Tuesday, September 21, 2010

Accelerating Globalization of Profits

The above chart is pretty eye-opening isn't it?

It shows corporate profits (from the BEA's tables 6.16B-6.16D) as a fraction of GDP (also from the BEA).  The data are quarterly and go from 1960 to 2010 Q2.  The blue line is all domestic profit of US corporations (both financial and non-financial).  The red line is overseas profits of US corporations, while the green line is profits made by foreign corporations in their US operations and repatriated overseas.

You can see that whereas back in the '60s, foreign profits were a very minor contribution to earnings, we have now reached the point were in a good quarter, US corporations make half as much overseas as they do at home, while in a bad quarter they are almost making more money overseas.  This is the effect of a number of decades of globalization and outsourcing.  The acceleration since the 2001 recession is particularly striking.

This of course is the flip side of stagnant or declining wages in the U.S, and increasing consumer debt to make up the difference.  It also speaks to the increasing divergence between the interests of the wealthy stockholding class, and the ordinary U.S. worker.

This graph is giving me that Stein's law feeling...

1 comment:

Greg said...

OK, I'll bite. :-)

There are two trends here: the growth of profits made overseas by US-based corporations, and the growth of repatriated profits.

Taking the first trend, how do you think it will stop? With the relocation of large corporations to the place where they make most of their profits -- if there is a single most important place? (If I were GM or Ford, I'd be looking hard at relocating [nearer] to where the action is.)

In what other ways could this trend be halted?

Taking the second trend, and particularly the right-hand end of it, it's notable that repatriation has been flat for a few years. Is this because foreign corporations prefer to retain their profits in the US for reinvestment?

I can't visually subtract the red line from the blue one very accurately, so I can't tell if the green line is similarly shaped to the equivalent trend for purely domestic firms. If it's flatter, then the trend suggests retention -- assuming no difference in profitability due to ownership.