Corporate Profits Decline: Time For A Celebration?

By Austin Hil

“Corporate Profits Lose Steam.” That was the headline atop a recent Wall Street Journal article. For those that become indignant about highly successful and profitable corporations, this should be reallygreat news – right?

But nobody is celebrating. In fact, the sagging profits reports of the past several weeks are thought to be such a bad thing that some believe they have brought about the downward shifts on the stock market as of late (could it be that the business uncertainty caused by our U.S. government could be the problem on Wall Street instead?).

Companies as diverse as Krispy Kreme donuts and the almighty Microsoft have seen profits decline a bit in recent months.  Americans – especially the community organizers among us who become unhinged when businesses are successful – should be thrilled about this.

If profits are such a terrible thing, why aren’t we relieved by their decline?

For the record, I have no idea whether or not a recession is eminent. And to the extent that economic activity is nearly impossible to predict with precision, nobody else knows either.

But regardless of whether the economy is moving up or down, Americans need to grapple with this “love-hate” attitude towards profitable enterprise. And let’s start with a couple of philosophical questions: Are profits always a good thing for a company to produce? And is it okay for one company to be really, really, profitable, even when other companies are not?

In some spheres of life – collegiate and professional athletic competitions, for example –Americans have no problem accepting the fact that with each match-up, some will succeed while others fail. Yet when it comes to business, success in producing profits is often seen as merely a necessary evil – and only acceptable if the profits aren’t “excessive.”

Part of the dilemma may well be that far too many Americans assume economics to be, as the term goes, a ‘zero-sum game.” Just as it is the case in many sporting events that one team wins and the other loses, so also it is assumed that if one individual or group is profitable, it necessarily causes somebody else’s unprofitability.

That, of course, is false. In our competitive free market economy, success with one enterprise often creates new markets in which other companies can succeed.

An easily understood example of this is the coffee house industry. In the 1980’s, Starbucks took the concept of the local coffee house where people meet and spend time together and drink beverages, and turned it in to a global business phenomena. And since the earliest beginnings of Starbucks, several other coffee house chains have been launched - Moxie Java, Tully’s Coffee, and Caribou Coffee to name a few - as an effort to capitalize on the burgeoning coffee house market. While today Starbucks remains the largest chain of its kind, these other newer and smaller companies have nonetheless benefited from Starbucks’ success, in as much as Starbucks essentially created the market for the modern-day coffee house in the first place.

But economic realities are one thing, and people’s perceptions and “feelings” are something different. And at present America is surrounded by an ever-present hostility towards profitable businesses – much of which emanates from the highest levels of our government.

Some of us saw this era of hostility coming. Back in 2008 while he was campaigning for the presidency, Then-Senator Obama made it a point to chastise American businesses nearly every time a robust earnings report was published. In the summer of that year, as an example, speaking to a stadium full of adoring followers, the President-to-be made it clear his disdain for the petroleum industry:

“First of all,” candidate Obama stated, “you’ve got oil companies making record profits…no… no companies in history have made the kind of profits the oil companies are makin’ right now…They..they…….one company, Exxon Mobil, made eleven billion dollars…billion, with a “b” ….last quarter….they made eleven billion dollars the quarter before that…makin’ money hand-over-fist…makin’ out like bandits…”

Imagine that! “Makin’ out like bandits” – that’s an amazing assessment of a successful business enterprise, suggesting that posting profits is tantamount to thievery. Of course at that moment in time, the early signs of a recession were appearing, and it was politically viable to send the message that “if we can’t all prosper right now, then none of us should prosper right now,” and his vitriol over the profitability of the Exxon Mobil Corporation played well with the crowd.

Yet Mr. Obama’s disdain for business “profits” has continued throughout his presidency. Fast forward to February 7th of 2011 when the President addressed an audience of the U.S. Chamber of Commerce. Speaking of the improving balance sheets that were emerging within many American companies at that time, President Obama stated: “The benefits can’t just translate into greater bonuses and profits for those at the top. They have to be shared by American workers, who need to know that expanding trade and opening markets will lift their standards of living, as well as your bottom line…”

These were the words of our Ivy League-graduate, Nobel Prize-winning U.S. President. Surely he, of all people, understands that profits aren’t simply “shared” - they are “earned.” And surely he realizes that when a company is profitable, it’s not merely the C.E.O. that benefits (investors, employees, and customers benefit from profitability as well). Certainly the President of the United States understands these most basic concepts of free market enterprise – doesn’t he?

But we never hear that from our President. Nor do we hear much praise at all for successful, profitable enterprise from anybody in our government. It’s usually anger and disgust when profits are good, and promises of intervention and “stimulus” when profits are bad.

It’s a very self-serving and destructive game that our politicians play. And they will keep on playing until Americans demand differently – and until Americans come to terms with profits.

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