We’re not in the business of defending capitalism. We’re in the business of gradually replacing it with something better.
That said, we want to set the record straight on an often-repeated meme: that “corporate profits” are bad.
Instead of these monies going into the hands of workers, they go into the greedy profiteers’ pockets some think.
This is a muddled topic. As usual, there are valid perspectives on both sides. However, ire raised by “thieving corporate profiteers” tends to be misguided.
The majority of shareholdings in public companies are “institutional investors”: organizations that invest money on behalf of their constituents, usually retirement portfolios, i.e. 401Ks and other savings and wealth-building instruments.
That means, the “greedy profiteers” benefitting from “profits going to corporations” are actually people like your mom, my mom and other folks trying to invest in or benefit from their retirement savings.
Dividends from these investments are what our parents and others are living on. “Dividends” are the same as corporate profits. They are money left over after all expenses are accounted for in a corporation.
So when a company reports profits or net income, that money is going into the hands of the company owners, which usually are workers….who have invested their wages in hopes that the corporation will be profitable thereby providing a retirement income stream for everyday people.
People like you and me.
That applies to public companies. What about private ones?
Well, that’s not so different.
Since they are private, we can’t really know where the net income is going. However, we do know institutional investors tend to make up the largest group of investors even in the private corporate investment sector.
In other words, it’s not accurate to claim “greedy one percenters” are pocketing all the profits and thus screwing workers and the rest of us.
In 1997 there were about 6,000 public companies in the US. As of 2017 there are only 3,000 or so. This article does a good job explaining the decline, including explaining that the decline in public companies results from things like mergers and such, leaving existing corporations larger and thus more profitable, which again, benefits the people, who are corporate owners through their wage-investments. An interesting point from the article:
Control of private companies falls into fewer hands, but that’s also true of some public companies with dual-class share arrangements. In both public and private markets, the biggest shareholders include institutions — such as mutual and pension funds — that represent broad swathes of the investing public. The most important difference is disclosure: Public companies provide a lot more financial information, valuable in assessing both their performance and that of the broader economy.
So even super-large companies generating massive profits still are distributing those profits to your parents and mine and others through institutional investors.
One thing I found particularly interesting is just because a company goes private doesn’t mean it is more profitable. The ratio of income between public and private corporations tends to hover right around 1:1 (see below).
I didn’t know that. Did you?
So go ahead and rail against capitalism if you want. But for goodness sake, don’t make a fool of yourself and claim that capitalism allows corporations massive profits. The people benefitting from those profits are not boardroom masters, but the ordinary people in society who look just like your grandma.