It's all about profit
By ROBERT REICH
Inflation!
Inflation! Everyone’s talking about it, but ignoring one of its biggest causes:
corporate concentration.
Since
the 1980s, when the U.S. government all but abandoned antitrust enforcement,
two-thirds of all American industries have become more concentrated.
Now,
prices are undeniably rising. In response, the Fed is about to slow the
economy—even though we’re still at least 4 million jobs short of where we were
before the pandemic, and millions of American workers won’t get the raises they
deserve. Republicans haven’t wasted any time hammering Biden and Democratic
lawmakers about inflation. Don’t fall for their fear mongering.
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. Biden has asked the Federal Trade
Commission to investigate oil companies, and he’s appointed experienced
antitrust lawyers to both the FTC and the Justice Department.
So
don’t fall for Republicans’ fear mongering about inflation. The real culprit
here is corporate power.
Robert Reich, is
the Chancellor’s Professor of Public Policy at the University of California,
Berkeley, and a senior fellow at the Blum Center for Developing Economies. He
served as secretary of labor in the Clinton administration, for which Time
magazine named him one of the 10 most effective cabinet secretaries of the
twentieth century. His book include: "Aftershock"
(2011), "The Work of Nations" (1992), "Beyond Outrage"
(2012) and, "Saving Capitalism" (2016). He is also a founding
editor of The American Prospect magazine, former chairman of Common Cause, a
member of the American Academy of Arts and Sciences, and co-creator of the
award-winning documentary, "Inequality For All." Reich's newest book
is "The Common Good"
(2019). He's co-creator of the Netflix original documentary "Saving
Capitalism," which is streaming now.
