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home : opinion : columnists June 24, 2016


4/10/2013 10:13:00 AM
Economic ignorance, not corporate greed, is killing America
Bill Forhan
Publisher

Those greedy corporate profiteers are not the problem. The problem is that by demonizing the profit motive we are systematically destroying the incentive to innovate.

Socialists and communists have tried to make the case for decades that "non-profits" and government programs can be run more efficiently than those corporate greed machines that put their profits ahead of human need. The problem is it never works. Without a profit motive these organizations have no incentive to manage their organizations efficiently.

But mention the word corporation to the left and you spur a visceral reaction to the evils of greed and self interest in the corporate world of modern American capitalism. And while there certainly are corporations that will stop at nothing to expand their power and influence in the pursuit of profit. The best defense against such organizations isn't more government regulation it is more competition. And we already have laws in place to limit the power of big corporations. Antitrust laws were passed back in the late nineteenth century to prevent companies from getting too big and controlling too much of the economy. The problem is those laws have fallen by the wayside as big government politicians have chosen to sell their souls to them for big contributions to their campaigns or their party.

The real problem however is our demonization of the word profit. We are constantly hammered with terms like "windfall profits" or "exorbitant profits" with no real definition of what those terms mean. And when you ask someone how much is too much you often get into an argument about CEO pay and outrageous "golden parachutes."

Exactly what is profit? Simply put it is revenue money a firm generates that is left over after all of the expenses incurred to generate that money have been paid. Many people confuse net profit with other accounting terms like gross profit or operating profit. These "profit" numbers are always higher than "net profit." Net profit is what is left over after all expenses including taxes have been paid. These higher profit numbers are often used by critics of capitalism to attack the profit motive as being excessive and somehow unjustly earned by those greedy captains of industry.

For the most part, corporate profits are dangerously thin. Consider the following average net profit margins as recently reported by Yahoo finance; Beverages & Brewers - 15.1%; Cable TV -12.7%; Wineries & Distillers - 12.6%; Hospitals - 4.5%; Electric utilities - 4.1%; Health Care Plans - 3.6%; Oil & Gas Refining & Marketing - 2.9%, Grocery stores - .9%. In other words, when you buy wine or beer expect that 12 - 15 cents of the price goes to the person or company that actually made it. When you buy a loaf of bread at the grocery store expect that less than 1 penny of the price actually goes to the grocer after all of the other expenses of operating the store are paid. With profit margins like those many business owners cannot afford to make any mistakes in purchasing or managing their costs before they lose money.

In a capitalist economy, for profit businesses provide our basic needs. They do that while providing jobs and paying taxes.

In a capitalist economy it is actually for profit private enterprises that have built the infrastructure in this country. And they have done that quickly and efficiently.

Non-profits and government agencies also need to produce a "profit." They don't call it a profit. They usually call it a "contingency reserve." Look at your local school or city budget sometime and see what they are carrying on their books as a "reserve." It is often 10 - 15 percent of their annual budget.

Recently, the Washington Department of Transportation produced a chart of how much it was going to cost to maintain the roads across the state over the next 10 years. In typical fashion it did not include any estimate of the tax money that they estimated would be coming in from existing gas taxes, toll roads, etc. In other words, they are not concerned about how much money they will need to accomplish their mission. Private for profit businesses cannot be so myopic in their approach.

Claiming that consumers would find goods and services cheaper if for profit businesses were eliminated is not only misleading it is another way of spreading the economic lies of the socialist/communist agenda. It is truly amazing that the profit margins from the companies that entertain us are always much higher than those that provide for our daily needs. Yet what do the progressives attack when they rail about the evils of profit?

Profits provide the money to invest and grow the business. They provide a return to those who invested in the business. And most importantly, they provide the money for the pension funds that ultimately will pay for the retirement of many Americans with 401k or corporate pension plans.

The next time you hear someone blaming "big oil" or "insurance companies" for ripping off consumers with their huge profits ask them how much of their pension they are willing to sacrifice to lower those profits now. Most are not even aware that their pension funds are invested in those companies.

Bill Forhan can be reached at 509-548-5286 or publisher@leavenworthecho.com.





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