“A second reason is that, for more than fifteen years now, on the financial markets, there is this kind of diktat which would have it that an enterprise not returning 15% yield on shares per year would be an enterprise worth little. When you have monetary liquidities circulating around the planet, why would you want them to go and invest in the real economy, here at home, in our small and medium-sized enterprises for instance, when on the financial markets they earn yields of 15% per year?? In fact, looking more closely, the yields are even much higher: there is what is called leverage, that is, what you can gain with a small capital contribution and by borrowing money. Leverage is far above 15%. You have leverage of 100, 150%: that is enormous!”
We must not be taken in by it. The yield of a placement is one thing; the financing of that placement, and the capital gain or loss at the liquidation of that same placement, are two others.
True, mixing these three things yields enormously, where it occurs. That does not in any way authorize uttering falsehoods. Which share portfolios, over the past ten years, have returned a dividend averaging 15% a year? And which, over the same period, have yielded an average dividend of 6 to 9% a year? The diktat of 15% and more has reasons that could not be more obvious. Relative to capital and per year, a gross operating surplus of 15% or more of capital and a distribution of dividends of 3 to 5% leave a margin that lets top management obtain very high remuneration from the board of directors. Moreover — the one helps the other — the dilution of relative ownership shares is easier to avoid or limit by means of self-financing through undistributed earnings. That makes two breaches of economic normality, concealed by financial engineering in the service of extending capital gain capitalism through the eradication of yield capitalism128.
The DOE, the dividend on equity as defined above, is only one of the two most important relative values in the distribution of earnings to the holders of shares of capital. The other is the share of distributed earnings relative to total earnings.
Let us call this share the DPR, dividend payout ratio: earnings distributed to the holders of shares of capital relative to total earnings.
There are many objections to the preference for capital gain capitalism at the expense of yield capitalism. Let us put forward two of them here: capital gain capitalism cannot be universal; the technostructures that play the card of capital gain at the expense of yield favor their own interests, throwing a pseudo-rational veil over an economically immature mode of enterprise management.
That does not mean that there prevails spontaneously, in this sector, the recognition that dividends are counterparts, equitable in principle, of the placement of savings in shares of capital. Likewise, it is not spontaneously that the refund, within short delays, to members who request it, of part or all of their stake, is assumed. Moreover, savings thus placed are managed ethically only if they include at least partial protection against monetary erosion through distributions of free shares to members.
Self-financing through undistributed earnings forces the hand of the contributors of capital by implicitly telling them: “If, after this distribution, nothing remains in the common pot, new shares of capital will have to be issued in order to provide for the development of the enterprise and its inevitable, more or less complete, reconversions.” As a consequence of this line of conduct, current and potential shareholders perceive the rate of return of this placement less concretely. Yet the undistributed money belongs to the shareholders, who, if they receive the whole of the share owed to them, are on the whole more disposed to put back into the pot.
As in economic reality, there are whole wages — the sum of the net pay and of all the contributions for which each wage is the base, including the contributions artificially called employer contributions — as well as whole dividends. Keeping in the background the whole wages hampers an economically logical regulation. In parallel, keeping in the background whole dividends hampers the regulation of the national stocks of capital so as to bring them to the levels required by full employment Chapter 7 – Employment.
On the other hand, it is hard to see how this raising could occur, in many countries, mainly through empiricism. The general distinctions between capital gain capitalism and yield capitalism, partial dividends and whole dividends, plenary exchanges and arbitrary exchanges129, are landmarks for action. Without them, trying to make the economy more normal is like lecturing an engine that runs badly.
In a national economy in good health, tax receipts cover the totality of public charges, debt amortization included131. Until the true budgetary result — the difference between public receipts and charges — is once again structurally in surplus, the reduction of one tax inflow generally calls for compensation by the increase of another. A budgetary policy whose aim is not the chronic surplus of receipts over charges across the whole non-market public sector infantilizes citizens, for, all things considered, in the long run, greater prosperity for everyone depends on reaching this aim131.
The proponents of “as little as possible” often favor a tax paid by enterprises on their earnings at a rate raised for distributed earnings and lowered for undistributed earnings. The proponents of “as much as possible” make the opposite choice of a rate lowered for the distributed portion, and raised for the undistributed portion. Today, among those who clearly come out in favor of one or the other of these options, the proponents of as little distributed earnings as possible are by far the more numerous, though for divergent motives.
Among the proponents of as little distributed earnings as possible, some hold this view chiefly because it seems to them socially just: in their eyes, “growing rich while sleeping” is to be thwarted rather than favored, enterprises’ earnings becoming, in their view, morally positive only if they contribute as quickly as possible to the financing of investments and of job creation. For others, the option of as much self-financing as possible through undistributed earnings imposes itself because it lies in the logic of maximization of capital gain while reducing, or avoiding, the dilution of relative co-ownership shares in non-cooperative companies132. To this is added that self-financing through undistributed earnings opens a wide window for boosting the highest remuneration of top management: “Thanks to us, the gross operating surplus after asset-amortization allowances has risen (will rise) to 15% of capital which, given dividends of 3 to 5% of the same base, releases an after-tax result of at least double, a result on which a substantial share comes back to us”… QED! — this argument is equally usable when the company is a cooperative.
All economists rightly agree in considering that wages and interest rates are prices. By contrast, still few are those who likewise see a price in a dividend rate — this rate, relative to the capital whose dividends remunerate the supply and procure in exchange its effective yield. Failing to recognize this utterly factual point avoids confronting an anomaly heavy with consequences: the price of placement in capital is today administered, forced; it is not as fluctuating as the input and output impulses of a systemic regulator must be; it makes for a so-called capitalism whose key rates are rates of interest and not of profit, which is in itself contradictory134. For boards of directors tacitly agree to keep dividends at levels, and along smoothing paths, consistent with the theorization they endorse. Now in that theorization, there is as much gain as possible the moment it comes within reach, and as a result profit is kept from its proper status as a term of a market exchange that feeds the regulations EPCE and RPP’ of the generator of economic wealth.
When the income tax schedule is the same whether the income is from labor or from placement, fiscal considerations weigh all the less on the placement decisions made by individuals and non-commercial private associations as the schedule in force comes down to a single rate (flat tax). Reducing the rate of the tax paid by enterprises on their earnings — and, all the more, coming to abolish that tax — can be offset by more tax receipts from the tax on placement income.
Earnings targets after payment of this tax are coupled to their pre-payment equivalents, the latter being higher by a third or a quarter than the targets net of tax. The margins further upstream of reaching this target (hence costs and selling prices) are calibrated so as to allow this target to be met. In the end — and all the faster the better the enterprise is managed — everything happens as if enterprises re-invoiced to their customers all the taxes to which they are subject. Since enterprises are not, properly speaking, fiscal subjects, exempting them from paying a tax on their earnings merely removes a pretense: a fiction that was fiscally convenient but has proved to run counter to the general interest, by helping to make people believe that what enterprises pay to the Treasury relieves citizens by that much — which is false — while prompting many of them to demand ever more coverage by public finances.
As the rate of the tax paid by enterprises on their distributed earnings is lowered, until it reaches zero, the rate of this same tax levied on enterprises’ undistributed earnings is raised, until it becomes wholly confiscatory by being brought to 100% for earnings remaining after tax-exempt allocations to mandatory reserves. In parallel, the rate of the income tax on distributed earnings is progressively adjusted so that it ends up the same as that on labor income. But this arrangement, especially once it reaches its term, infringes the free exercise of a property right — so it will surely be objected. One will then have to recall, if need be ad nauseam, that: