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OTTAWA - Canadian companies made record operating profits last year and plan to increase capital spending this year – the first increase since 2001 – Statistics Canada reported Wednesday.

Operating profit for all Canadian companies was $168.3 billion, up 15.1 per cent from 2002 and beating the previous high of $165.1 billion reached in 2000.

Operating profit is money made from "normal business activities," excluding interest charges, Statistics Canada said.

Financial companies, especially banks, accounted for $8.4 billion of the $22 billion increase. Oil and gas companies were also big winners, while profit at manufacturers and forest products companies fell.

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2002:01 15168.7
2002:02 15168.3
2002:03 15251.1
2002:04 15304.0
2002:05 15343.0
2002:06 15399.0
2002:07 15440.8
2002:08 15513.2
2002:09 15538.3
2002:10 15563.5
2002:11 15605.7
2002:12 15642.5
2003:01 15637.1
2003:02 15686.3
2003:03 15694.3
2003:04 15689.1
2003:05 15682.1
2003:06 15729.0
2003:07 15723.7
2003:08 15715.6
2003:09 15760.6
2003:10 15822.0
2003:11 15880.8
2003:12 15920.7

I just don't understand how people shrug off this kind of information. There's only a few possible explanations, after all. Obviously the capital class is seeing many times the benefit from Canada's economic activity as the rest of the country, despite being far, far smaller and doing none of the work. So either they're robbing you or you have to believe that they are actually more deserving than you are, and I don't think I'd find many Canadians who would say that. So why don't people come to the decision that changes need to be made? Are they just afraid of change? Of authority? Is it poor self-esteem?

Higher corporate profits means the following:

Greater Capital Investment
More Jobs
Higher tax revenues for federal and provincial governments
higher returns and greater dividends for pension funds

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Higher corporate profits means the following:

Greater Capital Investment
More Jobs
Higher tax revenues for federal and provincial governments
higher returns and greater dividends for pension funds

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oh oh god stop! stop! I'm gonna pee myself!

Higher corporate profits means:
Monster bonuses for executives.
Dividends for shareholders.
Capital flight offshore to Corporate "head office".
Wage rollbacks.
Downsizing.

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More Jobs

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The idea is that if they pay their workers more, then their profits won't be as big, by definition. But this is good, because rather than creating an accumulation of wealth at the top of the income scale, it spreads the wealth more equitably around society. This helps capitalism function properly by fostering a consumer base with disposable income.

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Originally posted by radiorahim:
Can you imagine the screaming headlines in the right-wing press if a group of workers got a one year pay increase of 15%?

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Have you seen what nurses have been getting lately?

That being said, the analogy is a false one, profits are not the same as salary and can't be compared as such. Using the figures in the quote only corporate profits were $146.35 billion in 2002 or 12.8% lower than in 2000. 2003 profits were only 1.94% higher than in 2000, a lot of workers have received this much or more of an increase since 2000 and without having a 12% decline in the middle years. (btw, I do realize that I said the two shouldn't be compared and then compared them)

If the argument is that the government should tax these profits at a higher rate, that is valid, we may disagree on the appropriate level but that is fine. However, if the argument is that increased profitiblity of Canadian firms is a bad thing then you have completely lost me. I do not have the stats but I believe that corporate profits has a fairly high correlation with employment and personal income statistics.

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Higher tax revenues for federal and provincial governments

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Have you seen what nurses have been getting lately?

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Haven't seen the numbers, but if they are getting large raises its long overdue.

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If you want to rail against the proportion of these profits that are paid as bonuses to senior management, or that too many companies are making bad long term decisions to inflate short term profitibility I am right with you. However, you will not convince me that these statistics are bad news.

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I'm railing Actually the media would scream at a 4-5% wage increase.

It used to be that one could speak of actually increasing the standard of living of workers. Now most workers and their unions are just trying to hang on to whatever they've got while CEO's laugh all the way to the bank.

