[Square] Profit-Sharing System Is a Term That Threatens the Market Economy

To what extent should companies fulfill their social responsibilities? The ruling party leader suggested, "Let's discuss various ways in our society for those sectors or groups that have gained significant profits from COVID-19 to share their earnings and help others." Although the stated purpose is to prevent COVID-19 polarization and achieve socioeconomic integration, this is a different matter from simply helping the underprivileged. Proposing to share corporate profits is a dangerous idea that undermines the foundation of the capitalist market economy. Just as individuals' property rights are protected, the profits pursued by companies must also be safeguarded.

The reason companies are important and need to thrive in the economy is that they create added value. What is added value? It is created in six forms?labor costs, rent, depreciation, taxes and public charges, financial costs, and operating profit?and flows throughout society. Does this mean that maximizing profits is wrong? It is not entirely wrong, but not entirely right either. The problem is that the concept of profit alone cannot adequately explain that when a company is well-managed, the resulting added value increases for stakeholders and national finances.

In a market economy, polarization among companies always exists. Considering the life-or-death competition, polarization is actually a mild term. Since Forbes first selected the top 100 U.S. companies in 1917, only seven companies remained after 100 years, and including those that survived, only 13 companies in total. The short lifespan of companies is due to environmental changes. Even companies that are currently doing well and making good money find it difficult to predict the future. In the era of the Fourth Industrial Revolution, rapidly changing environments have made corporate survival much more challenging than before.

COVID-19 is an environmental challenge. While many businesses face threats to their survival in this new management environment, some enjoy a COVID-19 boom. This is the uncertainty of business. Entrepreneurs' fate is to prepare for and endure futures that are difficult or impossible to predict. Risks that cannot be avoided no matter what, like the COVID-19 pandemic, are called systematic risks in management. This is why companies diversify their businesses beyond their main industries and build portfolios in investments.

What should profitable companies do to resolve the social polarization that inevitably arises from competition? There are two opposing views here. Companies cause social problems in proportion to the profits they earn. Therefore, proponents argue that capable companies should improve their image through social contributions and play a greater role as corporate citizens in solving issues such as resources and the environment. This is the socioeconomic perspective. On the other hand, companies already fulfill social responsibilities by creating economic added value in pursuit of profits and distributing it to internal and external stakeholders. Therefore, imposing additional responsibilities could either expand corporate influence or restrict corporate activities, according to the opposing argument. This is the purely economic perspective. Professor Carroll, who established the concept of social responsibility, explained it using the social pyramid model divided into economic, legal, ethical, and philanthropic responsibilities. The UN, through the 2000 Global Compact agreement, defined four areas of social responsibility: environment, labor, human rights, and anti-corruption.

There is no basis for wealthy companies to share profits with poor companies. The profit-sharing system is a term that does not exist in a liberal market economy. Profit sharing is a term favored by socialists who want the state to take responsibility for citizens' lives. If this is developed further so that the state takes over companies and directly distributes profits, it becomes communism.

Hee-Young Heo, Professor, Department of Business Administration, Korea Aerospace University