I still agree Professor Michael Roberts. – K.M.
«From 1980 to 2013, vast markets opened around the world while corporate-tax rates, borrowing costs, and the price of labour, equipment, and technology all fell. The net profits posted by the world’s largest companies more than tripled in real terms from $2 trillion in 1980 to $7.2 trillion by 2013, pushing corporate profits as a share of global GDP from 7.6% to almost 10%.
But McKinsey reckons that profit growth is coming under pressure. This could cause the real-growth rate for the corporate-profit pool to fall from around 5% to 1%, to practically the same share as in 1980, before the boom began. According to McKinsey, margins are being squeezed in capital-intensive industries, where operational efficiency has become critical. Meanwhile, some of the external factors that helped to drive profit growth in the past three decades, such as global labour arbitrage (globalisation) and falling interest rates, are reaching their limits.
So, in a way, the Economist is out of date. Corporate profits as a share of GDP are falling and are set to fall further over the next decade. The apple harvest will be less each year. The boom days of the ‘neoliberal’ period of 1980 to 2007 are over. As I have shown in previous posts, global corporate profit growth has ground to a halt and in the US corporate profits are not only falling as a share of GDP, but also in absolute terms.
Far from a reduction of ‘too high profits’ being a good thing in boosting ‘competition and efficiency’ as the Economist claims, falling US corporate profits and profitability will herald a drop in investment and increase of corporate debt defaults and so lay the foundations for a new economic slump.»
A number of readers of this blog have remarked or asked me to comment on a recent article in the Economist magazine that asserted that both profits and even the return on capital or profitability in the US are at “near-record highs”. As quoted, “The past two decades have seen most firms make more money […]