#corporate power
The biggest culprit for rising prices that’s not being talked about is the increasing economic concentration of the American economy in the hands of a relative few giant big corporations with the power to raise prices.
If markets were competitive, companies would seek to keep their prices down in order to maintain customer loyalty and demand. When the prices of their supplies rose, they’d cut their profits before they raised prices to their customers, for fear that otherwise a competitor would grab those customers away.
But strange enough, this isn’t happening. In fact, even in the face of supply constraints, corporations are raking in record profits. More than 80 percent of big (S&P 500) companies that have reported results this season have topped analysts’ earnings forecasts, according to Refinitiv.
Obviously, supply constraints have not eroded these profits. Corporations are simply passing the added costs on to their customers. Many are raising their prices even further, and pocketing even more.
How can this be? For a simple and obvious reason: Most don’t have to worry about competitors grabbing their customers away. They have so much market power they can relax and continue to rake in big money.
The underlying structural problem isn’t that government is over-stimulating the economy. It’s that big corporations are under competitive.
Corporations are using the excuse of inflation to raise prices and make fatter profits. The result is a transfer of wealth from consumers to corporate executives and major investors.
This has nothing to do with inflation, folks. It has everything to do with the concentration of market power in a relatively few hands.
It’s called “oligopoly,” where two or three companies roughly coordinate their prices and output.
Judd Legum provides some good examples in his newsletter. He points to two firms that are giants in household staples: Procter & Gamble and Kimberly Clark. In April, Procter & Gamble announced it would start charging more for everything from diapers to toilet paper, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.”
Baloney. P&G is raking in huge profits. In the quarter ending September 30, after some of its price increases went into effect, it reported a whopping 24.7% profit margin. Oh, and it spent $3 billion in the quarter buying its own stock.
How can this be? Because P&G faces very little competition. According to a report released this month from the Roosevelt Institute, “The lion’s share of the market for diapers,” for example, “is controlled by just two companies (P&G and Kimberly-Clark), limiting competition for cheaper options.”
So it wasn’t exactly a coincidence that Kimberly-Clark announced similar price increases at the same time as P&G. Both corporations are doing wonderfully well. But American consumers are paying more.
Or consider another major consumer product oligopoly: PepsiCo (the parent company of Frito-Lay, Gatorade, Quaker, Tropicana, and other brands), and Coca Cola. In April, PepsiCo announced it was increasing prices, blaming “higher costs for some ingredients, freight and labor."
Rubbish. The company recorded $3 billion in operating profits and increased its projections for the rest of the year, and expects to send $5.8 billion in dividends to shareholders in 2021.
If PepsiCo faced tough competition it could never have gotten away with this. But it doesn’t. In fact, it appears to have colluded with its chief competitor, Coca-Cola – which, oddly, announced price increases at about the same time as PepsiCo, and has increased its profit margins to 28.9%.
And on it goes around the entire consumer sector of the American economy.
You can see a similar pattern in energy prices. Once it became clear that demand was growing, energy producers could have quickly ramped up production to create more supply. But they didn’t.
Why not? Industry experts say oil and gas companies (and their CEOs and major investors) saw bigger money in letting prices run higher before producing more supply.
They can get away with this because big oil and gas producers don’t face much competition. They’re powerful oligopolies.
Again, inflation isn’t driving most of these price increases. Corporate power is driving them.
Since the 1980s, when the federal government all but abandoned antitrust enforcement, two-thirds of all American industries have become more concentrated.
Monsanto now sets the prices for most of the nation’s seed corn.
The government green-lighted Wall Street’s consolidation into five giant banks, of which JPMorgan is the largest.
It okayed airline mergers, bringing the total number of American carriers down from twelve in 1980 to four today, which now control 80 percent of domestic seating capacity.
It let Boeing and McDonnell Douglas merge, leaving America with just one major producer of civilian aircraft, Boeing.
Three giant cable companies dominate broadband [Comcast, AT&T, Verizon].
A handful of drug companies control the pharmaceutical industry [Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb, Merck].
