Late yesterday afternoon, Google announced its financial results for the first three months of 2012. Its results were typically extraordinary, and demonstrate—if more demonstration is needed—a truism of our time: this is a golden age for capital. It is a golden age for corporations with a global reach. It is a marvelous time to have access to capital, and to deploy capital. And it is a challenging time to be a wage earner. In short, it is great to be capital; it is not a good time to be labor.
Having fallen short of elevated expectations at the end of 2011, Google surpassed them this time, with revenue of more than $10 billion and a profit just shy of $3 billion. Revenue increased 24 percent from last year at the same time; earnings were up more than 50 percent. More than half of Google’s revenue came from outside the United States.
Google is not a small company; it employs more than 33,000 people around the world. But those 33,000 generate more revenue than nearly 100 countries in the United Nations, and if Google were an independent state, its more than $40 billion in annual income would place it between Turkmenistan and Luxembourg. When you consider that Google is only one of hundreds of vibrant multinational companies generating massive revenue, the sheer scale of these entities is cast into sharp relief.
In the past two years, as the developed worlds of the U.S., Europe, and Japan have each struggled to maintain minimal growth, and as even the growth engines of Brazil, India, and China have slowed, global corporations have seen their profits soar. In 2011, when the U.S. as a whole grew 1.7 percent, corporate profits grew 7.9 percent; in 2010, when the U.S. grew 3 percent, corporate profits grew an astonishing 32 percent. In dollar terms, in 2010, U.S. corporate profits were $1.8 trillion. In 2011, they were $1.95 trillion. If all U.S. corporations were a sovereign entity, they would be one of the largest countries in the world.
It isn’t just the sheer scale of corporate profits that’s remarkable: it’s the profitability of that revenue. In the past 20 years, the preponderance of global companies have both increased revenue and shed costs. That is almost the mirror image of what has happened to the government balance sheet in the developed world, which have increase costs dramatically with stagnant or decreased revenue. Those realities are linked, of course. Companies in all parts of the developed world used to be responsible for both pensions and health care. While they are still responsible for some health-care costs in the United States, they have shed those in much of the world or never bore them in the first place, and as for pensions, almost everywhere, companies have been able to shift those costs to individual workers or to governments.
Add to that the ability to arbitrage labor costs and utilize the rapid expansion of labor pools from China to Indonesia to South Asia and Latin America. Add to that as well the aggressive integration of software tools that allow companies to reduce inventories and hardware such as robotics that allow them to employ fewer human workers and you have a formula for companies generating services and products with ever fewer costs. The only exception is the soaring costs of raw material inputs, and even there, technology companies such as Google bear those hardly at all. Yes, energy to feed the vast server farms is a variable cost and a rising one in many places, but technology companies largely sidestep that issue while their corporate brethren such as Siemens or Caterpillar or General Electric manage those raw-material costs by becoming even more ruthlessly efficient in their use of labor and their cost of capital.
In the next weeks, hundreds of publicly listed companies will report their results for the first three months of 2012. Far more than not, they will echo what Google has announced. Financial companies, who have been so in the spotlight since the financial crisis, are expected to be a significant contributor this year, as will technology, industrial and consumer names. While Wall Street has muted expectations, in the past two years, companies worldwide have been able to produce growth four or five times higher than any country.
That gap—between the growth of countries and the growth of companies—has been yawning wide for most of the past decade, with only a brief convergence during the worst months of the financial crisis in late 2008 and early 2009. And nothing has changed that essential arc: companies are reaping the rewards of global growth more than any one country. They have the benefits of expanding pools of labor at lower costs; they can domicile their profits where taxes are least onerous; and they can allocate resources and investments where they are most profitable. And the more onerous costs, the care of workers and their long-term health, they can and have shed, leaving those costs to governments.
The vast success of companies—and of course Apple with its $600 billion valuation is exhibit A—is one of the defining features of our time, that and the groaning strain on public finances that is a direct result of the globalized fortunes of those companies. The knee-jerk solution for governments and legitimately aggrieved citizens is to tax those profits and force or entice capital to stay. But there is no “workers of the world unite” on the horizon that could actually force that change, nor will governments work in concert to channel some of those trillions in corporate profits to the commons.
While Wall Street has muted expectations, in the past two years, companies worldwide have been able to produce growth four or five times higher than any country.
For years, economists and analysts have been saying that the gap between labor, national economies and corporations must narrow. But as long as there is an emerging world of hundreds of millions entering the middle class along with a global capital system beyond the ability of any one government to tame or moderate, that gap can and likely will yawn wide.
For the emerging worlds outside of the winners of the 20th century, for labor that never achieved the brief rewards of mid-century America, Europe or Japan, the future is comparatively bright. From a very low base, the direction is still up—just ask the Foxconn worker whose salary just doubled. But for labor in the developed world, the future is grim and not getting less so. This earnings season will offer fresh evidence of that fact. It will be yet another demonstration of how brightly capital shines in its Golden Age and of the deep shadows that light casts on the fate of labor in a world awash in profits.