If you live in Washington - a city that thrives on political theatrics - you have to develop a high tolerance for showmanship and hypocrisy. It's reporter's job to see through the pervasive posturing and to separate realities from appearances. It isn't always easy.
A good case in point is the recent controversy over the reported rise in corporate profits. If you harbor the least hostility towards business, the profit figures confirmed your worst suspicions that today's inflation results primarily from a giant corporate rip-off of the average American.
Even if you aren't so inclined, there are plenty of people ready to give you a good hard jolt to make you reconsider. The figures seemed to speak for themselves. In the fourth quarter of 1978, before-tax corporate profits rose 27 percent (at an annual rate) over the fourth quarter of 1977, which is higher than anyone's rate of inflation. Not only were union leaders aghast, but even White House officials were murmuring that profits were getting out of line.
Are they? You can stare at these numbers until you develop a good headache, and - after studying all the adjustments for inflation, taxes, depreciation and investment tax credits - you may still remain bewildered. On reflection, though, the confusion doesn't stem from the murkiness of the statistics. It relates more to our preconceptions about business' role in society.
Most of us are conditioned to believe - both emotionally and intellectually - that business and labor are inevitably and permanently at odds with each other. Business believes it; labor believes it. Marx said it, and it seems to conform with everyday experience.
What we don't get in wages, the boss gets in profits. The same holds true for better working conditions and fringe benefits. And it can only be the exceptional person who, feeling oppressed at work, does not finger his employer as the source of trouble.
But any time an idea is so widely and instantly accepted as the conflict between labor and business, it's worth re-examining. And the slightest meditation makes it apparent that our everyday perceptions and realities, which are true as far as they go, really represent a monstrous distortion of the more basic truth that business' and labor's fortunes rise and fall together.
The whole history of the 20th Century testifies to this coincidence of interests. If the Depression taught us anything, it is that business cannot flourish if its work force has no purchasing power. Poor workers do not make rich capitalists.
Individual industries tell the same story. More often than not, industries with high profits pay high wages: automobiles, computers and oil. Industries with low wages - apparel and shoes - usually have low profits. To be sure, exceptions exist, and wages don't simply reflect relative profitabil- ity, but also skill and scarcity. But, in general, high profits do not spring from sweatshop wages.
Societies that forget this basic lesson - or cannot accept it in the first place - endanger their own prosperity. To test that proposition, all you need do is look around the world. Japan and Germany, two countries where business enterprise enjoys a relatively high level of social and political legitimacy, have prospered. Countries such as Britain, where industrial relations have grown increasingly strained, have suffered relative eclipse.
All of which brings us back to those profit figures. You will never hear a labor leader worth his salt praise high profits, but there is a large element of hypocrisy to their ritualitistic condemnations. Labor leaders want highly profitable employers capable of paying yet higher wages and benefits.
Not surprisingly, therefore, unions can plead for measures to improve the profitability of depressed industries or defend practices that create artificially high levels of profitability. Thus, no industry last year enjoyed a larger increase in profit than steel, but its success stemmed significantly from import restrictions supported actively by the steelworkers. Likewise, the Teamsters aggressively support trucking regulation, which raises trucking company profits.
The AFL-CIO outburst against the latest profit report needs to be put in the context of the administration's wage-price program. In general, wage increases for major unions (such as the Teamsters, the steelworkers and the autoworkers) have outstripped both average wage increases and the inflation rate in the 1970s.Any effort - such as the administration's program - to hold all workers to the same wage standard hurts these unions, and they are eager to find any out they can.
As for the administration, it's caught in a classic contradiction. To win labor cooperation, administration officials have to seem evenhanded. But its economists also know that increased investment and innovation, stimulated by higher profits, provide the ultimate foundation for rising living standards.
Thus, only weeks before its groans about high profits, the same administration was bewailing the sharp slump in annual productivity growth which, by its analysis, has slowed to 1.5 percent from about 3 percent in the 1960s. The rub is that there's an unavoidable and imprecise lag between increased profits, higher investment and improved living standards - and the White House needs laborhs help today, not tomorrow.
If you've digested all this, you may be able to put the latest profit figures in perspective. You do not have to submerge yourself in the ferocious economic debate over whether "real" profits (after adjustment for inflation and taxes) have increased to understand that higher reported profits are not a major source of inflation.
Quarter - to - quarter changes (cited earlier) can be misleading, and annual comparisons are more realistic. In 1978, the after-tax profits of U.S. non-financial corporations represented slightly less than 8 percent of their sales, just about the same percentage as 1976. The reported increase in absolute dollar profits of slightly more than 25 percent during that period primarily reflected higher price levels and higher sales volumes.
To be sure, businesses have aggressively maintained profit margins - which help sustain inflation - though they have been able to do so only because the government has kept the economy at peak demand. Most company price increases, however, reflect the pass-through of higher costs, including labor costs (about two-thirds of the total). Any attempt to squeeze profits may make good public relations, but will have only the slightest effect on inflation. In the end, it's self-defeating. We will find that striving for higher living standards is like chasing our own shadow.