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Rubbish. The corperate sector has been finding ways to avoid the tax man for years. Do you really expect us to believe that some of the largest multi nationals in canada will suddenly start paying their fair share simply because they've made record profits!? I don't understand your logic and all your numbers are making my head hurt.

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Interesting that you raise this. Last night the PBS investigative journalism show "Frontline" did a piece on this exact issue called "Tax Me If You Can" dealing with tax shelters and how corporations have two sets of books...one for the shareholders showing how well the company is doing and another for the IRS to show how poorly they've done.

Its archived in steaming video at:

It's true. Capitalism of any variety sucks.

Now on to the point:

Lower corporate profits good/bad
Higher corporate profits good/bad

WHile my instinctive cry for justice screams for lower corporate profits, because in many respects they are sucking the economy dry.

But like most economic arguments, nuthin's never that simple.

For example, higher profits for centralized corporate institutions, like banks and well-established corporations, is simply sucking wealth outofthe economy and further centralizing it into the hands of a series of cliques.

It creates nothing for the economy or jobs because the investment capital needed for consumer spending, which is the main driver of the economy, isn't going to consumers. And who are consumers? In almost every case, they are the workers. So, here, higher pay for workers and less accumulation (lower pay) for bosses is what's needed.

On the other hand, lower profits for an under-capitalized small business or non-profit society, or self-employed worker, is disastrous. THe biggest problem small business has in this country is the same as the average worker: they are grossly under-capitalized.

In other words, workers don't earn enough money to sustain, let alone expand, the economy, and small business, which is mostly workers, can't get access to enough capital to expand their business. This is partly because most of the investment capital is under the control of the same cliques I talk about above.

But even for small businesses that do get access to capital have a real problem getting arate of return because, as I said, workers don't have enough money to expand the market that can sustain the business.

Profits throughout the 90s were averaging up to 60 per cent per annum in some sectors, yet wage and job rates were dropping.

Just look at the down-size mania that went on in the 80s and 90s in manufacturing, retail, service and finance.

Many of these corporations posted record returns becasue they were slicing down work forces, re-investing in speculatives, futures, mergers and acquisitions--all of which create nothing--yet their stock values were ballooning.

If, for example, the money made by these companies was re-invested in expanding production and new sectors, then that would result in job creation. But to do this, working people would need to make enough money to create and expand the markets that could sustain the companies' expansion.

But the trend among the corporate capitalist clubs is to do the opposite: cut jobs and re-invest money in non-productive sectors.

In other words, these types are sucking real money out of real workers' pockets in the real economy and locking it into the now-infamous "paper boom" of huge stock prices based on nothing.

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don't understand that. If firms lost money, why would they pay their workers more?

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What i find really "funny" is that when the firm makes double the profit, they never seem to double their workers salary.

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The very fact the firm can expand, or even exist at all, is because of the collective labour of its workforce.

It's the labour of workers that creates the products and services to the market which gives the firm its value.

But anyone who's ever worked with anyone else can figure "how hard" each person works is very subjective.

For example, if someone has the flu, they probably won't be as fast, or as clever as when they are feeling OK. On that day, someone may have to put out extra effort to cover for that person, or some of the work that person normally does will have to wait for another day.

But the fact is the products or services created by workers working in tendem is what creates value. "how hard" they work at it is subjective.

It's telling that wages aren't profits, but expenditures. The share of the economic output of an industry that comes to the worker, is still part of the wealth the industry has produced. Certainly, it is how the worker profits from the enterprise, but it is not profit in the proper sense, because profit is what is left after the corporation has bought all the work that went into the industry. Profit is what they, the owners of the corporation, skim off the top.

When profit goes up but wages don't, then most of that profit is theft, because it is only just that those who labour should see the fruits of their labours. Whatever value (expressed in monetary compensation) there is in shareholders (I would say none) should not increase over time as we see them become demonstrably more and more crooked. Yet that is what has happened, because there is no connection between their accumulation of wealth and the wealth that the economy is producing. All they do is compete with each other over who will siphon what wealth to themselves.

