Tuesday, 25 October 2011

Profits and austerity

Michael Burke: In all the discussion of the economy and the crisis, one word is hardly ever mentioned - profits. This piece looks at the level of profits in one of the crisis-hit countries - Ireland. With domestic activity still contracting and a stubbornly high deficit, maybe the Dublin government remains the poster boy for austerity because profits have begun to recover.

1 comment:

Paul Hunt said...

This is a useful and timely piece of analysis. It tallies with the broad macro data. If overall economic activity is flat-lining (with any increase in the MNC export enclave being matched by a decline in the domestic economy) and labour's share of income is falling, then capital's share must be increasing.

And, of course, the private sector won't invest in a shrinking domestic economy beyond what is required to maintain or increase its profit rate. No 'animal spirits' there - take the profits, hoard the cash or invest some where else. And certainly not in a domestic economy that is fated to shrink more as even more demand is sucked out of it.

All this raises some interesting policy questions? For example, to what extent are these profits genuine economic rents and monopoly profits that could and should be competed and regulated away to reduce final prices and to increase the disposable incomes of citizens? How difficult would this be? Are there too many entrenched vested interests in a position to block this?

Should these profits be taxed more to fund public sector investment? How would the owners and managers of these businesses respond to increased taxation of profit? Does the public sector have the skills and capability to identify and mangage new public investment projects that will generate sustainable economic value?