May 10 JDN 246171

Consider two corporations.

Corporation A has net income equal to 2.9% of its total revenue, and pretax income equal to 4.1% of its total revenue. The cost of its goods sold accounts for 77% of its revenue, with most of the remainder going to wages.

This seems reasonable, right? It doesn’t seem like this corporation is being especially exploitative.

Corporation B has 2.1 million employees, and made net income of $21.8 billion, meaning that it could afford to pay every single employee an additional $10,000 and still be profitable. The median employee at this corporation makes approximately $16 per hour, meaning that this would an income increase of over 30%—an absolutely huge jump in income that would make a big difference in millions of lives. Yet instead they have chosen to buy back $30 billion in shares to raise their stock price even higher.

Corporation B seems like they are obviously exploiting their workers and favoring their shareholders, and directly contributing to the extreme inequality in our society.

But I have a bit of a surprise for you.

They are the same corporation. All of these facts are true of Walmart: Here is their income statement, here is their announced stock buyback, and here are estimates of their number of employees and median pay.

Walmart is not a particularly exceptional case. Similar stories hold for most major corporations: the profit margin doesn’t sound that high as a proportion of revenue, but it still amounts to an enormous sum of money that is being hoarded by shareholders instead of paid to workers.

Amazon’s net income of $90 billion on $742 billion in revenue gives it a profit margin of 12%, but would be enough to give all 1.6 million employees an additional $56,000—in many cases doubling their incomes.

United Health Group made $12 billion in profit on $447 billion in revenue, which is only 2.7%; and yet with 400,000 employees, they could still afford to give each one an extra $30,000. How many nurses would be very happy to see another $30,000?

Exxon Mobil’s $28 billion profit was made on $324 billion in revenue, a reasonable-sounding margin of 8.6%. Yet with only 58,000 employees, that’s $480,000 each.

McDonald’s made $8.5 billion on $26 billion in revenue, a margin of 33% (which is actually pretty high). Yet more than 1.8 million people work at McDonald’s including all its franchises, so it could really only afford to give each one an extra $4,700—which sounds small compared to these other figures, but for a minimum-wage employee ($7.25 per hour is about $14,500 per year), that’s still an extra 32%.

This is something I think we have failed to reckon with as a society.

Once a corporation becomes sufficiently large, it doesn’t need to have a big-sounding profit margin to nonetheless control staggering amounts of wealth and funnel it away from employees into the hands of shareholders. Especially with regard to Walmart and United Health Group, those margins honestly sound small as a proportion of revenue—and yet, they still amount to incredibly vast sums of wealth that are being hoarded away from thousands or millions of workers that desperately need help.

I don’t know exactly what to do about this. More progressive taxes, especially on capital income, might help, and would certainly raise much-needed revenue; but they don’t seem like enough on their own. I think we may need something more radical, like requiring employee ownership of a certain proportion of shares—essentially turning corporations into co-ops.

Another option would be simply not allowing corporations to ever get this big, and splitting them up if they already are. Perhaps being CEO of a corporation with billions of dollars in revenue really is just too much power for one person to have. But I am genuinely concerned that this could reduce economic efficiency and thereby lower the standard of living of everyone.

Some corporations actually seem to behave more fairly.

Car companies, for instance, don’t seem to hoard huge amounts.

Ford actually lost money last year, losing $6 billion on $189 billion in revenue (3.1%). With 168,000 employees, that’s $35,000 each—essentially they gave each employee a free car. And Ford employees do fine: Median annual compensation is $126,000.

General Motors made $2.4 billion in profit on $184 billion in revenue, a margin of only 1.3%. With 150,000 employees, it could give each one an extra $16,000. Given that most of its employees are well-paid (median employee salary is $99,000), I actually don’t begrudge them this. Accounting for the risk of bad years like Ford had, I think GM is being reasonable by not simply plowing that $2.4 billion back into their own employees.

Even Tesla isn’t really an exception to this pattern. Tesla made $3.8 billion on $98 billion in revenue, which is 3.9%. With 135,000 employees, this is $28,000 each—more than GM, but still not completely crazy. Median employee pay at Tesla is over $160,000, so these workers are doing well. What’s weird about Tesla, however, is that its revenue is half that of Ford or GM, yet its market capitalization is a staggering $1.5 trillionwhile Ford’s is only $46 billion and GM’s is only $71 billion. A P/E ratio of 20 is considered reasonable. Tesla’s is 365.)

But there are some corporations that don’t even sound reasonable.

Tech companies in particular tend to have very high profit margins.

Consider Apple; its net income of $122 billion on $451 billion in revenue gives it a net profit margin of 27%. It could give all 550,000 of the employees of not only Apple itself but also all its foreign suppliers a raise of $221,000. Some of these employees are sweatshop workers in China—they would be set for life on a sum like that.

Alphabet’s profit margins are even higher than that; its net income of $160 billion was on $422 billion in revenue, for a net profit margin of 37%. With 190,000 employees, that would be $840,000 each.

Yet Microsoft’s margins are even higher; its $125 billion net income was on only $318 billion in revenue, giving it a net profit margin of 39%. It has 228,000 employees, so it could give every single one an additional $540,000.

SpaceX isn’t publicly-traded, so they don’t have to disclose everything; but it is estimated that they made about $8 billion in profit on $16 billion in revenue—a staggering margin of 50%—and with only about 12,000 employees, it could give every single one an extra $660,000. In fact, Elon Musk himself owns enough stock that he could personally give every single SpaceX employee some $60 million in shares and still be a billionaire. That’s a life-changing sum for anyone who works for a living—neurosurgeons would be awed, and even NBA players would consider that a successful career unto itself. But Elon must see number go up!

This is why I’m still somewhat sympathetic to Marxism, despite not being a Marxist.

There really is something terrible going on here, with capital owners making absolutely obscene sums of money and using it to wield enormous power over our society, leaving their own workers to struggle even though they could easily give those employees enough additional pay to significantly change their lives—and if they all did so, even the capital owners wouldn’t be meaningfully worse off, because they already have more wealth than any human being could possibly need and the overall boost to the economy might even compensate them in the long run.

And turning corporations into co-ops (which is, arguably, seizing the means of production) could actually make a very big difference here, and both theory and empirical data suggests that it would greatly reduce inequality without greatly reducing economic efficiency.

But the labor theory of value is still garbage.