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Originally posted by radiorahim:

Last night the PBS investigative journalism show "Frontline" did a piece on this exact issue called "Tax Me If You Can" dealing with tax shelters and how corporations have two sets of books...one for the shareholders showing how well the company is doing and another for the IRS to show how poorly they've done.

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>What if the stockholder is a pension fund?

This raises the whole spectre of who controls capital and the means of production and who's interests it is used for (instead of just sticking to the narrow profits and wages arguments).

Sadly, most pension funds are under the control of the same corporate tyrants that run the corporations and investment agencies where the pensions are allocated.

It's no surprise that when corporate scandals and corruption are exposed, it is most often the pension plans that get whacked.

Even most of the union-owned funds are under the control of actuaries and investment managers with little accountability to the elected union trustees.

In numerous instances, workers under some of the most vicious corporate bosses with the most horrid labour relations have learned that their own pension funds are invested in these firms and being used against them.

There finally is an emerging consciousness among many people in the labour movement that they can start getting control of their pension and other savings pools, by educating union trustees, and use them to implement labour values into the economy.

Things like sustainable development instead of maximum rapid accumulation of wealth; a greater sharing of wealth by putting the dividends of pension investments back into retirement funds, while ensuring living wages, human rights, ecological standards, etc; and economic democracy, as in the participation of workers in the decision-making over capital and businesses.

Some corporate pundits are starting to take notice. The Globe and Mail recently warned corporate Canada that growing knowledge of unions and workers generally around pensions and other contributed funds could shift the balance of power away from the corporate elites and toward the working person.

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Some corporate pundits are starting to take notice. The Globe and Mail recently warned corporate Canada that growing knowledge of unions and workers generally around pensions and other contributed funds could shift the balance of power away from the corporate elites and toward the working person.

I eagerly await that day.

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Originally posted by Klingon:
Even most of the union-owned funds are under the control of actuaries and investment managers with little accountability to the elected union trustees.

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PENSION FUNDS ARE NOT UNION OWNED!!! They are owned by the beneficiaries. The fund trustees owe a fiduciary duty to the beneficiaries, if the beneficiaries want to have an ethical investment strategy they can do so, but the union does not have any role.

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a greater sharing of wealth by putting the dividends of pension investments back into retirement funds

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I think that retired workers who have worked all their lives in order to contribute to their pension fund, and whose pensions are being paid out of the returns on their pension fund's investments, might take exception to the notion that they're participating in a form of theft. They might think that they've earned their pensions.

[ 28 February 2004: Message edited by: Oliver Cromwell ]

The basis a pension fund is the saved earnings of a wage earner herself. That's totally legitimate. The means by which those funds earn interest is more questionable, because it's largely based on expropriating the surplus value of other labor. All things considered, I don't think it's as bad because the value is ultimately returned back to the workers themselves in their retirement, rather than to the capitalist class.

What's unconscionable is when the workers have no say in how their OWN savings (or deferred wages) are invested. And further when the financial services professionals can invest those workers' savings directly against their own class-interest, such as supporting companies that privatize public sector jobs, union-bust, run sweatshops or destroy the environment.

And what I find most unconsionable of all is how the 'financial services professionals' reap hefty fees for their 'management' of the workers' money, while consistently underperforming the market in the process.

In response to Sports Guy, I think a better description of the funds would be "union bargained-for," or 'union WON," rather than union owned. But the unions definitely deserve a lot of credit for making these funds available. And I believe that properly trained, empowered union trustees, who are also made more directly accountable to the beneficiaries, could do a much better job managing the funds than the aforementioned 'professionals,' too.

[ 28 February 2004: Message edited by: robbie_dee ]

In a given venture, capital is invested, that capital employs labour. The capital is at risk, the labour is not. While employees face the risk of losing their job, only in rare circumstances are employees not paid for work they have performed. Labour also usually has a fixed return either by the hour, month, year or per unit of product produced. Capital only earns a return after employees and all other expenses are covered that return is anywhere from 0 to infinity.

