Look Who's Winning.....

[Mark S.]

http://www.latimes.com/business/la-f...-home-business
As earnings sizzle, a chill for workers

Firms and investors, not the rank and file, reap gains from globalization and labor productivity.
By Tom Petruno
Times Staff Writer

December 18, 2006

American companies are about to wrap up their fourth straight year of spectacular profit growth, which has filled corporate coffers with cash and kept the bull market alive on Wall Street.

Operating earnings of the blue-chip Standard & Poor's 500 companies have risen at double-digit percentage rates for 18 straight quarters, an unprecedented streak.

But to many rank-and-file workers, the booming bottom line may only serve as a reminder of what has been missing from their own paychecks.

Wages of average workers have just begun to improve in recent months after badly lagging behind inflation for much of this decade. Amid the surge in corporate profit, many workers have faced terminated pension plans, reduced healthcare benefits and rising outsourcing of jobs overseas.

The swelling earnings of business — and of many top executives — have become part of the debate about widening U.S. income disparities. When they take control of Congress next month, Democratic Party leaders will focus intently on those disparities, they say, and on trade agreements that some contend enrich multinational firms while destroying American jobs.

"I'm very passionate about this, and I'm going to be joined by some people who are equally passionate," said Sen. Byron L. Dorgan (D-N.D.). "Some reinforcements are coming."

Corporate leaders say they shouldn't be forced to defend the profitability of their businesses.

"It is a competitive world, and companies want to innovate and compete and win," said Larry Burton, executive director of the Business Roundtable, an association of 160 chief executives of major companies.

What's more, "a lot of us who are workers also are capitalists," said Barry Bosworth, an economist at the Brookings Institution in Washington. Small investors gain as rising corporate earnings boost the value of stocks held in retirement savings plans and other investment accounts.

The Dow Jones industrial average has rocketed 16% this year, to a record high of 12,445.52 on Friday.

Among the biggest U.S. firms, Bank of America Corp. earned $15.9 billion in the first nine months of this year, up 23% from a year earlier. Technology giant IBM Corp. posted a 25% jump in profit in the period, to nearly $6 billion. McDonald's Corp.'s results rose 15% to $2.3 billion.

By one government measure of profit margins, U.S. businesses overall were more profitable in the third quarter than in any three-month period since 1951, according to David Rosenberg, an economist at brokerage Merrill Lynch & Co.

In part, corporations simply have benefited from the strength of the domestic and global economies since 2001. As demand for their products and services has risen worldwide, so have their sales and profits.

But many companies' tight controls over spending also have helped earnings to balloon. And because labor is the largest expense for business overall, the damping of growth in wages and benefits has been a key contributor to corporate America's profit success in this decade, analysts say.

"Companies are saying, 'We can't afford anything' " when it comes to providing for U.S. workers, said Larry Mishel, president of the liberal Economic Policy Institute in Washington.

In the context of soaring earnings, "that's not irony, it's hypocrisy," he said.

One measure of the split between what employees get and what business retains shows up in national income accounts calculated by the Commerce Department.

Corporate earnings generated in the U.S. totaled $1.42 trillion at an annualized rate in the third quarter, or 10.7% of the economy's gross domestic income, government data show. That was the highest share of national income that companies claimed since the 1960s and was up from 6.2% at the end of 2000.

By contrast, total labor compensation accounted for 56.4% of gross domestic income in the period. That percentage has fallen from 58.4% in the fourth quarter of 2000 and has been in general decline since the early 1980s.

(The rest of national income includes rental and interest income and proprietors' profits.)

What's striking to many experts is that labor's share of the economic pie has failed to grow over the last decade even as American workers have become more productive. In essence, those productivity gains have flowed to companies and their shareholders, not to the rank and file.

"We've had nine years of great productivity growth, and most workers see no gain for it," said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington.

In recent months, however, some measures of worker incomes have begun to improve. In the 12 months ended in November, average hourly wages rose 4.1%, the biggest pickup since the late 1990s, Labor Department data show.

On Wall Street, many analysts believe that the profit locomotive will slow sharply in 2007, in part as companies pay more to lure workers in a tight labor market. They also note that the corporate bottom line is inherently prone to boom-and-bust cycles. In 2001, earnings collapsed with that year's recession.

"I think we're pretty close to the top" in profitability, said Jim Floyd, a senior analyst at investment research firm Leuthold Group in Minneapolis.

But some analysts worry that wage gains will slow again if the U.S. economy continues to decelerate.

Stephen Roach, an economist at brokerage Morgan Stanley in New York, believes that the persistent threat of outsourcing helps keep a lid on worker pay demands, particularly at the lower end of the income scale.

