about the high
tech competition between Apple and Samsung, and between Microsoft and Google,
but is any one of these in danger of being seriously injured by competition
from the other? They all have healthy
market shares and enough money on hand to purchase any upstart who might choose
to disturb the game. In a situation
where no one is particularly interested in competing on price, how does profit
get limited?
The situation where no expectation of growth in demand
exists does have a distinct Marxian flavor.
Most corporation executives will claim that low demand is the reason why
they are not investing more in their businesses. Lack of demand usually means there are too
few consumers with money to spend.
Coupled with healthy profits, this suggests that consumers lack money
not interest, and would purchase more if they could.
The article in The
Economist focuses on the Asian countries where the cash holdings are
incredibly large.
“Japanese firms hold ¥229 trillion ($2.1 trillion) in cash, a massive
44% of GDP. Their South Korean counterparts hold 459 trillion won ($440 billion)
or 34% of GDP. That compares with cash holdings of 11% of GDP, or $1.9
trillion, in American firms. If East Asia’s firms spent even half of their huge
cash hoards, they could boost global GDP by some 2%.”
Consider the correlation
between corporate earnings and wages for workers.
“In South Korea, company earnings have grown faster than wages for more
than a decade. In Japan wages fell 3.5% between 1990 and 2012, while prices
rose by 5.5%.”
“And East Asia’s economies have also suffered. If they had been paid
more, Japanese consumers might have spent more. Korean households, struggling
with rapidly-growing debt-burdens, have also been squeezed.”
The situation in the US is similar.
The cash available for spending by most consumers comes
from earned wages. However, earned wages
have not been keeping up with prices of things they feel a need to purchase,
and this has been going on for a very long time. Clearly this cannot go on indefinitely and
consumption must inevitably plummet.
Would corporations be in a healthier state if they had recycled more of
their profits back into the economy?
Are we approaching a Marxian moment when corporate greed
will be its own undoing?
Stay tuned.
No comments:
Post a Comment