Corporate Profits – Who Gets the Money?

Imagine this: You live somewhere, anywhere, in the USA and on Saturday morning you and your partner set off to do some errands.

First, you stop at an Exxon station and gas up your car. Once again, your partner complains about the high cost of gas, and the outrageous profits of oil companies. But, you explain that California's public employees, among and millions of other working Americans, in every state, appreciate your business. The California Public Employees Retirement System (CalPERS) owns millions of ExxonMobil shares, and Exxon's corporate profits help pay for their pensions.

Next. you're off to Wal-Mart to pick up a couple of things for the garden and house. As you swipe your credit card to pay, California's public employees thank you again. Their retirement fund owns millions of Wal-Mart shares, and each time the company earns a profit on a sale to a customer, a portion of that flows to them.

Of course, the piece of the profit they get from your $ 20-dollar purchase would be minuscule. But, California public servants are getting an tiny bit from every one of the billions of purchases made at Wal-Mart, and they own millions of shares, so they end up with a sizable injection of Wal-Mart profits into their pension fund.

Next, you visit the travel agent, to finalize your vacation plans. After booking flights on Alaska Airlines, California's public employees thank you. They own shares in Alaska Air Group, which operates Alaska Airlines, and share in the corporate profits.

By now, you're feeling hungry; your partner suggests burgers at McDonald's. Would you be surprised to learn that California public employees own McDonald's shares as well, and share in the profits from McDonald's? Look in a recent annual report from CalPERS and you'll see it owned shares in exactly 4,656 American companies on June 30, 2007. The fund also holds millions of shares in companies in other countries, bonds (basically loans to corporations and governments), and other investments.

Here's another point that recently became one of public interest. As of June 30th, 2007, our public service friends in California owned almost a billion dollars worth of shares in American International Group, or AIG, the company that's in the news so much these days. If you've wondered for whom those supposedly greedy people at AIG were making big money, now you know – California public employees, along with millions and millions of other government and private sector members of pension plans and mutual funds. Assuming they still own a lot of AIG shares, all these working Californians have to hope the AIG survives – if not, it will mean a hit to their pension funds.

Now, you may not work for the State of California, you may not even live there. But, you're likely in the same boat, for better or for worse. Whether you live in the USA, Australia, Chile, or a hundred other countries around the globe, your non-government retirement income depends in large part on corporate profits.

If you live in Canada, both your government pension and your non-government retirement income may be affected by corporate profits. A few years ago, the government agency that manages the government pension plan began investing in corporations to help fund the Canada Pension Plan and Old Age Security. So essentially all Canadians now depend, to a greater or lesser extent, on corporate profits for retirement money.

Maybe you do not belong to a pension plan, maybe you have to invest in mutual funds. Well, you're in the same boat. Regardless of country, your retirement income depends on corporate profits, and for two reasons. First, companies that make a profit can pay dividends to the owners, including those of us who contribute to pension funds and mutual funds. Second, shares in profitable companies may be sold for more than they cost, allowing pension funds and mutual funds to sell those shares for a capital gain (a capital gain is the difference between the price at which you buy a stock, and the higher price at which you sell it – if you sell it at a lower price, then you have a capital loss).

If you're trying to make sense of modern, middle-class capitalism, start by recognizing that most big corporations belong to working people, through their pension funds and mutual funds. Forget the old class warfare slogans, and the left wing bumper sticker logic. We workers are also owners in the world of modern capitalism, and addicted to corporate profits for much of our retirement incomes.

Source by Robert Abbott

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