That also has been the view of some in Congress — Democrats and Republicans — who have railed against trade agreements that they say encourage U.S. companies to move jobs overseas or to use outsourcing as a lever against domestic workers.

"All these companies say the same thing: 'We have to [move overseas] to compete,' " Dorgan said. "It's not about competing — it's about fattening their profits."

Yet few analysts believe that Democrats or Republicans would try to roll back the forces of business globalization.

"You can't protect jobs by stopping cheap underwear coming from China. It'll just come from Bangladesh," said James Glassman, an economist at J.P. Morgan Securities in New York.

The shift to low-cost manufacturing overseas has bolstered earnings of many U.S. multinational companies, but it also has provided American consumers with a torrent of inexpensive imported goods.

Some corporate critics say they aren't against rising business earnings but take issue with how that money has been spent — or not spent — in recent years.

The record streak of double-digit profit growth expanded the cash on the balance sheets of the nonfinancial companies in the S&P 500 index to $611 billion as of Sept. 30, from $260 billion at the start of the decade, according to S&P.

Many blue-chip firms have been using their cash hoards to buy record amounts of their own shares on the open market — hoping to push their stocks up — rather than fund more business expansion or hiring.

"We don't view profits as being excessive. We view them as not being put to the most productive use," said Richard Ferlauto, director of pension investment policy at the American Federation of State, County and Municipal Employees.

Mishel, of the Economic Policy Institute, said that although companies are free to do as they please with their profits, their decisions help determine the long-term viability of the U.S. economy.

"If we have high profits and it's not translating into domestic investment and higher wages," he said, "the system isn't working."

*

[NewXD40fun]

Hey Mark S.

Do you feel that you are entitled to a piece of the huge corporate profit pie?



Tom

[Brickboy240]

Another thinly veiled attempt at class envy by the media outlet that is the posterchild for such behavior....is it not?

Ok, so corporations make big profits and the employees don't see big rises in income - this is news? Really?

Some may wish to look at this glass as half empty (as the LA Times writes most definately do) but I am going to show you how the glass is actually half full.

The alternative is this - companies make little or no profits at all. What happens then? You guessed it - layoffs, stock price decreases and other not-so-nice realities. Increased unemployment numbers and more difficulty in finding jobs, too.

Suddenly, having a job and making do with the small increases in wages looks better than lay-offs and a shrinking job market, does it not?

If making a higher wage is the most important thing to someone, there are several courses of action one can take - going out on their own, looking for a higher paying job or changing fields. Theres also the possiblilty of finding part time or evening work. Yes, most of these alternatives are not easy, some will require more work but guess what...the reason some (if not most) of the people with more money than you HAVE that extra money is because they worked harder than you to get it! Imagine that.

In this society, theres nothing holding back ANY worker from doing just that. But leave it to the LA Times to make it seem as if everyone is "stuck" with no way out and paint a total gloom and doom/the rich are getting richer type of picture for everyone. The reason they do this is because some of you eat it up...over and over again.

It would be great if everyone would stop worrying about the income of others (something you'll never be able to control) and if one wants to make more money, come to the realization that it is possible and it may require some hard work. When you all stop stewing and groaning over who makes what and decide to concentrate on making youselves a larger pie, you will find it is energy better spent. (I did)

Looking to DC to "fix" the situation outlined by the LA Times is also a no-win game. If DC insiders cannot even balance their own checkbooks and be accountable for their own spending...why is it that so many of you believe they can fix income inequities?

There is no political Santa Claus. There was and never will be, so get used to it.

- Brickboy240

[FrankRizzoXD40]

Mark S.,

2 AMAZING coincidences: The unemployment rate has fallen every year for 4 years!!! The GDP has also risen every year for almost 4 years!!!

WOW!!!

I wonder if there is a connection between corporate profits rising for 4 straight years and the economy/unemployment rate? But there can't be, since that article you posted says that an increase in corporate profits doesn't benefit workers!

I am so confused

Frank

[FrankRizzoXD40]

Originally Posted by Mark S.

Among the biggest U.S. firms, Bank of America Corp. earned $15.9 billion in the first nine months of this year, up 23% from a year earlier. Technology giant IBM Corp. posted a 25% jump in profit in the period, to nearly $6 billion. McDonald's Corp.'s results rose 15% to $2.3 billion.

By one government measure of profit margins, U.S. businesses overall were more profitable in the third quarter than in any three-month period since 1951, according to David Rosenberg, an economist at brokerage Merrill Lynch & Co.

In part, corporations simply have benefited from the strength of the domestic and global economies since 2001. As demand for their products and services has risen worldwide, so have their sales and profits.

