Economics Questions

Re: Sarkozy proposes companies pay a third of profits to employees

fino — Thu, 17 Jan 2008 14:30:45 GMT

this is nothing else than a heavy tax on income after tax, a tax on taxed income. and it all revolves about the question wether a tax can be neutral. common sense and theoretical consideraions show that a neutral tax cannot exist. what will happen, of course is, that investment and growth will dwindle.

Re: Sarkozy proposes companies pay a third of profits to employees

Fried Egg — Thu, 17 Jan 2008 12:40:04 GMT

Setting asside the practical implications of this, I don't see why it is even ethically desireable that employees should receive a share of a company's profits. The success of a company depends on the effective utilisation of the factors of production towards the market's most urgent ends. An employee is just one of the many factors of production and his effectiveness in that role need not bear any relation to the success of the comapny. He may be extremely unproductive while the company performs well or he may be extremely productive but the company performs poorly.

I think there is definitely a strong argument for relating an employee's pay to their productivity but not for relating it to the company's overall success.

Re: Sarkozy proposes companies pay a third of profits to employees

Yan Grenier — Wed, 16 Jan 2008 21:30:26 GMT

Yes, a bit like how you ask a child to think twice before he speaks. Instead that now, the thinking process, which is the most important, does not take place.

Nathyn, I'm not interested in your answer.

Re: Sarkozy proposes companies pay a third of profits to employees

Solredime — Wed, 16 Jan 2008 19:27:16 GMT

Maybe I'm missing something here, but you're asking him to elaborate, yet you end your post with "Nathyn, I am not interested in your answer".

Re: Sarkozy proposes companies pay a third of profits to employees

Yan Grenier — Wed, 16 Jan 2008 12:14:57 GMT

Nathyn:
They seem to work fairly well, since they reduce the overall level of employment and improve working conditions without a significant decline in productivity. In practice, however,

So they work well because less people are employed? While I do not advocate policies that are aimed solely at increasing the employment rate, a decrease of the employment rate in itself is not a good news, at the very least for the people concerned by this low rate who remain unemployed (often due to a minimum wage, for obvious reasons I will NOT elaborate on- read on this). Please elaborate.

And moreover, who do you think you are to teach me what worker coops are? At any rate this is not what I am advocating. I remain the sole owner of my company while employees who desire to take a shot at making more money must bear the odds that they may actually lose money. My current employee declined as she prefered a stable income.

Nathyn, I am not interested in your answer.

Re: Sarkozy proposes companies pay a third of profits to employees

Nathyn — Wed, 16 Jan 2008 08:51:55 GMT

Grant:
Profit sharing has always been allowed, the problem is that workers don't want it.

Hahahaha. I guess that's why Sarkozy got elected, eh?

Yan Grenier:

I have my own small business and I would not mind sharing 1/3 of my profits.... as long as I get to share 1/3 of my losses as well. It has to be both or none.

It's been tried before in America and elsewhere. They're called "worker cooperatives," the most famous being the Mondragon Corporation:

http://en.wikipedia.org/wiki/Worker_cooperative

http://en.wikipedia.org/wiki/Mondrag%C3%B3n_Cooperative_Corporation

They seem to work fairly well, since they reduce the overall level of employment and improve working conditions without a significant decline in productivity. In practice, however, they're difficult to implement since their productivity does seem to be lower than regular corporations and companies, so when they compete, they're driven out by competitors which pay lower prices and higher wages.

The German economy (see Ordoliberalism) seems to largely founded on this idea, where unions are widespread, so companies cannot arbitrarily dismiss employees, but on the other hand unions don't have the ability to strike for arbitrary reasons. This leads to such unions (unlike the UAW) actually caring about the productivity of their employers, because they recognize that the well-being of themselves is tied to their employer.

Re: Sarkozy proposes companies pay a third of profits to employees

pairunoyd — Tue, 15 Jan 2008 23:45:14 GMT

I wonder how they define profits in more profit sharing plans? If a company were forced to share profits, couldn't they incur costs via new investments so as to lower 'profits'?

