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06 May, 2007

IBM - Just Maximising Its Profits

In Australia, the top rate of corporation tax is 30% but the top rate of personal tax is 48%. Corporations have a number of ways of considerably reducing this tax burden, many of which can be used fraudulently. Individuals have almost no means of reducing their tax burden. In fact, the government insultingly insists on taxes being extracted directly from people's wages by their employers before they even receive them. People can't be trusted not to cheat on their taxes, whereas corporations can, is the message, I suppose. Any way you look at this, corporations are taxed more lightly and more trustingly than individuals. It's almost as if governments prefer corporations to people.

Of course, without the corporations, there would be fewer jobs – or so the reasoning goes. The corporations invest their profits to grow bigger, making more jobs and creating wealth for the whole society. And if some of that wealth sticks to the fingers of the executives and the politicians in the process, isn't that a small price to pay for the general good it does? Well, I won't argue. It's hard to know where to begin when there is so much corruption and deceit inherent in the whole system. Suffice it to say that the end can never justify the means, and, let's face it, the end keeps on receding at a faster and faster pace as world poverty and the gap between rich and poor continue to increase.

Instead, I want to point out some recent news items about IBM. This is a company I once worked for and which I know fairly well, so I tend to notice when it is in the news. A few days ago, IBM announced that it was laying off 1,300 people in the USA. But IBM is a company of almost 256,000 people so no-one worried too much that half a percent were axed. About the same time, IBM announced that it was freezing its direct benefits pension scheme. This is quite a trend in the corporate world these days. An increasingly uncertain future has made companies nervous about building up liabilities to pay future pensions. Instead, IBM is going to make bigger contributions to state superannuation schemes and is pleased to say this will save it US$2 – US$3 billion. (Of course, the money IBM saves is actually money its employees will no longer have – so IBM employees might just as easily announce a US$2 – US$3 billion loss.)

Then I read an interesting piece speculating that these two moves are just the beginning of a very large 'lean transformation' programme that IBM is pursuing. The allegation is that the company is beefing up its Indian and Chinese operations so that it can sack up to 150,000 American workers and move their jobs to where the wages are much, much lower. Knowing the company, this is exactly the kind of bold, shareholder-focused action it might seriously be contemplating. The 'lean' method originated with Toyota and, I suppose, some overpaid air-head consultants in IBM's employ have persuaded them that this can be applied to the software business. Knowing the software business – which is extremely labour-intensive and much more of a craft than an engineering discipline – I'm pretty sure these idiots don't have a clue what they're doing. But I'm sure their PowerPoint slides look great.

But all that aside, what makes IBM's management feel that it is OK to lay off 1,300 people – let alone the 150,000 they may be preparing to shaft? The answer is that they know this is what they must do to keep profits high. If profits are high, the share price stays high, investors will continue to buy into the company, and IBM can keep on growing and making more profits. But why is this valued above people's lives and livelihoods? I have seen IBM in Australia shedding hundreds of jobs at a time just to keep its profitability up. I have known lots of people who have suffered because of this. If the rumour is even half-true, the scale of the devastation to people's lives in the US will be horrendous. It will have a knock on effect on employment and salaries throughout the software industry and beyond. And all so that people can keep making large profits? Why is their greed more highly-valued than people's lives?

Which brings me back to my point. Governments clearly like corporations to be profitable and have created a very benign climate for them to operate in so that their profits can be maximised. Yet they do this in the belief that healthy corporations invest in growth and jobs and everybody benefits. But what if a company's 'lean transformation' plan is to move half its jobs overseas? How does the government benefit then? The company grows, alright, but it isn't investing in the society that nurtured it anymore. It's investing elsewhere. And all those people it employed in the good times with the help of generous and supportive governments are now being dumped onto the streets by the tens of thousands – no longer the company's concern, no longer their shareholders' problem. Hell, they don't even have to worry about future pension obligations anymore!

So whose problem is it?

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