Corporate America, it's time to spread the wealth (LAT)

[mike r]

http://www.latimes.com/business/la-fi-hiltzik-20100825,0,1425491.column

Corporate America, it's time to spread the wealth
Businesses are sitting on a record hoard of cash, but they're not using it to hire workers or pay existing ones better wages. Broadly distributing the fruits of economic growth is the only way to sustain that growth.
Michael Hiltzik

Corporate America must be in a bad way. Job growth has stagnated, the prospects for hiring, at least in the near term, seem grim, and the polls of top executives sound universally glum. And yet, operating earnings of companies in the Standard & Poor's 500 index jumped 38.4% in the second quarter compared with a year earlier, according to Thomson Reuters, and companies are sitting on an estimated $1.8 trillion in cash -- by some measures, a record mound of cash. Somebody's making money in this economy. Unfortunately, it's not the middle class or the working class. And that's our real problem.

The business lobby talks as though the flat-lined job picture isn't the fault of employers. Certainly it's true that it's not entirely the fault of employers. Chamber of Commerce types overemphasize doubts about the strength of the economic recovery, the prospect of higher federal taxes and the costs of government initiatives such as healthcare reform. Some aren't above suggesting that American workers have simply become too lazy to get off unemployment and do some real work. That was the theme of a recent article in the Wall Street Journal quoting several business owners marveling at the dearth of applicants for skilled job openings. But you had to do some math to find a clue to why this might be. One business was looking to pay $13 an hour for machinists. That works out to about $27,000 a year (assuming vacation is paid for), or about the federal poverty line for a family of five. Now, it's possible that the business owner couldn't possibly afford to pay a penny more. Or he might be thinking that with unemployment nosing 10% he could try bidding down. But the article also quoted him saying his company could grow sharply if it only had the personnel, so perhaps he should consider bidding up.

The idea that only a shrinking proportion of American workers deserves a solid middle-class income seems to have become ingrained in parts of the business community over the last few years. That was the thought behind the punishing Southern California grocery lockout and strike of 2003-04, when the supermarket chains pressed for a wage and benefit system on which it would be difficult if not impossible to raise a family. (They got their way for new employees.) How has that worked out? The share price of Safeway Inc., the owner of Vons and Pavilions and one of the chief drivers of the dispute, has barely budged since January 2004. The company swung from a profit of $560 million in 2004 to a loss of roughly $1 billion last year, a performance it largely blames on the crummy economy.

This is just one more manifestation of increasing income inequality in America, where the rich have gotten richer and the middle and working class have gone into debt to merely hang on. Whenever I write about the need for corporations and the wealthy to shoulder their fair share of taxes, I can count on receiving numerous e-mails instructing me that we need to cosset the rich because they're the source of job growth. "I've never been offered a job by a poor person" is the usual refrain. The answer to this argument is that there are precious few firms that can survive purely on the patronage of the top 1% of income-earners, or even the top 20%. When no one can afford to buy, no one has customers. Broadly distributing the fruits of economic growth is the only way to sustain that growth...

[katandmoon]

1. K&R. And lucky us, we got another president who believes in protecting the corporate overlords.

[econoclast]

2. US business and their cash cache

While it is indeed true that US business is sitting on aabout 2 trillion dollars in cash, it is also true that US business debt is about 8 trillion dollars. The actual percentage of cash to debt is about 23%. That's right about where it was in 2004. Haven't we just had a very hard lesson in the dangers of operating with excessive leverage ... without a sufficient cash cushion? I guess that lesson was lost on the author.