“Truths” That Are Impositions: The Case of Large Corporations’ Profits

CAPITALISM, 4 Feb 2019

Roberto Sansón Mizrahi | Opinion Sur – TRANSCEND Media Service

23 Jan 2019 – In economics, there are issues presented as undisputable “truths” which in reality are used to impose interests and privileges that cannot be defended in open air. An example is how large corporations’ profits are seen and presented, how they are obtained and distributed. It is critical to make explicit what might be concealed to consider new options.

Prevailing common sense says that enterprise’s profits belong to their owners which, in the case of corporations, are their shareholders. It is argued that such is the case because other actors that make the productive process possible have their own compensations. Thus, let us see who those other actors are and what compensations they obtain. With that information, we may understand how corporate profits are obtained and appreciate if there are other options that are ignored or discarded today.

Actors of the productive process

Contemporary productive process is not done just by one social actor, rather several and diverse actors. Some directly intervene in the productive process and others are responsible for generating the context in which economic activities are developed; the actions of all the actors allow for the productive process to materialize.

Actors that intervene directly in the productive process, apart from the owners or shareholders, are the registered or unregistered workers, inputs suppliers (being goods or services), buyers of what is been produced (other enterprises or final consumers), contributors of the needed financing and corporate managers.

Registered workers receive salaries that are fixed through negotiations between clearly uneven forces: on the one side, managers on behalf of owners, on the other side, labor unions where they exist. In general, corporate power outweighs that of workers, thus, salaries and working conditions are agreed upon in a context full of tensions that, though different in every enterprise and sector, generally cut back labor aspirations of workers. If, in addition, there were no union organization or if workers were unregistered, then the agreements would be materialized in even worse contractual conditions. In some cases, the State acts as mediator trying to level up a little bit the unbalance in forces, while, in other cases, it does not intervene leaving workers at the mercy of powers that outweigh them.

Inputs providers are compensated through prices for their products and payment and delivery conditions. Large suppliers have a stronger negotiation power in comparison with medium and small providers. Thus, the result is a power confrontation between the parts. The most powerful impose their interests obtaining very favorable prices and selling conditions while the medium and small providers must relinquish positions against their interests.

Buyers of corporations’ products (been those intermediate or consumer goods) are conditioned by the prevailing oligopolistic degree of the market. If they operate without due competence, corporations will abuse the market power they have. Therefore, eventual State regulations are of strategic importance. If such regulating and mediator action of the State did not exist, it would be impossible to limit the power of large corporations. Below we will analyze that the situation becomes critical when large corporations, total or partially, access the control of the State.

Those who provide financing charge interests for their loans, setting guarantees and payment terms to reduce risks and collection costs. They can be public and private banks as well as other financial entities that manage third-parties’ monies. Once again, without State regulations, financial entities have the power to abuse their depositors as well as borrowers of their loans.

Finally, managers of large corporations (directors and senior management) can fix very generous compensations and bonuses. Though they have to be evaluated by their shareholders, they have multiple ways to preserve their compensations even during crises, as happened in 2008.

Actors that generate the socioeconomic context in which productive processes are developed are basically the State and a series of organizations and movements that, to simplify these lines, we call the own communities.

Enterprises do not operate in a socioeconomic vacuum, rather in spaces where society, directly or through the State, provides education and labor training, health services, road, port, train, air and communication infrastructure, basic services of energy, water, and transportation, environmental sanitation, irrigation, flood control, scientific and technological development, financing for improvements or construction of new housing, social security, citizenry protection, civil, criminal, and commercial justice, among other critical and diverse contributions, apart from the regulatory framework of laws, norms, and public policies. That is, without this socioeconomic and institutional context, enterprises could not function.

A large part of the costs of sustaining the context that allows for enterprises to function is financed through taxes, duties, and betterment levies. This financial burden should be equally distributed among all the actors that are part of the national functioning, the wealthiest contributing more than the least well-off. However, this is not what prevails in most countries. The most powerful can double their influence to assure that such scenario does not happen; on the one side, they use evasion or elusion of their tax responsibility by sending large surpluses outside the country and, also, they force the establishment of regressive tax systems instead of progressive ones according with payment capacity.