So what’s the appropriate response to the latest round of inflation? The Federal Reserve has signaled it won’t raise interest rates for the time being, believing that the inflation is being driven by temporary supply bottlenecks.
Meanwhile, Biden Administration officials have been consulting with the oil industry in an effort to stem rising gas prices, trying to make it simpler to issue commercial driver’s licenses (to help reduce the shortage of truck drivers), and seeking to unclog over-crowded container ports.
But none of this responds to the deeper structural issue – of which price inflation is symptom: the increasing consolidation of the economy in a relative handful of big corporations with enough power to raise prices and increase profits.
This structural problem is amenable to only one thing: the aggressive use of antitrust law.
On Friday, Amazon – America’s wealthiest, most powerful, and fiercest anti-union corporation, with the second-largest workforce in the nation (union-busting Walmart being the largest), lost out to a group of warehouse workers in New York who voted to form a union.
If anyone had any doubts about Amazon’s determination to prevent this from ever happening, its scorched-earth anti-union campaign last fall in its Bessemer, Alabama warehouse should have put those doubts to rest.
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In New York, Amazon used every tool it had used in Alabama. Many of them are illegal under the National Labor Relations Act but Amazon couldn’t care less. It’s rich enough to pay any fine or bear any public relations hit.
The company has repeatedly fired workers who speak out about unsafe working conditions or who even suggest that workers need a voice.
As its corporate coffers bulge with profits — and its founder and executive chairman practices conspicuous consumption on the scale not seen since the robber barons of the late 19th century — Amazon has become the poster child for 21st-century corporate capitalism run amok.
Much of the credit for Friday’s victory over Amazon goes to Christian Smalls, whom Amazon fired in the spring of 2020 for speaking out about the firm’s failure to protect its warehouse workers from COVID. Smalls refused to back down. He went back and organized a union, with extraordinary skill and tenacity.
Smalls had something else working in his favor, which brings me to Friday’s superb jobs report from the Bureau of Labor Statistics. The report showed that the economy continues to roar back to life from the COVID recession.
With consumer demand soaring, employers are desperate to hire. This has given American workers more bargaining clout than they’ve had in decades. Wages have climbed 5.6 percent over the past year.
The acute demand for workers has bolstered the courage of workers to demand better pay and working conditions from even the most virulently anti-union corporations in America, such as Amazon and Starbucks.
Is this something to worry about? Not at all. American workers haven’t had much of a raise in over four decades. Most of the economy’s gains have gone to the top.
Besides, inflation is running so high that even the 5.6 percent wage gain over the past year is minimal in terms of real purchasing power.
But corporate America believes these wage gains are contributing to inflation. As the New York Times solemnlyreported, the wage gains “could heat up price increases.“
This is pure rubbish. But unfortunately, the chair of the Federal Reserve Board, Jerome Powell, believes it. He worries that “the labor market is extremely tight,” and to “an unhealthy level.”
As a result, the Fed is on the way to raising interest rates repeatedly in order to slow the economy and reduce the bargaining leverage of American workers.
Pause here to consider this: The Commerce Department reported Wednesday that corporate profits are at a 70-year high. You read that right. Not since 1952 have corporations done as well as they are now doing.
Across the board, American corporations are flush with cash. Although they are paying higher costs (including higher wages), they’ve still managed to increase their profits. How? They have enough pricing power to pass on those higher costs to consumers, and even add some more for themselves.
When American corporations are overflowing with money like this, why should anyone think that wage gains will heat up price increases, as the Times reports? In a healthy economy, corporations would not be passing on higher costs — including higher wages — to their consumers. They’d be paying the higher wages out of their profits.
But that’s not happening. Corporations are using their record profits to buy back enormous amounts of their own stock to keep their share prices high, instead.
The labor market isn’t “unhealthily” tight, as Jerome Powell asserts; corporations are unhealthily fat. Workers don’t have too much power; corporations do.
The extraordinary win of the workers of Amazon’s Staten Island warehouse is cause for celebration. Let’s hope it marks the beginning of a renewal of worker power in America.