Mark S.,

If the workers/consumers aren't "winning" or doing well, where are they getting the cash to purchase goods/services that is causing companies to have record profits? If they've got no money, they can't spend it. Money doesn't grow on trees.

Frank

[eleanor]

America's unprecedented prosperity has been based on a large middle class, the hope, and idea of social mobility.

in recent years the disparity between the rich and the rest of us has grown. In fact, the disparity between the "super-rich" and those considered merely "wealthy" has also grown by leaps and bounds.

Today there are actually people making $300,000.00 and more a year COMPLAINING they don't have enough, and they "can't make it".

Wages for those who DO THE WORK have not gone up anywhere near those of the investor class, the truly wealthy.

Are workers entitled to share in the profits of corporations -- of course they are. they are the ones who made these corps. as profitable as they are. No amount of "stretegic vision" will get the work done.

In case you wondered, one of those who felt the workers should share in the profits by earning higher wages was Henry Ford. He wanted his workers to be able to afford what they made.

I don't think anyone would call him a "socialist".

Another unique American idea is philanthropy -- giving it away during your life time. I believe it was Carneige who said "success is being rich -- dying rich is failure". the idea of dynasties, entrenched wealth, was, not that long ago, considered "anti-American". We still tried to honor the ideal of an "aristrocracy of merit" -- of people "making it" anew, each generation.

Now, it's quite possible someone will say, "go into your own business".

O.K. -- let us assume everyone did that. What would you have?

I'm afraid that right now we might just have a modern version of a feudal society -- that is the way we are going, anyway. Small businesses all trading with each other. A much lower standard of living, and the current super-rich taking the place of "feudal lords". As it is now, with the virtual end of unions, many Americans are nothing more than "wage slaves".

Are you all ready to put your lives in the hands of your beneficent employers? Are you all ready to see the further privatisation of things like water?

Good idea, end all taxes, virtually end all government, privatize EVERYTHING -- then see where you are.

Good luck guys.

[FrankRizzoXD40]

Originally Posted by eleanor

Good idea, end all taxes, virtually end all government, privatize EVERYTHING -- then see where you are.

Good luck guys.

Did anyone in this thread suggest that?

Who are you responding to?

I wouldn't call Henry Ford a socialist. Workers should earn higher wages when the companies they work for are sucessful; are they entitled to higher wages...no. The company I work for does and that is one of the reasons I chose them over one of their competitiors. If (I'm not saying anyone is suggesting this) it was required by law for companies to increase wages when profits went up, then companies that naturally pay well would lose that advantage. Not a good idea to ensure that all companies operate the same way. That would decrease competiveness (not a good thing). The good thing about free markets is that people can be competitive and the best product and/or company wins!

Frank

[Old School]

Employees are able to share in the good fortune of their employer in a few ways. For one, if the company is public, they too can buy stock and enjoy the prosperity. Another way is to work for a company that has a profit sharing program.

Employees are not entitled to anything except for their salary. Anything beyond that is gravy, right?

OS

[eleanor]

Originally Posted by FrankRizzoXD40

Mark S.,

If the workers/consumers aren't "winning" or doing well, where are they getting the cash to purchase goods/services that is causing companies to have record profits? If they've got no money, they can't spend it. Money doesn't grow on trees.

Frank

Debt. Borrowing. "Creative financing".

Bubble gonna' end one of these days. Happened before, will happen again.

It's truly amazing how people's attitudes change when folks are starving in the streets through no fault of their own.

All of a sudden, those who trumpeted "self reliance" begin to question that when everything they owned, everything they worked for is taken away. When the still very rich buy stuff for pennies on the dollar.

Not talking about "welfare Queens", or people who "work the system" (though the way the system seems to be set up, the only folks who really can get any help are those who "work the system" -- they're the only ones who know how to do it) here -- I'm talking about folks who work hard, save, and lose everything when the economy crashes.

We usually end up with an awful lot of socialists at those times, an awful lot of brand new pro-union folks. People who no longer complain about taxes -- because they have nothing left.

Current policy seems to be very self destructive, pure greed with no care for the future.

All you 30 somethings, I'll bet you will have some interesting things to tell your grandchildren

[Old School]

One's ability to manage money starts at home. If you have parent who live beyond their means, spending everything, living off credit cards, you too will live that way. One can be frugal and yet enjoy life. Most "millionaires" are frugal, hence the reason they are "rich". I am not talking about athletes or entertainers.

Many argue that $10 is not enough to live off of. Perhaps, but if you are making just $10 an hour, maybe learning a new skill or finding a new job is best. Don't expect a company to give you a $5/hr raise because the company is doing well and you ask for it. If the company is not doing well next year, will you give the raise back? I didn't think so...