Technology People and Productivity - Profits, Investment, And Rewards Of Ownership

This graphic displays corporate profits after tax (dark line), and its two components — dividends and undistributed profits (circles). Dividends are paid to stockholders, the owners of the enterprise; undistributed profits may be held as cash or invested. Data are shown in current dollars (in the previous panel, the data are in 2000 dollars). A log scale is used so that early years in the series are visible. A fixed scale produces an almost flat line to about 1970 and then a steep surge into the heights — see below:

Corporate profits are an important aspect of productivity because they produce the money needed for research and development, technology, machinery, equipment, and structures. These, in combination with methods and management, increase output per hour.

Notice that, until 1981, undistributed profits are generally higher than dividend payments. After that year, they are consistently lower than dividends. The two values, added together, make up profit after tax. Undistributed profits are available to the enterprise for reinvestment. Dividends are stockholders' rewards. The pattern shown here indicates that ownership benefited proportionally more in the latter half of this century than did internal reinvestment. Stockholders, of course, could and did invest their earnings in other enterprises.

It is quite conceivable that this shift in the output of corporations ultimately produced the very substantial investments in the Internet, and related businesses in the last decade of the last century. On this graphic we may be looking at a new phase in productivity — this time in the services sector — or merely at a temporary upsurge in investment that may fade again as other times and other concerns engage the national attention.

Source: U.S. Department of Commerce. Bureau of Economic Analysis. National Income and Product Accounts.