Yet the reality is that corporate America doesn’t want to give up any of its record profits to its workers. If it can’t fight off unions directly, it will do so indirectly by blaming inflation on wage increases, and then cheer on the Fed as it slows the economy just enough to eliminate American workers’ new bargaining clout.
The Hidden Link Between Corporate Greed and Inflation
Inflation! Inflation! Everyone’s talking about it, but ignoring one of its biggest causes: corporate concentration.
Now, prices are undeniably rising. In response, the Fed is about to slow the economy — even though we’re still 2 million jobs short of where we were before the pandemic, and millions of American workers won’t get the raises they deserve.
Meanwhile, Republicans haven’t wasted any time hammering Biden and Democratic lawmakers about inflation.
Don’t fall for their fear mongering.
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Everybody’s ignoring the deeper structural reason for price increases: the concentration of the American economy into the hands of a few corporate giants with the power to raise prices.
If the market were actually competitive, corporations would keep their prices as low as possible as they competed for customers.
Even if some of their costs increased, they would do everything they could to avoid passing them on to consumers in the form of higher prices, for fear of losing business to competitors.
But that’s the opposite of what we’re seeing. Corporations are raising prices even as they rake in record profits. Corporate profit margins hit record highs last year. You see, these corporations have so much market power they can raise prices with impunity.
So the underlying problem isn’t inflation per se. It’s a lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.
Take the energy sector.
Only a few entities have access to the land and pipelines that control the oil and gas powering most of the world. They took a hit during the pandemic as most people stayed home. But they are more than making up for it now, limiting supply and ratcheting up prices.
Or look at consumer goods.
In April 2021, Procter & Gamble raised prices on staples like diapers and toilet paper, citing increased costs in raw materials and transportation. But P&G has been making huge profits. After some of its price increases went into effect, it reported an almost 25% profit margin.
Looking to buy your diapers elsewhere? Good luck. The market is dominated by P&G and Kimberly-Clark, which—NOT entirely coincidentally—raised its prices at the same time.
Another example: in April 2021, PepsiCo raised prices, blaming higher costs for ingredients, freight, and labor. It then recorded $3 billion in operating profits through September. How did it get away with this without losing customers?
Pepsi has only one major competitor, Coca-Cola, which promptly raised its own prices. Coca-Cola recorded $10 billion in revenues in the third quarter of 2021, up 16% from the previous year.
Food prices are soaring, but half of that is from meat, which costs 15% more than last year. There are only four major meat processing companies in America, which are all raising their prices and enjoying record profits.
Get the picture?
The underlying problem is not inflation. It’s corporate power. Since the 1980s, when the U.S. government all but abandoned antitrust enforcement, two-thirds of all American industries have become more concentrated.
Most are now dominated by a handful of corporations that coordinate prices and production. This is true of: banks, broadband, pharmaceutical companies, airlines, meatpackers, and yes, soda.
Corporations in all these industries could easily absorb higher costs — including long overdue wage increases — without passing them on to consumers in the form of higher prices. But they aren’t.
Instead, they’re using their massive profits to line the pockets of major investors and executives — while both consumers and workers get shafted.
How can this structural problem be fixed? Fighting corporate concentration with more aggressive antitrust enforcement. And imposing a windfall profits tax on profitable corporations that are using this period of rising costs to gouge consumers.
So don’t fall for the fear mongering about inflation. The real culprit here is corporate power.
Capitalism and democracy are compatible only if democracy is in the driver’s seat.
That’s why I took some comfort just after the attack on the Capitol when many big corporations solemnly pledged they’d no longer finance the campaigns of the 147 lawmakers who voted to overturn election results.
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Well, those days are over. Turns out they were over the moment the public stopped paying attention.
A report published last week by Citizens for Responsibility and Ethics in Washington shows that over the past year, 717 companies and industry groups have donated more than $18m to 143 of those seditious lawmakers. Businesses that pledged to stop or pause their donations have given nearly $2.4m directly to their campaigns or political action committees.
But there’s a deeper issue here. The whole question of whether corporations do or don’t bankroll the seditionist caucus is a distraction from a more basic problem.