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Originally posted by Sports Guy:
While employees face the risk of losing their job, only in rare circumstances are employees not paid for work they have performed.

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Originally posted by Oliver Cromwell:
Why?

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But as a footnote to the pension question, of course, Sportsguy, the owners of the pension plans are the beneficiaries, and the trustees have a feduciary responsibility to them. That's the way pension laws dictate.

But hair-splitting doesn't cut it. In reality, the pension beneficiaries are union members, and it is through their unions they elect trustees in various ways.

Many pensions and other retirement and health and welfare plans have in fact been set up by the unions themselves, with employers simply making contributions according to whatever collective agreements dictate. Therefore, they are union-owned.

My main point was that far too many pension plans, be they union-owned or union-won company plans, are under the defacto control of actuaries, elite investment managers and corporate executives with little priactical accountability to the trustees (which is the cause of huge executive compensation, skimming and endless scandals and corruption).

THis is largely becausee the trustees do not have access to all of the information and do not have the training to understand pesnion investment processes.

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The reason, I ask the question is your use of the term surplus value and your claim that it is stolen from labour. If that is the case, then what is an appropriate return to capital.
In a given venture, capital is invested, that capital employs labour. The capital is at risk, the labour is not. While employees face the risk of losing their job, only in rare circumstances are employees not paid for work they have performed. Labour also usually has a fixed return either by the hour, month, year or per unit of product produced. Capital only earns a return after employees and all other expenses are covered that return is anywhere from 0 to infinity.

The reason that capital earns excess returns over labour is due to rewards for risk. To put it another way, say you are working at a job and considering going into business for yourself, if you start a business you risk not only your income but often your assets including your house as well. However, if your business is successful you receive all of the profits after expenses. If you stay at your job, you do not face the same risks, you do not get to share in the profits, but at the same time you don't face the risk of losing it all either.

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Well, the reason why I responded to your question with a question is because it's not just abstract "factors of production" who are getting paid here, it's actual people. And I don't think it's really appropriate to blur the line, the way you do, between petty bourgoise sole-proprietors and small-business people, both of whom indeed take on a lot of risk and put a lot of everything they have, including their own labor, into what they do, for often little reward; and the much better off investor and managerial classes at the heights of the modern corporate economy. This second group of people are actually pretty well insulated from risk. The corporate form shields their personal assets from tort risk, bankruptcy law shields them from breach of contract risk, the government will often come in and bail them out if their corporate operations ever run into serious trouble, and in the worst case, when they do get in serious financial trouble, their sheer wealth as well as their networks of wealthy friends will protect them from ever going hungry.

Meanwhile, the flip side of all these socially and legally constructed protections is that the excess risk, as well as other externalizable costs, gets foisted right back onto the shoulders of workers, consumers, the environment and pretty much all the rest of us.

My point is that your abstraction of "capital" and "labor" coming together in the production process and trading off allocation of risk in favor of guaranteed wages, conceals more than it reveals. The whole relationship is socially constructed and can be reconstructed in any number of other ways. What doesn't change, though, is the fact that when something of value is made, the primary if not sole source of that value is the hard work that went into producing it, not the idle act of investors handing over money. And for these reasons, I do tend to see "surplus value" as largely something that's been stolen from those who rightfully created it.

[ 01 March 2004: Message edited by: robbie_dee ]

An examination of these numbers reveals that in 1962 corporate taxes represented 21% of government revenues. In 2002 they repressent only 16% of government revenue. Factor in the cost of debt financing, which represent 30% of our expenditures, and you get the preposterous situation of the average citizen dolling out 14% of government revenues to banks and corporations (net).

That is, the entire capitalist/banking establishment in Canada is the recipient of massive subsidy of some 50 billion per annum!

