Posted by AzBlueMeanie:
I have posted on this topic previously. The new corporate business model: increase profits, not jobs; UPDATE: The new corporate business model: increase profits, not jobs; and Update II: The new corporate business model: increase profits, not jobs.
The Wall Street Journal (subscription required) reports on Propelling the Profit Comeback:
U.S. companies are rebounding quickly from the recession and posting near-historic profits, the result of aggressively re-tooling their operations to cope with lower revenue and an uncertain outlook.
An analysis by The Wall Street Journal found that companies in the Standard & Poor's 500-stock index posted second-quarter profits of $189 billion, up 38% from a year earlier and their sixth-highest quarterly total ever, without adjustment for inflation.
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For all U.S. companies, the Commerce Department estimates second-quarter after-tax profits rose to an annual rate of $1.208 trillion, up 3.9% from the first quarter and up 26.5% from a year earlier.
That annual rate is the highest on record, though it doesn't account for inflation. As a percentage of national income, after-tax profits were the third-highest since 1947, surpassed only by two quarters in 2006, near the peak of the last economic expansion.
The data indicate that big companies are recovering from the downturn faster and more strongly than the overall economy, helping send stock prices higher this year. To achieve that performance, companies laid off hundreds of thousands of workers, closed less-profitable units, shifted work to cheaper regions and streamlined processes.
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Despite the hefty profits, executives aren't expected to boost spending on new employees, products and equipment anytime soon.
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Overall, however, the profit surge wasn't driven by overseas sales. Among S&P-500 companies that report that data, sales outside the U.S. fell more sharply than sales at home last year, S&P said.
But executives kept a tight rein on costs. "Companies aren't spending much on anything but necessary maintenance," said Howard Silverblatt, senior index analyst for Standard and Poor's.
An example cited by the Wall Street Journal in this article:
Electronic Arts cut spending in the past two years largely by trimming its product line. In the year ended June 2009, EA released more than 70 videogame titles. In the year ending June 2011, the Redwood City, Calif., company plans to release fewer than 40, concentrating on popular games such as Madden NFL and FIFA Soccer that traditionally are its biggest revenue-generators.
With fewer games in the pipeline, EA cut spending on R&D to $275 million in the second quarter from $356 million in the comparable period of 2008. EA also laid off 2,000 of its 9,800 employees and moved others to China, India and Canada. Together, the moves helped the company swing to a $96 million profit from a $95 million loss two years earlier.
"The human cost of eliminating jobs is always painful, but in a weird way, the economic melee has helped us build a stronger company," Mr. Riccitiello said. "This isn't simply cutting R&D. It's focusing R&D in a smart way."
Got that? Firing American workers, closing American plants and moving operations overseas to exploit cheap labor in China and India is simply "cost cutting" to improve the bottom line of profits. American workers are just a cost of doing business to be reduced like copy paper and paper clips.
Global corporations are not invested in the well-being of American workers, their local communities, their state, or even the U.S. Global corporations will go wherever they can exploit weak governments and cheap labor. There is no morality, or loyalty to one's community, state or country. Global corporations are borderless. Their only loyalty is to the corporate bottom line of increased profits to their principal shareholders and increased salaries to their board of directors.
When we talk about tax cuts for corporations the cuts must be narrowly tailored to American companies, preferably genuinely small businesses, that are invested in their local communities and states and that will create jobs here in the U.S. Companies that fire American workers and economically devastate local communities and even states by moving their operations overseas to exploit weak governments and cheap labor deserve no favor. They are predators that should be penalized.
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