Do any companies have a running balance sheet? If a company loses $100 one yr, they simply cut (write) no profit sharing checks, correct? I mean, they don't reduce workers' regular pay, right? But what if the next year they profit $50? Do they cut profit sharing checks or are they still considered being in the red, +$50 + (-$100) = (-$50)

Example:

Profits: +1, +5, +2, -3, +1

Shared: +1, +5, +2, 0, 0

Balance 0, 0, 0, -3, -2

Re: Sarkozy proposes companies pay a third of profits to employees

pairunoyd — Tue, 15 Jan 2008 23:32:29 GMT

Also, I think profit sharing is fairly ineffective as an incentive. If you're just one part of a large system, you don't feel your contribution is going to have a significant impact on the success or failure of the company. Not only is the significance contribution diluted by each additional employee, but it's diluted by the overall market. I think performanc-based pay is a good idea because it's a direct measure of how much you contribute w/i the designation of your purpose.

Think about the brakes in a car. If you wanted to pay your brakes for their contribution toward your racing success, would it be more incentivizing to pay them for how well you place or how well they stop your car when you apply them? Is it effective to base their pay on what the fuel system is doing or on what the other cars are doing? The less accurately one's pay is correlated to to their particular purpose WITHIN the system, the less incentivizing it is. Of course, this all assumes an interest in the free market and not an interest in political convenience.

Re: Sarkozy proposes companies pay a third of profits to employees

Deist — Tue, 15 Jan 2008 23:04:56 GMT

Yeah, in the late 1800's a few unions argued for profit sharing and also a few companies offered it (such as Andrew Carnegie's business). The unions changed their tune after bargaining for it even though they sometimes had a profit sharing "floor" that their incomes could not fall below. As Grant said it simply was far to hectic and they instead switched back to regular wages. For instance as Thomas Sowell points out, MacDonalds made almost no profit for the first few years but it's workers always got paid. The same goes for places I have worked at. The company might be losing money but the employees have a stable income, safe from the roller coaster income that the business might experience.

Re: Sarkozy proposes companies pay a third of profits to employees

Yan Grenier — Mon, 14 Jan 2008 15:29:41 GMT

I have my own small business and I would not mind sharing 1/3 of my profits.... as long as I get to share 1/3 of my losses as well. It has to be both or none.

Re: Sarkozy proposes companies pay a third of profits to employees

Grant — Mon, 14 Jan 2008 11:43:53 GMT

Profit sharing has always been allowed, the problem is that workers don't want it. Employers would love to be able to motivate their employees by cutting wages and letting them share in profits, but most employees prefer steady incomes. A firm's profits are less predictable and more out of the control of the individual worker. Forcing profit sharing will only force employers to decrease real wages, because ultimately wages are dependent on productivity.

So this policy will end up replacing something workers do want (steady wages) with something they do not (profit sharing). Brilliant.

Re: Sarkozy proposes companies pay a third of profits to employees

Nathyn — Mon, 14 Jan 2008 10:32:39 GMT

Libertas est Veritas:
Sarkozy the Socialist has apparently lost it:

PARIS (AFP) — French President Nicolas Sarkozy proposed on Wednesday that a third of company profits should go to employees, with the same amount reserved for shareholders and investment.
"A system in which a third of the profits of a company would be for shareholders, a third for employees and a third for investment is a system ... that would have a certain coherence and logic," he told parliamentarians.
"Those that think it is too much should say it's too much and above all why," he added.
Sarkozy, who oversees a centre-right government, was elected on promises to reform French institutions and the economy and raise growth and living standards.
Public concern about buying power, already a hot subject during the presidential campaign early last year, remains at the top of voters' concerns in opinion polls.
Sarkozy argued that his radical proposal would help boost purchasing power, in addition to the longer working week that he intends to implement.
"Saying that sharing profits has nothing to do with purchasing power, (or) saying that a revolution as profound as the one I have proposed for sharing earnings has nothing to do with purchasing power is to treat people like fools," he said.
"I have proposed on this question of spending power a real revolution on (employee) participation and profit sharing," he said.
Returning to the hot-button issue of the 35-hour work week, which he said Tuesday he wanted to end this year, the president argued that it clearly was linked to spending power.
"Clearly the 35-hour week has a link with spending power since it ... was clearly paid for by the sharp brake on salary increases (that resulted)."
Sarkozy's comments on ending the 35-hour week Tuesday sparked a storm of protest from the left and praise from the right.
The issue has emerged as the lightning rod for differences over how to reform the French economy and its generous social welfare system.
Source

Ps. a 'news' sub-forum might be interesting, in case anyone with sufficient authority to make it happen reads this.

