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The crisis profiteers
Digging into the balance sheets of the corporations cashing in on chaos.
Einstein said that in “every crisis, lies great opportunity” and recently many companies have taken this way too far.
We faced a pandemic of greed as big pharma set soaring prices for life-saving vaccines. Lockdowns created huge profits for tech companies and their owners. Should we be surprised that food and energy companies have profited from the pain of millions as the cost of living has soared? After all, what was it that Albert also said about insanity?
Today, one oil major celebrates doubling their profit, making $1,200 every second and so this week’s Equal’s Bulletin digs into the balance sheets of the big corporations cashing in on the chaos.
Profiteering in numbers
A profit booster. During the pandemic, vaccine manufacturers were raking in $1,000 a second in profit and despite vaccine rollouts in rich countries now tailing off, both Pfizer and Moderna are planning to quadruple the prices of their Covid vaccines – that would mean approximately 98% of their vaccine sales would be profit. No wonder the German government and big pharma tried to get us censored.
Not over yet. The Economist tracks the pandemic’s true death toll, and while daily excess deaths are far below their peaks in 2021 and 2022, 12,200 people are still dying every day. In low-income countries, just 22% of people are fully vaccinated.
Powering record profits. Big oil companies are estimated to post record profits from 2022 – a combined $190bn – how does $6k a second in profit sound as many struggle to pay energy bills?
Right place at the right time? But surely they’re just passing on increased costs because of the war in Ukraine – this is simply supply and demand? Oxfam looked at the financial accounts of 49 energy companies between 2018 to 2022 to investigate windfall profits. We define windfall profit as when the company’s 2022 net profits are at least 10% above the 2018 to 2021 average. We found that not only had the companies made a combined $237bn in windfall profits in 2022, but 85% of them increased their margins last year. And certainly, many others agree that companies are using the war and pandemic as a smokescreen to bump up their prices far beyond their costs.
“Many firms could expand their profits, often implying that consumers, rather than shareholders, have borne the brunt of the inflationary shock.” Isabel Schnabel, Member of the Executive Board of the ECB
Where’s this cash going? A green transition, climate loss and damage payments to poor nations, cutting consumer prices? Strangely not. Almost two-thirds of the 2022 windfall profits from energy companies were paid to shareholders – a group who tend to already be the richest in society - for example, the richest 1% own 54% of the shares held by US households.
Food for thought. It’s not just energy companies profiting from the cost-of-living crisis – our research found huge windfalls in the food sector. We analysed 46 food companies, they made a combined $70 billion in windfall profits and 85% had increased their margin. They also paid $82 billion to their wealthy shareholders in 2022.
Back of the envelope. Take the grocery companies (in our sample) for example – net profit margins increased from 8 to 12% in 2022. Food inflation was at least 10% last year, so a $100 grocery bill in 2021, cost $110 in 2022. If the grocery companies had maintained their previous margins, that 2022 bill for those groceries would have been more like $106. And this is just the margins added by the store.
Getting grainular. Some sub-sectors have had particularly notable increases in profits: synthetic fertiliser companies increased their profits 10x on average, meat companies by 5x, and farm equipment and agriculture commodity traders almost 2x.
The real cost. Friends in Kenya have told us about the terrible decision families are now having to make between feeding their crops with fertiliser - which has doubled in price - and putting food on the table.
Evidence of greedflation? Food and energy sectors are driving the lion’s share of inflation – as the graph below shows. The inflation from food alone is more than the overall inflation from 2016-2020.
More broadly, in the US, profit margins are at their highest in 70 years. In the UK, the margins of the 350 biggest listed corporations were 74% higher than before the pandemic and in Spain 2022 profit margins were 60% higher than in 2019.
There is growing evidence that increased corporate profits drove inflation, in the US, the UK and Australia, studies found that excess corporate profits drove 54%, 59% and 60% of inflation, respectively.
Throw away the textbook. Conventional economic thinking says that, because free markets are competitive, companies will be forced to lower their prices – or their competitors will, and take their business. However, some sectors have become so concentrated that there isn’t much competition.
Nowhere is market concentration more apparent than in the food and energy sectors. In the US, for example, four corporations control 55% to 85% of meat sales. Four food traders control 70% of global grain. Six oil giants dominate global energy production.
What to do. Inflation isn’t just happening because of our global crises. It is happening because we are failing to limit corporate power. Our governments have a choice: curb this power and tax windfall gains to ease the cost-of-living pain, or continue to allow price gouging to run rampant, bringing untold misery to hundreds of millions of people across the world and further driving up the wealth and power of those at the top.
Government scrutiny. Some industries have been under the spotlight: the meat industry in the US, for example, following revelations of massively increased profits, has been targeted by the Biden administration's plans to boost competition in the industry.
Winds of change. Governments across Europe and Latin America have introduced windfall taxes in response to these excess profits. That said, despite record profits some large companies have yet to pay anything. One oil company is even suing the EU over these taxes.
Something to read, listen to and watch
Listen to the Pitchfork Economics episode for a nuanced analysis of the causes of today’s inflation - and if we should really be calling it inflation rather than higher prices.
Read and watch this excellent new report from Lucas Chancel and Thomas Piketty on Climate and Inequality. The report finds the top 1% are responsible for more emissions than the whole of the bottom half of the world’s population. Watch Lucas’ presentation here.
Read how Covid-19 has sharpened inequalities in China and contributed to the U-turn on the zero covid policy. China’s youth unemployment rate has been near-record levels and the brunt of the impact is shouldered by those born into poorer households.
Read about the bridge in Sweden that has started a bitter national debate about inequality.
Watch UK schoolchildren find the solution to inequality that seems to elude most adults.
Watch the amazing Branko Milanovic and Arjun Jayadev give a series of brilliant lectures on Inequality 101.