The Free Market Fairy Tale that Profits Create Jobs Ruthless Criticism

“Layoffs despite profits!” – Why “despite”?

The free market fairy tale that profits create jobs

[Translation of radio broadcast by GegenStandpunkt, September 18, 2006]

In times of crisis, it is said:

“The company has incurred losses. Unfortunately, we must layoff part of the staff in order to get back into the profit zone. This is only so we can save the jobs of the remaining workers. And if the net yield is improved, we can create new jobs.”

Its not only the entrepreneurs who can be heard saying this when they want to lay people off. The politicians also justify layoffs with the statement that “jobs are secured” in this way. They promise: “If the economy makes profits, jobs are again created.” In order to convince the working class, the business gurus and economics professors lend scientific authority but false arguments to their ideological support: employees must sacrifice jobs and wages in a crisis; in this way, profits will at first grow and then jobs too. This is how the paradoxical expectation – “layoffs create profits – profits create jobs” – becomes a univerally accepted commonplace. At present, many companies do in practice something that disproves this alleged objective law. Because ever more frequently, large companies proudly announce record profits in their news conferences – and at the same time, announce that they plan large-scale layoffs. For example, an insurance company came into the headlines with the announcement:

“Despite record gains: Allianz to cut 7,500 jobs.”

With “despite,” a conflict between profit making and job slashing is maintained – with the reproachful undertone that companies that diminish jobs despite good profits renege on their – at least moral – duty. A company counters this complaint with the fact that, for the company, no conflict between profit and layoffs exists; on the contrary: the “record gains” are pleasing, but they are not yet high enough and therefore must still be increased, and not because the shareholders wouldn't get plenty already, but because even these record gains lie below the average in international comparison, so they are still much too low. Allianz justifies its attack on the livelihoods of its employees with an interesting “emergency”: it suffers not from a lack of profitability, but from less profitability than its competitors. As a capitalist business, this is just as dangerous for them as red numbers despite good profits. And here it is revealed that the reason for the layoffs is something worse than greed for profit – it is purely about capitalism: profits are not the purpose of a company, but higher profits than the competitors; because only in this way do they win the competition for capital investors who invest in the securities of the corporations with the best profit prospects and equip them with the capital the need to assert themselves in global competition. Because of this, the profitability of Allianz must be improved; not out of an emergency – this is the lie of the justification – but because it wants to be the company that wins the competition on the worldwide insurance market. The layoffs are the means to do it. This is really not something new: in the end, the “record gains” just reported also came about from systematically saving on the number of staff – which is not a peculiarity of the company Allianz, but is known to everyone by the term “rationalization,” and this is constantly pursued by all companies.

How is the assertion that “record gains” and layoffs “actually” do not fit together arrived at? The reason lies in the belief of those who must live from wage labor – and who continue to view it as their means of subsistence, despite all their bad experiences – that it is actually the duty of the entrepreneurs to create “jobs.” Of course, their profits that must be as high as possible are still lagging behind, but that it is the pre-condition so that they can do what the honorary title awarded to them says: “give employment.” Because this belief is so firm in people’s heads, the entrepreneurs can state uninhibitedly and without being contradicted: “profits today are the jobs of tomorrow.” And the whole world only too gladly wants to believe that the profit winnings of a company have to be good for the staff too – in the form of “job security.” Therefore, one doesn't want to know anything about the fact that profit is the only goal that matters for a company, and this solely benefits the owners and investors. Instead, one hopes that it is – somehow, in the long term, in the end – also a means for those who work for the company, and has to be. If then a company earns profits and lays people off, one finds this – alleged, but only too warranted – requirement cheated: one finds it unfair and is outraged.

This outrage isn't much good. Because it shows one has already swallowed that one's private advancement is no more than a dependent variable of the profit that enriches others. Here one comes up with an imaginary entitlement; that a job exists actually to allow one to work for wages. Both – jobs and wages – are given only according to the yardstick of the so-called employers. Anyone who relies on this dependency, even if he complains, absolutely supports the fact that a business should make profit. He accepts that a company that incurs losses must “save costs, thus also labor costs” and its staff must be decimated accordingly. It is no less clear to him that, in order to get the company back into “black numbers” and to “keep up in the global competition,” he must be rationalized. Only he does not want to then draw the conclusion from everything that he has accepted: that profit is the end purpose of the company and it depends on the employee only as a means for this purpose; his services are only in demand if they are profitable for the company. And the company ensures this in practice – by constantly lowering the costs of the work, with and without layoffs.

Politicians and the media agree with the widespread indignation: “Again a company that makes billions in profits at the same time announces layoffs to a huge extent,” complains a newspaper. Chancellor Merkel holds Allianz’s decision to be “unfortunate” but she cannot “correct” it.

For years, the governing location managers and commentators affirmed and spread the swindle – basic to the system – that “growth creates jobs.” Under their leadership, this was the promise that allowed people to imagine that the business success of capital also benefits them. So when this grand delusion becomes a little freaky, they insist on taking by the hand the people so cared for. A little correction is given: “Yes, it's hard to understand when high earning companies don't provide what they owe to the community, i.e. create jobs.” This then is by no means the last word, but the prelude to adjusting the “understandable” complaints. An unbeatably good reason for these “outrageous” layoffs occurs to the responsible people – what else? Of course, the best of all reasons: “tax receipts and job creation”! Responsible companies have to think on a long-term basis about that which would be completely overlooked by the simple workerbees and the insignificant office workers, with their worm eye views. Precisely because of the high mission these enterprises are pursuing, they may not be blinded by “record profits”; on the contrary, they must pay attention to secure their “profit situation” also “for the future.” That means: today they must lay people off in order to “protect the remaining jobs” and to be able to again “create” more tomorrow. Politicians and business journalists clear this up: what a “farsighted enterprise” it is that lays off its redundant workers exactly “when the company is healthy, so that it is not yet in a deep crisis and has to carry out emergency measures”! Layoffs are thus announced when a company is “healthy.” Only so that it can avoid eventually going into a “deep crisis” for lack of profit and – then what must it do? Layoff people in a crisis. There in the same breath it is maintained that layoffs secure profits and increase them and that these profits protect jobs, even if they do not increase. This is quite an insult to reason! But, unfortunately, it evidently works.

Politicians who maintain such things are not laughed at, but are elected; and economic journalists write such stuff every day in newspapers that are bought and read. This is because it is not a matter of “correct” or “wrong” arguments anyway. Rather, they reconfirm to the public again and again what it has already long swallowed: nothing can happen without profit. They connect the basic truth that, in this society, everything depends on profit with the basic lie that profits are needed so that jobs can be made available. And if the behavior of the companies strains this basic lie too much, the public is instructed that they are left with no alternative other than to trust the wisdom of the entrepreneurs, who are the only ones who know how to protect “jobs” – even when they reduce them. The people may experience layoffs at any time and, along with their politicians, regard this as “unfortunate.” However, they should see this as simply inevitable: in the crisis and in the upswing as well. Reason enough, really, to give up the belief that “profit creates jobs” – or that at least it should – and instead draw the correct conclusion from the continuous practical proof of the entrepreneurs that layoffs (rationalization) create profits.