Corporate profits

Corporate profits are the real culprit – IAMAW

By Ivana Saula
Canadian Research Director

In recent months, inflation has become widespread, driving up prices, the cost of living and a reduction in the real wages of workers. The mainstream media blamed high inflation on government spending during the pandemic and rising wages as culprits. Yet wages have risen only marginally (3.3%), relative to the consumer price index (8.1% June 2022), meaning workers are seeing lower wages, not an increase, and as such, the increase in wages cannot drive inflation. We are told that the only solution now is to contract the economy and cool it down.

But the unreported story reveals a different root cause.

Let’s first talk about the increasing monopolization of companies and the lesser competition between them. Under these conditions, companies have more power in the market and as such have taken advantage of disruptions in supply chains to raise the prices of virtually everything. We are told that supply chain issues have increased the cost of the products and goods we buy, and that these costs are passed on to consumers. At the same time, consumers don’t really have a choice in buying certain products and commodities, just think of airlines in Canada, gasoline, telecommunications, to name a few. As a result, the higher prices we all pay cause companies to post record profits.

Canadian after-tax corporate profit as a share of Canadian GDP stands at 18.8%, and in the United States, corporate profits were the highest in 70 years. The billionaires have won a another $1.7 trillion during the pandemic, and the CEO’s salary is now 350 times the average worker’s salary. As companies made record profits, they used that money to buy their own company’s stock, further increasing their market value. So what is actually driving inflation is price and earnings inflation, i.e. corporations raking in record profits and overstimulating certain sectors of the economy, rather than inflation driven by wage increases.

Some sectors have contributed to inflation more than others, notably the energy sector, and as you may have guessed, oil is leading the pack. Despite what is reported in the media, world oil reserves have actually increased, not decreased. But, in industries where there is a high level of monopolization, or where a few companies act like cartels, product pricing is not set by the laws of supply and demand, but rather by fears and the uncertainty of scarcity. High oil prices slow growth in oil-importing countries, while the US dollar appreciates during times of geopolitical instability, which further impacts oil-importing countries as they pay for oil and their debts in USD.

The other part of the story that you probably haven’t heard is that inflation benefits indebted countries; inflation reduces the real value of the debt. Inflation also reduces the real interest rate paid on debt service for governments and businesses.

On the other hand, high inflation slows economic growth, which hurts workers in the long run, as they risk losing their jobs and livelihoods. Worse still, the economic downturn could trigger a recession, and we have seen how disastrous this scenario is for workers and communities.

So what is the solution ?

Progressive economists offer many sound solutions, most of which are being ignored as governments pursue the neoliberal agenda, and a quick fix but with many casualties, mostly workers.

Canadian economist Jim Stanford, along with other progressive economists, offers several long-term solutions that get to the root of the problem. Soaring profits in the energy sector, especially oil, must be curbed by price controls and public provision of services in sectors known to cause high inflation. Rather than reversing growth in all sectors of the economy, the government should focus on those that pose the real problem. Another measure that would help fight inflation is to raise taxes on high-income households and corporations.

Certain sectors are highly concentrated in the hands of a few companies which are then able to coordinate prices, which are often not subject to supply and demand. These actions indicate the type of market power of companies, while on the other hand, the power of workers (who are consumers of goods and services) is weakened.

More importantly, and probably the only way to raise workers’ wages, is through stronger unions, not only in terms of organizing efforts, but also by speaking out against an agenda that aims to make workers pay for the inflation crisis and leave the real culprits off the hook.

Stay informed, ask questions and get involved. As those most lost in the “fight against inflation”, it is essential that working people understand and influence policy-making by supporting parties that understand what the fight against inflation really is. inflation. We are on an irreversible trajectory of policies that will make us pay for inflation.

For more information on the untold story of inflation, you can visit these links;

https://centreforfuturework.ca/wp-content/uploads/2022/06/Jacobin-Reprint-Inflation-Why-and-How.pdf

https://robertreich.org/post/685804888044765184