The tsunami of money now flowing from corporations into the swamp of American politics is larger than ever. And this money – bankrolling almost all politicians and financing attacks on their opponents – is undermining American democracy as much as did the 147 seditionist members of Congress. Maybe more.
The Democratic senator Kyrsten Sinema – whose vocal opposition to any change in the filibuster is on the verge of dooming voting rights – received almost $2m in campaign donations in 2021 even though she is not up for re-election until 2024. Most of it came from corporate donors outside Arizona, some of which have a history of donating largely to Republicans.
Has the money influenced Sinema? You decide. Besides sandbagging voting rights, she voted down the $15 minimum wage increase, opposed tax increases on corporations and the wealthy and stalled on drug price reform – policies supported by a majority of Democratic senators as well as a majority of Arizonans.
Over the last four decades, corporate PAC spending on congressional elections has more than quadrupled, even adjusting for inflation.
Labor unions no longer provide a counterweight. Forty years ago, union PACs contributed about as much as corporate PACs. Now, corporations are outspending labor by more than three to one.
According to a landmark study published in 2014 by the Princeton professor Martin Gilens and Northwestern professor Benjamin Page, the preferences of the typical American have no influence at all on legislation emerging from Congress.
Gilens and Page analyzed 1,799 policy issues in detail, determining the relative influence of economic elites, business groups, mass-based interest groups and average citizens. Their conclusion: “The preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.” Lawmakers mainly listen to the policy demands of big business and wealthy individuals – those with the most lobbying prowess and deepest pockets to bankroll campaigns and promote their views.
It’s probably far worse now. Gilens and Page’s data came from the period 1981 to 2002: before the supreme court opened the floodgates to big money in the Citizens United case, before Super Pacs, before “dark money” and before the Wall Street bailout.
The corporate return on this mountain of money has been significant. Over the last 40 years, corporate tax rates have plunged. Regulatory protections for consumers, workers and the environment have been defanged. Antitrust has become so ineffectual that many big corporations face little or no competition.
Corporations have fought off safety nets and public investments that are common in other advanced nations (most recently, Build Back Better). They’ve attacked labor laws, reducing the portion of private-sector workers belonging to a union from a third 40 years ago to just over 6% now.
They’ve collected hundreds of billions in federal subsidies, bailouts, loan guarantees and sole-source contracts. Corporate welfare for big pharma, big oil, big tech, big ag, the largest military contractors and biggest banks now dwarfs the amount of welfare for people.
The profits of big corporations just reached a 70-year high, even during a pandemic. The ratio of CEO pay in large companies to average workers has ballooned from 20-to-1 in the 1960s, to 320-to-1 now.
Meanwhile, most Americans are going nowhere. The typical worker’s wage is only a bit higher today than it was 40 years ago, when adjusted for inflation.
But the biggest casualty is public trust in democracy.
In 1964, just 29% of voters believed government was “run by a few big interests looking out for themselves”. By 2013, 79% of Americans believed it.
Corporate donations to seditious lawmakers are nothing compared with this 40-year record of corporate sedition.
A large portion of the American public has become so frustrated and cynical about democracy they are willing to believe blatant lies of a self-described strongman, and willing to support a political party that no longer believes in democracy.
As I said at the outset, capitalism is compatible with democracy only if democracy is in the driver’s seat. But the absence of democracy doesn’t strengthen capitalism. It fuels despotism.
Despotism is bad for capitalism. Despots don’t respect property rights. They don’t honor the rule of law. They are arbitrary and unpredictable. All of this harms the owners of capital. Despotism also invites civil strife and conflict, which destabilize a society and an economy.
My message to every CEO in America: you need democracy, but you’re actively undermining it.
It’s time for you to join the pro-democracy movement. Get solidly behind voting rights. Actively lobby for the Freedom to Vote Act and the John Lewis Voting Rights Advancement Act.
Use your lopsidedly large power in American democracy to protect American democracy – and do it soon. Otherwise, we may lose what’s left of it.
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