The Best Profit-Sharing Plan Is Competition

by Don Boudreaux on July 25, 2015

in Competition

Here’s a letter to the Washington Post:

Robert Samuelson offers sound objections to Hillary Clinton’s plan to fiddle with the tax code to prompt employers to share more profits with employees (“The trouble with Hillary Clinton’s profit-sharing plan,” July 23).  Allow me to offer yet another objection: her plan is too narrow.  It aims to encourage more sharing of profits only with workers of profitable firms.  A better plan is one that both encourages the creation of more profits and the sharing of these profits as widely as possible, not only with workers of profitable firms, but also with workers of unprofitable firms and with people who don’t work at all – that is, with everyone.

Such a better plan would slash taxes, reduce regulations and other government-erected entry barriers, and make trade free, all to encourage more innovation, more-ready entry into thriving industries, and more intense competition.

More innovation, by generating larger streams of novel and highly prized outputs, would produce more unusually high gains for successful firms – gains available to be disbursed not only in the form of profits shared with workers but also in the form of new products shared with consumers.  More-ready entry into thriving industries would more quickly drive down the prices consumers pay and further expand their access to new goods and services.  And free global trade in both goods and investments – by imposing ceaseless competitive discipline on American firms and by guaranteeing American consumers’ access to the fruits of the most creative and efficient producers on the globe regardless of location – would ensure that any unusually high profits that American firms earn today will soon be shared with consumers through falling prices and with workers through higher wages that are bid up to fully reflect increased worker productivity.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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