Every year, the NGO Oxfam publishes a report attacking capitalism. The 2018 edition1  is no exception. It castigates CAC 40 companies decried as too generous to its shareholders and denounces an inequitable distribution of profits at the expense of employees and the State.

We mustn’t speak nonsense (“carabistouilles”) to our fellow citizens2. However the picture presented by this NGO lacks intellectual honesty. For all companies, the distribution of added value is a major consideration. The reason for this is simple: as its name indicates, value added represents the wealth the company creates. To be sustainable, this wealth must be distributed harmoniously at all times among all its contributors: its employees, the company itself (investments), banks, and finally, the State and shareholders. These last two in line receive their share only after the first three creators of value have received their requisite amount.

This observation can be easily supplemented by figures. Every year the country’s creation of wealth is highlighted by the national accounts. And so how has this trend evolved over time? As noted by the economist Jean-Marc Daniel, in 1949, wages represented 50% of the company’s value added. In 1981-1982 this figure reached 80%, a particularly high peak, before returning to more reasonable levels. Increasing regularly since 2008-2009, in 2014 wages represented 59% of this wealth. At the same time, value added redistributed in the form of dividends represented only 4.6% in 1998 and approximately 10% in 2015. This increase must however be considered in relation to the decline in banking costs and the genuine effort of public authorities to ease the tax burden on companies.

However, while the State has made efforts, it still preempts lion’s share of a company’s net earnings – as was recently so well demonstrated by Xavier Fontanet3. “A net profit of 100 requires 153, from which State deducts corporate income tax of 53. From the remaining amount the company then pays a dividend of 50 (upon which the State levies an additional 15), leaving the company the balance of 50.” This means that the State receives 44% of the profits (68/153), leaving 33% for the company with the shareholder in the end receiving only 23%.

Let us not forget that just one year ago, the public enemy number one in France for most people was finance… The bad faith displayed by the Oxfam report nevertheless has the merit of inciting wise and informed minds to reestablish this distortion of truth: the remuneration of the shareholder is in no way the largest expense of the company.. This is why it is necessary to  pursue relentless efforts to explain the logic of investments in companies and recall that  long-term investments in equities is the best vehicle for contributing to your savings and retirement.

Another excellent illustration of the virtues of caricature is the “Fable of the Bees” Bernard Mandeville describes a system which prospers as a result of “All those, that in enmity, with downright working, cunningly convert to their own use the labour of their good-natur’d heedless neighbour.” While the this disingenuous will take this passage to be a denunciation of capitalism it actually demonstrates that private interest contributes to the prosperity of all.

Didier Le Menestrel

Cac 40 : des profits sans partage“, May 2018
2  a Belgium expression for nonsense, used by French president Emmanuel Macron, April 2018
3  Les Echos, 24 May 2018