Inflation! Inflation! Everyone talks about it, but ignores one of its main causes: corporate concentration.
Now the prices are definitely going up. In response, the Fed is poised 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 wasted no time pounding Biden and Democratic lawmakers about inflation. Don’t fall for their scare campaign.
Everyone ignores the deeper structural reason for price increases: the concentration of the US economy in the hands of a few giants with the power to raise prices.
If the market were truly competitive, companies would keep their prices as low as possible while competing for customers. Even if some of their costs increased, they would do everything to avoid passing them on to consumers in the form of higher prices, lest they lose customers to competitors.
But this is the opposite of what we see. Companies are raising prices even as they reap record profits. Corporate profit margins hit record highs last year. You see, these companies have so much market power that they can raise prices with impunity.
The underlying problem is therefore not inflation per se. It’s a lack of competition. Businesses use the excuse of inflation to raise prices and make more profits.
Take the energy sector. Only a few entities have access to the lands and pipelines that control the oil and gas that powers most of the world. They took a hit during the pandemic as most people stayed home. But they are more than compensating now, limiting supply and driving up prices.
Or look at consumer goods. In April 2021, Procter & Gamble raised prices for commodities like diapers and toilet paper, citing rising raw material and transportation costs. But P&G made huge profits. After some of its price increases took effect, it recorded a profit margin of almost 25%. Looking to buy your diapers elsewhere? Good luck. The market is dominated by P&G and Kimberly-Clark, who NOT coincidentally raised their prices at the same time.
Another example: In April 2021, PepsiCo raised prices, blaming rising ingredient, freight and labor costs. It then posted $3 billion in operating profits through September. How did he manage without losing customers? Pepsi has only one major competitor, Coca-Cola, which has rapidly raised its own prices. Coca-Cola posted $10 billion in revenue in the third quarter of 2021, up 16% from a year earlier.
Food prices are soaring, but half comes from meat, which costs 15% more than last year. There are only four major meat processors in America, all of which are raising prices and making record profits. Get the picture?
The underlying problem is not inflation. It’s the power of business. Since the 1980s, when the US government all but abandoned enforcement of antitrust laws, two-thirds of all US industries have become more concentrated. Most are now dominated by a handful of companies that coordinate prices and production. This is the case with banks, broadband, pharmaceutical companies, airlines, meatpackers and, yes, soda.
Companies in all of these industries could easily absorb higher costs — including long-awaited wage increases — without passing them on to consumers in the form of higher prices. But they are not. Instead, they use their huge profits to line the pockets of top investors and executives – while consumers and workers get screwed.
How to solve this structural problem? Fight corporate concentration with more aggressive antitrust enforcement. Biden has asked the Federal Trade Commission to investigate the oil companies, and he has appointed experienced antitrust attorneys at the FTC and the Justice Department.
So don’t fall into the Republican scare trap about inflation. The real culprit here is corporate power.