Is this an oxymoron? Of course profit leads to prosperity! Is the sole purpose of the business to generate profits for the shareholders? Does profit alone equate to increased shareholder value? Do corporate profits from large firms translate to widespread economic prosperity?
Is it enough for large companies to solely pay their taxes and think that is all that is required of them?
During the period of high oil prices I noted the performance of some industries. The banking and insurance sectors were doing fairly well, the manufacturing sector was also doing fairly well and so, too, the retail sector for the most part. Of course, the energy companies were drinking milk and honey at the time.
Then came the sudden shock and oil and gas no longer commanded the high prices they once did; added to that we had decreased production. Firms had to become lean and more efficient. Strategic decisions had to be made.
During the boom time how did high corporate profits translate to widespread economic prosperity?
I distinctly remember there were a lot of social programmes in place and other forms of what one may choose to describe as the redistribution of income. But, what was the effect of this? What happened to this money? How did it improve our national competitiveness? Was the redistributed money just used for short-term consumption with no real and lasting or sustainable prosperity?
Now that we are in a recession, some companies are taking the opportunity to improve efficiency.
Increased efficiency is an essential component of any business. There may be new ways of doing things or some new technology that can be introduced to greatly improve efficiency. It would be foolish to not try to improve efficiency and thus competitiveness of the firm on a continuous basis. Firms that have gotten stuck on the path usually fall victim to those that were more aware.
In many instances the first to feel the pinch of increased efficiency would be the workforce or the people who helped you to churn out profits in the first place. We have been hearing the term jobless growth for some time now. Increasingly technology is taking the place of workers. Many companies say that their most valuable resource is their human resource. Really?
We must be honest with ourselves to determine if this paradigm still holds true.
From the capitalist point of view, it is the profit of the firm that is most important. Human labour is just one of the factors of production. So the workforce is expendable. Chilling but true. You are not given a job because someone likes you. You are required to earn your keep and if there is an environmental shift that makes you redundant, there will be a pink slip waiting for you. As hard as it sounds, it is true. Long-term job security should never be taken for granted anywhere. People should keep this in mind and not live in a fool’s paradise. As a worker you should be aware that your turn could be next and always be prepared for such.
From the standpoint of firms, they want loyalty and the best effort from their employees.
But how could an employee feel comfortable and secure to give of their best if, in the back of the firm’s mind, employees are another fixed asset that can be written off when new technology comes along or if there is some new process of innovation? It is difficult for an employee to give of their best with a dark shadow always lurking around the corner.
Profit and prosperity can be relative terms; relative to where you sit on the totem pole.
T&T, like many other countries, would have learnt from the past that without proper negotiations and terms of engagement, foreign direct investment does not necessarily translate to increased prosperity for the country at large. This is also true for many of the large indigenous businesses. Corporate social responsibility is sometimes corporate social tokenism. I am sure you understand.
Large firms paying taxes and income redistribution—by whatever grant or subsidy or policy initiative the government may choose to employ—do not ensure prosperity. It might give survival for a time but not long-term sustainable prosperity. Notice I have not said growth because you would have noticed the phenomenon of jobless growth. When growth is accompanied by high unemployment it means that the economy is undergoing structural changes. Of course, this would mean there would be opportunities for some and hardship for others. Structural changes to an economy usually occur during or after a recession.
How do you build sustainable national competitiveness that would lead to sustainable prosperity in the long term?
High corporate profits and increasing GDP by themselves do not necessarily mean prosperity. Large firms must sometimes do more than just provide employment and pay taxes. That may now be old thinking.
Firms should go to new levels to educate their employees of the nature of prosperity, what prosperity is and how to achieve their dreams. Profits are always important; without profit we are not going anywhere. But we must also ensure prosperity.
What do you think?
Bhushan Singh is a lecturer, consultant and team lead of the sustainable and renewable energy project incubator of the Arthur Lok Jack Graduate School of Business.