Our current deficit is around 600 billion.That is an interest rate of 8.3%. Do Canada savings bonds pay 8.3%? Do banks pay depositors 8.3%? Are mortgages even 8.3%?

No. Then why are we paying more than 2% or even prime of 3 or 4%?

The odd,sad,ironic and evil thing of it all is that corporations and banks are historically the artificial abstraction invented by governments long ago to serve the public interest.

They are now bent on destroying the foundation of the society that made them.

[ 01 March 2004: Message edited by: DonnyBGood ]

1) The amount paid in wages in the 4th quarter of 2003 was also a record. This isn't really news, because this is almost always the case; since 1961 (the start date for the series I have), the only quarter where total wages paid went down was 1981Q2. I know, you have to take inflation and population growth into account. But you have to take them into account when looking at the the profits data as well.

2) In 51 of the 172 observations from 1961Q1-2003Q4, profits declined.

3) Corporate profits averages around 10% of GDP. It goes down a couple of points during during recession, and a couple of points above that during upturns. There is no discernable trend in this ratio.

4) In Canada, the share of output that goes to workers is roughly 5 times the share that goes to the owners of capital. This ratio fluctuates with the cycle, jumping up significantly (up to 8 or 12 times the capital share) when profits go down during recessions.

5) There is no detectable long-run trend in the labour and capital shares of output. (This is also true of the US.)

Data sources:
GDP: Cansim II series V498074
Wages, salaries and supplemental labour income: Cansim II series V498076
Corporation profits before taxes: Cansim II series V498077

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The reason that capital earns excess returns over labour is due to rewards for risk. To put it another way, say you are working at a job and considering going into business for yourself, if you start a business you risk not only your income but often your assets including your house as well. However, if your business is successful you receive all of the profits after expenses. If you stay at your job, you do not face the same risks, you do not get to share in the profits, but at the same time you don't face the risk of losing it all either.

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When was the last time you saw a CEO standing in line at the welfare office?

Truth is corporate executives take little or no risk at all. They're a very conservative bunch.

They mostly simply buy up or merge with existing successful companies. And if they flop, its on to the next gig with a massive severance payout.

My guess (and it's not much more than that) is that a big part of the explanation is simply due to demographics.

1) In the 1980's, the the bulk of the baby boom started entering the labour force.
2) Since the 1970's, there's been a marked increase in female participation rates.

Put the two together, and you get a situation where the supply of labour has been growing much faster than the demand. If you use the standard model to evaluate the effect on wages, the rate of growth of wages would be reduced by an amount equal to the difference between the rate of growth of the labour force and that of the population. I'm at home now, so I can't give you precise figures, but I believe that this gap has been on the order of 0.5% a year over the past few decades. Accumulate this over a decade or two, and it starts to add up.

And no, I'm not 'blaming women for low wages'.

The big owners in Canada have sought to "correct" this. So now productivity measures include the benefits given to per head production when you lay people off.

What we really need is some type of optimization thinking going on here. Buckminister Fuller argues that one of the best ways to solve a whole scad of modern problems is to pay people not to work. But this will never happen so long as corporations are making society and those that are working pay to keep the unemployed alive. It is utter madness to think that the unemployed are somehow at fault and undeserving of existence when it is a concious decision of corporations to use layoffs as a way to make more money.

Edward Bellamy, the great American reformist:

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I think there is no feature of the civilization of your epoch so repugnant to modern ideas as the neglect with which you treated your dependent classes. Even if you had no pity, no feeling of brotherhood, how was it that you did not see that you were robbing the incapable class of their plain right in leaving them unprovided for?"

"I don't quite follow you there," I said. "I admit the claim of this class to our pity, but how could they who produced nothing claim a share of the product as a right?"


