A great op-ed from Pascal Salin, the Mises Institute’s 2008 Schlarbaum Laureate, in yesterday’s Wall Street Journal. Writes Pascal:
[I]n his more recent statements and decisions Mr. Sarkozy seems to have tilted France even closer toward socialism than one might previously have thought possible. Last month, reiterating a theme that he first broached during his election campaign, the president declared that it is unfair that shareholders and owners get to keep all of a firm’s profit, and that it would be more fair for company profits to be divided into three equal parts: one for shareholders, one for wage earners and one for reinvestment into the enterprise.
This proposal suggests that Mr. Sarkozy totally fails to understand the role and nature of profit or the workings of a capitalist firm. A firm’s employees, like its lenders and suppliers, receive a fixed price, their wages, in return for what they supply to the business—their labor. This wage is guaranteed whether the firm turns a profit or not. The owners, in exchange for taking the risk of loss, receive any residual income—that is, what is left over from the business’s revenue after the wages, suppliers and the rest have been paid. Saying that it is unfair that owners get the profit is as meaningless as it would be to say that it is unfair that wage-earners get all the wages.
Nevertheless, Mr. Sarkozy is now preparing to make his sense of fairness the law of the land. After some discussions about the precise features of this proposal, his government has now put forward a law that will force firms with more than 50 employees to pay them a bonus whenever profit increases from one year to the next. The precise amount of the bonus is to be negotiated with trade unions. And of course, unlike a business’s owners, wage earners will share in the profit but not help bear the cost of any losses.