THE SNARES OF PROFIT-SHARING
By NICHOLAS DAVENPORT * * *
But let us see why the whole idea of profit-sharing is fundamentally dangerous both on economic and political grounds. Economically it fosters inflation. The first duty of a company whose turnover and profits are increasing is to lower prices and pass on the benefit of manufacturing effi- ciency to the consumer. Giving a cut in profits to the workers undoubtedly tends to make managements ill-disposed to price re- ductions and it is not long before the infla- tionary situation develops where industrial earnings are allowed to rise ahead of pro- ductivity. If managements stopped trying to bribe labour with profit-sharing schemes they would have more interest in reducing prices and the men would have more inter- est in raising the real value of their wages The natural tendency in peace time of prices to fall would then reassert itself.
On political grounds profit-sharing is dangerous because if it is conceded that workers have a right to share in profits they will soon claim a right to take the lot or at any rate to grab the reserves. Professor Cole, the Labour economist, and various Labour Members of Parliament have al ready suggested that the State should seize company reserves. Even so reasonable a politician as Mr. Gaitskell told the House of Commons in March that it was no use asking workers for wage restraint if capital accumulates in the hands of shareholders by reason of their restraint. A solution must be found for this difficult problem. he said,
by way of giving the workers a fair share of the accumulated reserves. All this non- sense stems from a misconception of the nature of equity capital. Equity shares are merely a device for the provision of risk capital: the reserves a device for company savings. Equity shares are entitled to a re- turn on the capital employed proportionate to the risks involved. When that dividend is reached and if profits are still rising, then reserves should be accumulated to provide for replacements and re-equipment and after that, selling prices should be lowered. Equity shares do not exist just for the profit of individual capitalists: they exist to enable the private sector of the economy to function.
* The big employers who have been misled by false reasoning into profit-sharing schemes generally try to camouflage their mistake by creating special classes of equity shares for their employees. Some even link t the as in' ids to once e was
cl It e in" offer bares, crew• and
part•
t°
)f the
nixed
ig by nd of hares.
agree
n for
up this form of profit-sharing with z centive scheme. Some employers already becoming disillusioned abou value of profit-sharing schemes either centives to higher productivity or as a industrial harmony. Mr. C. 0. St i the chairman of Pye, who was a pi in profit-sharing, recently said that hi 'sadly disappointed and disillusions is obvious that labour will never duced to give its best merely by the of bribes in the form of equity sl however attractively dressed up. The tion of confidence between capital labour, the building up of a sense of nership in industry, is much more filo be attained by a clear understanding ( nature of the capital system in a r economy—especially an understandit labour of the nature of risk capital a the institutional holding of equity sl In the end we shall probably have to upon the appropriate rates of retur risk capital invested in different inclul An excess return might well attract tax. Perhaps Mr. Butler would thin
l out for his long-term crusade.
Previous page