I think profit-sharing, in general, is a good idea because it theoretically harmonizes the interests of workers with employers, leading to greater productivity. I admit, though, that I have absolutely no idea how it would work and just throwing out the proposal "30% of all company profits to people" is silly. It's true that the French economy has been run into the ground by Socialism. A while back, on anti-state I posted an article about how in France, they now have "homeless villages." Homeless people are given free tents and, since there are so many of them now, they started all pitching their tents in the same area, with like 20 or 30 homeless people all in one little village. It's absurd.

Re: Sarkozy proposes companies pay a third of profits to employees

downside — Mon, 14 Jan 2008 07:15:21 GMT

Inquisitor:
That's lovely. So when will they be liable for 1/3 of the losses incurred by the firms?

One side effect of this, that will be good from the governments point of view, is that it will improve tax collection. All the financials people are going to make sure the company reports all its income so they can get their legal cut.

On the downside, capital intensive industries will have difficulty accumulating cash in order to "save up" for new capital. As capital formation declines, so declines the pool of funding. Yes all the money winds up in the banking system and the banks lend it out again but I think its better if profitable corporations do not have to pay interest to get the money they were forced to give to their employees back. Why should they have to pay interest to make the capital investments that they should have been able to make with their retained earnings?

Re: Sarkozy proposes companies pay a third of profits to employees

Libertas est Veritas — Sun, 13 Jan 2008 22:04:01 GMT

Kakugo:
Perhaps I should remember you that Sarkozy is generally believed to be slightly on the right by an European point of view.

For all practical purposes, the old right-left axis is long dead in Europe. Right-wing parties in Europe often pursue more populist/socialist policies than the supposed left-wing parties. I am not aware of any free market parties with significant support. Even liberals (in the European meaning of the term) are usually pushing for a variation of the welfare state.

Europeans love to belittle Americans, but the fact is that the drooling masses in the US only mirror the drooling masses in Europe. The welfare state and the benefits she offers are sacrosanct and no party dares to touch them. The concepts behind free markets are absolutely foreign in Europe. And on this front, the US actually has the edge. People there at least discuss these things, while Europe is locked into the welfare system for good. Until the whole thing collapses, that is.

Re: Sarkozy proposes companies pay a third of profits to employees

Kakugo — Sun, 13 Jan 2008 17:04:55 GMT

Perhaps I should remember you that Sarkozy is generally believed to be slightly on the right by an European point of view.

Having said that I will also remember how he got elected: he promised to get tough on crime and to reform France's fiscal machine. While with the first point we do not need to concern (at least for the time being) what got him elected was the second point, particolary the so-called ecù fiscale, a "maximum taxation level" for both private individuals and companies which would include all the taxes, direct and indirect, paid to the rapacious French revenue service. But as soon as he got himself into position he immediately violated his promises by imposing a new "gas guzzler tax" which should "help fight greenhouse gases" but in reality only helps the French car industry fighting the much hated boches.

Sarkozy is much admired in Europe both by politicians who are wet for his "decider attitude", as you Americans would call it, and ordinary people who envy him for his personal wealth and love affairs. Personally I think former tennis ace Yannick Noah is absolutely right when he says he's "disgusted" both by Sarkozy and his admirers.

Pairunoyd , I understand very much what you are talking about but you should understand how Europeans are brainwashed starting from cradle and are never left a minute alone. You cannot turn on the radio or read a newspaper without being immersed in a stream of neverending propaganda. Some issues that are still openly debatable in the US (for example gun ownership) are absolutely taboo in any European country. Ron Paul is a complete stranger to the European public and press (which says a lot about his chances of succeding) while Mr Obama is litterally idolized and Mrs Clinton is "deeply respected" even by self-proclaimed right wing men. Mises came from the grand old Hapsburg Empire but is very little known in Europe and it's much much easier to procure an US edition of his works than a French or Italian one.

I often wondered if the outrageous claims about hundreds of Red Army divisions ready to march in the heart of Europe wasn't all just a diversion while the whole Continent was converted to Socialism.