Readers Report
How to Raise Profits without All That Pain
I mistrust economists who call for higher levels of unemployment in the absence of inflation ("The painful truth about profits," Cover Story, Nov. 4). The answer to excess capacity is consumption, not "creative destruction." Creating unemployment will only slow consumption and is the worst possible solution to the profits problem. It's so "Hoover."
Andy Johnson
Mt. Pleasant, S.C.
At a time when we're trying to boost our national spirit and fight terrorism, are employee cutbacks really the way to go? Will they truly boost the stock market? Maybe it's time for corporate leaders to fight to keep our collective mood from disintegrating. How about telling employees, "Hell, no--you won't go!"
Ed LaFreniere
Clinton, Conn.
I agree with recommendations for higher interest rates, if only because this "poison pill" may just move some CEOs off the dime, toward investing before rates "become worse." The Federal Reserve would not surrender its ability to later buy Treasuries, pushing up their prices. A little money inflation may not offset all asset deflation, but it might prevent worse, particularly if the relative cost of labor could be reduced less painfully. It's worth a try.
Gregory A. Iwan
Littleton, Colo.
If you probe deeper into operations, as some midsize corporations have learned to do, there is a better way for targeting profitability. Asset utilization, not revenue per employee, is the metric that drives profitability in technology and intellectual-property services businesses. When applied to all types of assets--tangible and intangible as well as financial--corporations directly leverage their total asset base in terms of revenue potential while lowering their costs based on core asset utilization.
This is how corporate profits can be increased on a sustainable basis, jump- starting the U.S. and world economies.
John G. Carlson, CEO
System Change Inc.
Andover, Mass.
The challenges of recession and terrorism have a common theme. In both cases, international coalitions are mandatory, because America is no longer a self-sustaining island of independent action. Either we "bite the bullet" and accept the need for global business consolidation, or we endure a protracted economic slowdown, until natural economic attrition does the job for us.
Neale C. Dobkin
Russell, Mass.
A substantial portion of productivity gains go to customers, not to the bottom line ("Profits: No pain, no gain," Editorials, Nov. 4). Productivity improvements are merely the price of entry into competitive arenas. Longer-term improvements in profitability come from creating value for your customers while keeping a clear eye on your ability to earn more than your cost of capital. Unlike productivity improvements, innovation and outsmarting the competition are not as quickly matched in the marketplace.
Sam Felton
Southwest Harbor, Me.
Speaking Up for Peregrine's Roudebush
It has been a challenging year being a business partner of Peregrine Systems Inc., but David Roudebush has not been part of that challenge ("Did Peregrine bully its partners?" Information Technology, Nov. 4). I have worked with Dave for the past 18 months, and he has been completely honest, courageous, fair, and consistent with us through that time, whether or not it was to the benefit of Peregrine.
I cannot speak to the incident in your article, but it is not consistent with the character of the Dave Roudebush I know.
Don Casson
Reston, Va.
An "Obscene" Paycheck for This HMO Boss
As a retired pharmacist, I feel the $58 million paid to Bill McGuire, the CEO of UnitedHealth Group Inc., a company that is supposed to reduce health-care costs, is obscene ("He collects butterflies--and companies," Management, Nov. 4). How can an HMO that restricts its drug formulary to only the brand-name drugs that give rebates reward a CEO who deprives patients of the best treatment?
Bob Cain
Brea, Calif.
Give Public Schools a Break
The entire private-sector school movement is based on the assumption that public education is a profligate waster of money ("Edison: An `F' in finance," News: Analysis & Commentary, Nov. 4). In reality, public education is one of the best bargains on the planet.
I am a strong believer in the free market. However, private business will never be more efficient than a public school. School systems must often continue to use buildings, equipment, and books long past the end of their useful lives, and teacher supply budgets are laughable. It's time we quit beating up public schools for their "inefficiency" and "failure," and start acknowledging their success.
Jeff Wig
Brainerd, Minn.
Losses in a Winning Stadium
The Cincinnati Bengals' Paul Brown Stadium--a winning workplace? If only that were true ("Winning workplaces," BusinessWeek/Architectural Record Awards, Nov. 4).
Peter Staats
Loveland, Ohio
Editor's note: Through Nov. 10, the Bengals have won 1, lost 8.
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