Despite the economic downturn, a large number of companies are reporting record profits. Now is as good a moment as any to demand payment.
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| [EU flag/Tetiana Shyshkina/Unsplash] |
Inflation rates across EU member states are at all-time highs. Inflation is already double digits in both Germany (at 11%) and Austria (9.3%). The financial crisis and the conflict in Ukraine have caused a disruption in supply routes and a lack of fossil fuels, on which the two nations relied heavily until recently. There has been a dramatic increase in the cost of living across the board for EU members, from food to transportation to utility bills. Conversely, the scarcity of certain commodities has led to windfall profits for businesses operating in particular niches. The state must act with regulatory policy since market processes are ineffective in this configuration.
The American oil giant Exxon Mobile is projected to double its earnings from last year to $43 billion this year. Similarly, BP (British Petrol) quadrupled its first-quarter earnings compared to the same period last year, going from $ 9.1 billion to $30.6 billion. German energy company RWE expects a profit growth of 35% to €2.8bn in H1 2022. The Austrian firm MV posted a first-half 2022 profit of 124% as well.
Joe Biden, addressing the gains made by Exxon Mobile and other crisis profiteers, stated, "We will make sure that everyone understands Exxon's earnings." A year ago, Exxon Mobile earned more money than the Almighty. One such claim is that Exxon Mobile's success is unconnected to the enhanced productivity that the firm has realized as a result of its investments and technical advancements. However, there is mounting evidence that businesses operating in strategic oligopoly and monopoly sectors are taking advantage of customers' reliance on them during the recession by setting artificially high prices for goods and services that consumers have nowhere else to turn. The term "greedflation" is used to describe this planetary configuration in the United States. It is unacceptable to benefit from unprecedented record profits by abusing the conflict to the cost of consumers, European Commission President Ursula von der Leyen said in her State of the Union address, declaring war on this phenomena.
The idea of greed inflation questions the conventional understanding of the economy and finance. An analysis centered on the gap between available goods and consumer demand. With this perspective, firms' pursuit of infinite profits is consistent with a market economy and is thus not greedy. The issue of whether or not the increased selling prices are genuinely compensated by greater manufacturing costs is raised by greed inflation. There is also an analysis of the market's structure. The supply-demand paradigm attributes inflation to unchecked supply and demand, whereas the greed inflation notion attributes the issue to the excessive greed of businesses and cartels.
The method by which profits are earned does not reflect an improvement in performance of firms encouraged by competition but is enabled by the monopolistic status of these firms. The absence of competition in such a market makes it vulnerable to price gouging. Even many who support free market economies are skeptical of the market's ability to self-regulate when faced with such a dominant market structure.
In monopolized markets, the price power of corporations is so significant that it speeds up inflation. Unless inflation is mitigated by rising salaries, such windfall profits almost always lead to a societal catastrophe. Reason being, the wage-price ratio has been trending decreasing since 2020. As an example, salary increases in the United States account for just 7.9% of the price increases that have occurred since 2020, compared to the 61.8% that occurred between 1979 and 2019. Current dynamic phase is marked by high price rises and declining real incomes. This commercial system and the legitimacy of social authority are therefore increasingly being questioned.
Are we, therefore, approaching a particularly momentous era? A period when unions in Germany, the United Kingdom, and France are all asking for a raise of at least 25 percent from their employers in pay discussions.
There are suggestions for reversing the wage-profit spiral that has resulted in the current high prices. The so-called excess profits tax, which is more accurately named the "accidental profits tax," comes into play here. It is important to "control away" gains that are disproportionate without contributing significantly to either performance or production costs.
Bernie Sanders first proposed this method in the United States in March 2022. This concept is not new; the United States instituted a tax on excess earnings of up to 95% during World Wars I and II to collect windfalls from businesses that benefited from the unprecedented circumstances of the conflict. For the final time, it was used during the 1980s oil crisis. Meanwhile, several European nations have instituted a tax on corporate profits that are considered excessive. This corresponds to 25% in the United Kingdom, and it is estimated that 7% of Spain's GDP will be lost over the following two years due to this tax. In 2018, Norway projected a 50% increase in tax income. The Austrian Trade Union Confederation estimates 4–5 billion euros might be earned from it, but governmental support is wary.
The European Union's planned legislation on emergency measures in response to rising energy costs proposes a "solidarity charge" for excess profits in the fossil industry in 2022, which might force the more reluctant states to follow suit. A minimum of 33% of the taxable profit is required. Trade unions can see clearly that the belief that corporations "deserve" enormous profits regardless of market structure is unsustainable during conflict. Unions will take the word of the Commission President seriously and ensure that it is not simply lip service, as Ursula von der Leyen so eloquently puts it: "Profits must be shared."
Authors: Suzanne Wixforth and Kaoutar Haddouti