"How happened it," was Dr. Leete's reply, "that your workers were able to produce more than so many savages would have done? Was it not wholly on account of the heritage of the past knowledge and achievements of the race, the machinery of society, thousands of years in contriving, found by you ready-made to your hand? How did you come to be possessors of this knowledge and this machinery, which represent nine parts to one contributed by yourself in the value of your product? You inherited it, did you not? And were not these others, these unfortunate and crippled brothers whom you cast out, joint inheritors, co-heirs with you? What did you do with their share? Did you not rob them when you put them off with crusts, who were entitled to sit with the heirs, and did you not add insult to robbery when you called the crusts charity?

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On a related note, I'm going to refer to myself again. While the topic of that essay was not specifically about corporate profits, there is a discussion about the rates of return to capital in there.

[ 02 March 2004: Message edited by: DrConway ]

I am not saying that an investor in a major corporation is facing the same degree of risk as a small businessperson, but at the time of investment both should be aware of the risk and return trade off inherent in their investment. And the principal holds in both cases, the person who takes the risk is entitled to the reward.

With respect to Klingon's post I have an issue with the following:

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Many pensions and other retirement and health and welfare plans have in fact been set up by the unions themselves, with employers simply making contributions according to whatever collective agreements dictate. Therefore, they are union-owned.

My main point was that far too many pension plans, be they union-owned or union-won company plans, are under the defacto control of actuaries, elite investment managers and corporate executives with little priactical accountability to the trustees (which is the cause of huge executive compensation, skimming and endless scandals and corruption).

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Pension funds are a part of an employees wages and are the property of the employee. And the pension plan members are made up of both union members and non-members, therefore the Union should not have a role in the fund managment. As I have said on other threads, if plan members want to adopt a formal policy on ethical investing, that is their right and the fund managers would remain able to earn a positive return for the members. As I said above, the investors need to be aware of the risk/return trade off of their strategy. Pension funds are much to important to be put at risk as a tool of the policitcal strategy of the union leadership.

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Originally posted by DrConway:
That must be why CEOs are all-too-often (to me, anyway) reported stealing money from employee pension funds and making it legal via a variety of loopholes in the way such funds can be administered.

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Robin Blackburn, "The Enron Debacle and the Pension Crisis," NEW LEFT REVIEW 14, March-April 2002

Check out some of Blackburn's other work, as well. He wrote an amazing book in 2002 called BANKING ON DEATH, which was one of the most comprehensive discussions I have seen of pension systems and the "Old Age Crisis" in the West.

One of Blackburn's other points is, even when employers are not outright looting the pension fund or shirking their funding obligations under bankruptcy, the high fees and commissions charged by the financial services industry for "management" of the funds simply cannot be justified by the meagre returns. And the growing push to privatize and individualize pensions by switching from collective DB schemes and Social Security to individual retirement accounts (including 401Ks and, in Canada, RRSPs) will simply further increase fees and reduce average returns.

[ 02 March 2004: Message edited by: robbie_dee ]

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I am not saying that an investor in a major corporation is facing the same degree of risk as a small businessperson, but at the time of investment both should be aware of the risk and return trade off inherent in their investment. And the principal holds in both cases, the person who takes the risk is entitled to the reward.

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Originally posted by Sports Guy:
What are you referring to? Do you mean surplus funds in a defined benefit pension plan? Or are you accusing people of actual theft?

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The big shift hasn't been between wages and profits. The big shift is who gets the wages. It has been a little hard to see because StarsCan (or whatever it is calling itself these days) reports income distribution on a household basis. Low income households have responded to declining wages by having more members work. Income distribution has been getting more inequitable in Canada since 1948 (at least up to 1970, and I don't think it has turned around since then).

Leo Johnston (I am dredging memory for the name) did the study from tax returns. I don't know where it got published. A version got put into the public record as part ot the Bell Canada "B" rate increase application in 1973 (the one where pay phones stopped being 10 cents everywhere).

Found it.

Johnson, Leo A Poverty in wealth, revised; the capitalist labour market and income distribution in Canada. Second revised edition. New Hogtown Press, Toronto. 1977,

[ 02 March 2004: Message edited by: jrootham ]