Robert Reich (The hidden link between corporate greed and…)

The Hidden Link Between Corporate Greed and Inflation

Inflation! Inflation! Everyone talks about it, but they ignore one of the main reasons: corporate concentration.

Now prices are clearly rising. In response, the Fed is going to slow down the economy – although we are still missing 2 million jobs from before the pandemic, and millions of American workers will not get the raises they deserve.

Meanwhile, Republicans have been wasting no time scolding Biden and Democratic lawmakers about inflation.

Don’t fall for their fear-mongering.

******

By the way, if you like my daily analyses, comments and drawings, subscribe to my free newsletter: robertreich.substack.com

******

Everyone ignores the deeper structural cause of price increases: the concentration of the US economy in the hands of a few corporate giants with the power to raise prices.

If the market were truly competitive, corporations would keep their prices as low as possible while competing for customers.

Even if some of their costs increase, they will do their best not to pass them on to consumers in the form of higher prices for fear of losing business to competitors.

But this is the opposite of what we see. Corporations are raising prices despite making record profits. Corporate profit margin hit a record high last year. You see, these corporations have so much power in the market that they can raise prices with impunity.

Thus, the main problem is not inflation as such. it lack of competition. Corporations use inflation to raise prices and increase profits.

Let’s take the energy sector.

Only a few organizations have access to the land and pipelines that control the oil and gas that powers much of the world. They suffered during the pandemic as most people stayed at home. But now they are more than making up for it by restricting supply and driving up prices.

Or look at consumer goods.

In April 2021, Procter & Gamble increased the prices of essentials such as diapers and toilet paper, citing increased raw material and shipping costs. But P&G is making huge profits. After some of its price hikes took effect, the company reported a nearly 25 percent profit margin.

Want to buy diapers elsewhere? Good luck. The market is dominated by P&G and Kimberly-Clark, who – NOT entirely coincidentally – raised prices at the same time.

Another example: In April 2021, PepsiCo raised prices, blaming higher costs on ingredients, freight and labor. The company then recorded an operating profit of $3 billion through September. How did you do it without losing customers?

Pepsi has only one major competitor, Coca-Cola, which quickly raised its prices. Coca-Cola’s revenue in the third quarter of 2021 was $10 billion, up 16% from the previous year.

Food prices are skyrocketing, but half of that is for meat, which costs 15% more than last year. There are only four large meatpacking companies in America, and they all raise prices and make record profits.

Get a picture?

The main problem is not inflation. This is corporate power. Since the 1980s, when the US government virtually phased out antitrust laws, two-thirds of all US industries have become more concentrated.

Now most of them are dominated by a handful of corporations that coordinate prices and production. This applies to banks, broadband Internet, pharmaceutical companies, airlines, meat producers and carbonated drinks.

Corporations in all these industries could easily cover higher costs, including long-overdue wage increases, without passing them on to consumers in the form of higher prices. But it’s not.

Instead, they use their huge profits to line the pockets of big investors and executives while both consumers and workers suffer.

How to solve this structural problem? Combat corporate concentration through more aggressive enforcement of antitrust laws. And imposing a windfall tax on profitable corporations that use this period of rising costs to deceive consumers.

So don’t panic about inflation. The real culprit here is corporate power.