During September’s very first United States presidential debate, former Secretary of State and Democratic nominee Hillary Clinton mentioned that she would implement a profit-sharing policy.
Here is what she said during the debate at the time:
“I also want to see more companies do profit-sharing. If you help create the profits, you should be able to share in them, not just the executives at the top.”
Now, a lot of companies already voluntarily employ profit-sharing mechanisms, particularly stock options. You also share in the profit by being provided with full-time, permanent employment.
Perhaps this was a slip of the tongue and one of those “public position and private position” matters. Unfortunately, it’s actually a proposal in her campaign, and she also recently repeated this pledge at a rally this week.
Clinton spoke at a rally in Coconut Creek, Florida – the one where the man fell asleep in the background – where she promised free child care, free education and plenty of other free goodies that got the crowd all excited. Yay! Free stuff!
In her remarks, she reiterated her idea of profit-sharing. It’s a scary plan and one that doesn’t make sense at all. Here is the clip embedded below:
Ostensibly, this is an initiative that has quietly been part of her presidential campaign. As the Washington Post‘s Robert Samuelson wrote in July: “As a political advertisement, the proposal merits an A. As public policy, it earns at best a C.”
Even as a tool of public policy, it earns an F.
First, if employees are sharing in the profits, do they also share in the losses, too? Or do only the business owners, the ones taking all of the risk and investing all of the capital, suffer the losses? It’s the type of plan that panders to the lowest common denominator.
Second, this is government intervention into the affairs of American businesses at its finest. Clinton’s plan enables the state to determine how much employees should earn in each industry and how much businesses should lose.
Third, if Clinton has her way with a 15 percent tax credit, then businesses would transfer regular pay increases into profit-sharing so they can receive the tax break. The workers would not benefit from this at all.
Clinton’s inane plan is not productive and will only consist of more regulation, which provides more employment for government workers, accountants and tax lawyers. Businesses will spend more time and money trying to manipulate the rules than concentrating on what they do best: satisfying the customer.
The concept of profit-sharing isn’t anything new. Here is what Hans Sennholz wrote in 1964:
For many people, profit-sharing is thought to provide the solution to our labor problems. It is said to hold the key to industrial peace and represent the ideal of industrial democracy. According to a Senate committee report, profit-sharing is “essential to the ultimate maintenance of the capitalistic system.” Even some businessmen praise it for giving employees a sense of partnership in the enterprise, raising worker morale, avoiding strikes, reducing turnover, increasing efficiency, and so on. In fact, profit-sharing is said to afford workers a stake in our capitalistic system.
These people do not seem to realize that the market economy is a sharing system. Although hampered and mutilated, American business continues to deliver ever more and better goods. Wages continue to rise on account of improved technology and increased capital investments, not because we work ever harder and longer hours. Competition forces investors and businessmen to share the fruits of their investments with their customers through lower prices and with their workers through higher wages.
But in popular terminology “profit-sharing” proposes to give the workers more than higher wages through competition in the labor market. It means an additional distribution of a businessman’s earnings to his employees. Some proposals depend on government or union coercion, others aim at voluntary sharing. Most sharing firms are rather small in size and employment.
The economist who analyzes this supplementary sharing must ask a pointed question. Which part of the business surplus commonly called “profit” is to be divided between businessmen and workers? Is it the “managerial remuneration” which businessmen earn through their own managerial services? Why should independent businessmen yield their labor income while managers and supervisors in the service of large corporations continue to earn a market wage?
Is it the “pure profit” which businessmen are urged to share? Only a small percentage of American enterprises actually earn pure profits. Now, are the fortunate workers who found employment in profitable enterprises to earn more than their fellow workers in average firms? Should an accountant who serves a brilliant stockbroker earn $100,000 per year while his equally competent fellow accountants labor at $5,000 or $6,000? What is to determine his remuneration? But, whatever the sharing plan should provide, it introduces a dubious wage principle: a man’s labor income is determined by the ability of his employer. I doubt that this is the matrix for human cooperation, the key to industrial peace. On the contrary, it would create new sources of conflict. Most workers who receive wages only would probably demand “equal pay” from their profitless employers, which would aggravate rather than alleviate the labor situation.
Many people fail to realize that industry doesn’t have much profit to share. According to Claude Robinson’s excellent analysis, 45 percent of all companies, on the average, are reporting no profits. The average annual earnings for all manufacturing companies amount to 8.6 cents per dollar of investment. “If we allow five cents as a form of interest,” Robinson concludes, “the remaining three and six-tenths cents is left for entrepreneurial risk-taking. Should the three and six-tenths cents entrepreneurial fee be shared, it could at best mean an insignificant wage increase, and would surely decrease the willingness of owners to take the investment risks involved in providing better tools for workers. Sharing the entrepreneurial fee, therefore, would likely do the wage-earner more harm than good.”
Simply put: the master politician should just let companies and workers decide what’s best for themselves. You don’t need a bureaucrat or a politician decide for them. This is a policy that targets the populist, Bernie Sanders wing of the Democratic Party.
Let’s just hope that the profit-sharing is only a public position and not a private position. You’ll probably find an email in the WikiLeaks dump that shows her admitting that she doesn’t actually believe this nonsense.
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