Questions that open options

We see that large corporations have huge power that enables them to increase their profits at the expense of extracting value from workers, suppliers, and consumers as well as from the State and the whole community. If they did not have such power, they could produce anyhow but with lower rates of profits, something they are not willing to concede. Thus, a first question is whether profits, obtained by forcing other actors to relinquish income that could be preserved for themselves, are legitimate. An immediate second question is how to modify this concentrated structure of economic and decisional power, a central issue of politics and social movements.

We have asked if extraordinary profits obtained by larger corporations are legitimate and not if they are illegal as current laws and norms protect their way of acting. These norms do not emerge from a neutral superior power that applies criteria of equity and fairness but rather from the unequal correlations of forces that prevail in the world. A third question is how to transform the norms that regulate or do not regulate the actions of large corporations. Are corporations the ones that must define how the value generated by them and all the other actors is distributed? Or should that distribution be mediated by the States, responsible for promoting the general wellbeing and the protection of the environment with a long-term strategic vision?

It is also worth to compare the magnitude of diverse forms of value appropriation, from the ones we have just mentioned to others related with criminal activities (serious ones such as those committed by organized crime and the extended corruption that links corporate actions to politicians and officials, up to others very diverse such as robberies and frauds). Some are strictly repressed and others, called white-collar, are less prosecuted. An indicator of composition of the ill-gotten revenues are the deposits hidden in fiscal havens. It is estimated that 5% of them come from corruption, 30% from organized crime, and 65% (two thirds!!) from wealthy corporations and individuals worldwide. Thus, a forth question would be how to address the diverse forms of value appropriation, avoiding to focus only on the small and medium appropriators and ignoring the largest appropriators.

In the prevailing systems in the world, profit is the motivator and organizer of corporate actions. Maximizing profit is the objective that guides owners and managers of almost all enterprises, especially from large corporations, that condition rewards and punishments to such basic criterion. From this perspective, and not from those referred to general wellbeing and protection of the environment, decisions are made whether to invest or disinvest. The effects on other actors and the own planet can end up being disastrous. Then, a fifth question would be how to make everybody, including corporations, responsible for the social and environmental, primary and secondary, effects of own decisions.

Would it be possible to reward or punish directors and top management considering if they generate dignified and sustainable jobs, if they pay fair prices to their suppliers, if they do not evade taxes or flight capitals away from countries that very much need them, among many behaviors that the world demands to live in peace and welfare? Thus, a sixth question would be how new modalities could be established and how steer wheels could be reeducated or changed to substitute profit as basic criterion for economic actions, subordinating the economy to serving social and environmental interest.

Indeed, these are not the only questions that come up when the concealed is made explicit; each person that can reflect, each expert that can research, each professor that can help understand what is happening and demystify the “unique path” that they are trying to impose on us, may find more and better questions. Answering them opens options to transform the concentration and selfishness that have expanded throughout the world. It is not only about the wickedness of some that impose their interests and privileges on us. It is about a system that corners up humanity and puts the own planet that shelters us at risk.

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Opinion Sur is a non-governmental, nonprofit group from Argentina dedicated to promoting sustainable economic and social growth in developing countries. Opinion Sur creates original ideas and strategic action plans to share with policy makers, entrepreneurs, academics, NGOs, and the public through advisory services, and a series of products: two monthly online publications – Opinion Sur and Opinion Sur Joven. Through Opinion Sur Journal, a free and non-partisan online publication, it circulates ideas that contribute to the sustainable development of countries in the Southern Hemisphere. This publication, which is also available in Portuguese and Spanish, focuses on three complimentary areas: Development; Geopolitics; and Transformations. Currently, there are more than 70,000 subscribers spanning across the five continents. More…

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