The optimal distribution of added value exists and it is 2/3 wages against 1/3 profits according to economists Jean-Hervé Lorenzi and Alain Villemeur.
The distribution of income is a major problem in economics, David Ricardo considered as early as 1817. In fact, Ricardo was also greatly influenced by Adam Smith who, as early as 1776, noted that the Dutch had better wages than the English, that the profits of their companies were lower, but that the Dutch economy was more dynamic than the English economy. Already, English profits were not trickling down to the economy!
David Ricardo is the driving force behind our work to determine the optimal allocation between labour and capital income for economic growth that is satisfactory in many respects. This is, of course, the basis for any reflection on the distribution of desirable value.
Robust and job-rich growth
The optimal distribution of value added is 2/3 for wages and therefore 1/3 for profits, as it promotes job-rich and robust growth. We are a long way from this in our advanced economies, because the distribution has changed profoundly in favour of profit over the past several decades while economic growth has continued to decline, which can only lead to significant questioning.
The demonstration, which is based on a neo-Ricardian model, is based on a new vision of growth and distribution reconciling the structuring ideas of Schumpeter (creative destruction), Keynes (the role of effective demand), through three equations, but also Ricardo (income sharing), through three other equations. The result is confirmed by an analysis of the macroeconomic trajectories of the 17 advanced economies studied since the post-war boom.
Rising Profits
It is therefore understandable that the United States was a remarkable machine for creating jobs from 1875 until the 1990s, while experiencing a share of profits of about 1/3, relatively stable despite the many crises and industrial revolutions that have followed one another! In the 2000s, the United States broke with this 175-year-old rule and economic growth slowed down sharply.
Japan has been experiencing economic stagnation since the stock market crash of 1991, while massive stimulus has led to considerable debt, accompanied by excessive profits of around 39%, the wage bill having never been so low in more than 60 years!
For Europe and the eurozone, we are very far from the optimal distribution since the 2008 crisis, with profits having the lion’s share at around 37-38%.
French trompe l’oeil
France follows this general evolution with a share of profit rising from 27% during the Thirty Glorious Years to 36% before the financial crisis of 2008, but unlike the other countries, this share then declines to return to a seemingly ideal distribution of 33%. In reality, behind this average, there are large disparities between large and small companies, especially those in the CAC 40 where the share of profit reaches the very high value of 44%. This is a far cry from the ideal distribution!
This new paradigm of distribution leads to a major law, that of an optimal share of wages of 2/3. It must be implemented to overcome climate change, an ageing population and the unstoppable rise in inequality.
Of course, all this is not easy to implement, but it is by moving closer to this “golden rule” that we will be able to face the multiple transitions that the world must face.