SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
european central bank
IMF Says Corporate Profiteering Caused Nearly Half of Europe's Recent Inflation Surge
"Companies increased prices by more than spiking costs of imported energy," said economists with the International Monetary Fund.
Jun 27, 2023
Economists with the International Monetary Fund on Monday echoed what progressive experts and campaigners around the world have been arguing for more than a year: Corporate profiteering has been a key driver of the recent inflation surge.
In a blog post on Monday, the IMF's Niels-Jakob Hansen, Frederik Toscani, and Jing Zhou wrote that "rising corporate profits account for almost half the increase in Europe's inflation over the past two years as companies increased prices by more than spiking costs of imported energy."
If inflation is to return to the European Central Bank's 2% target, the trio argued that "companies may have to accept a smaller profit share" as workers demand "pay rises to recoup lost purchasing power."
The economists referenced a working paper they released last week that shows corporate profits are responsible for just under 45% of the inflation spike during the coronavirus pandemic.
As the paper explains, companies have hiked prices beyond what was necessary to cover the rising prices of energy and other materials, passing greater costs onto consumers and fueling a cost-of-living crisis across Europe while padding their bottom lines.
The London-based oil giant Shell, for example, saw its profits more than double to a record $40 billion last year.
"Europe's businesses have so far been shielded more than workers from the adverse cost shock," the economists wrote in their blog post. "Profits (adjusted for inflation) were about 1% above their pre-pandemic level in the first quarter of this year. Meanwhile, compensation of employees (also adjusted) was about 2% below trend."
The IMF experts' findings were limited to Europe, but economists have similarly found that corporate profiteering is fueling price increases in the United States.
In March, the Economic Policy Institute's Josh Bivens wrote that "in normal times, corporate profits contribute about 13% to prices."
"Since the second quarter of 2020, they have instead contributed more than a third of price growth, or more than twice as much as they normally do," Bivens estimated.
Data released last month by the U.S. Bureau of Economic Analysis showed that corporate profits rose to a record high in the first quarter of 2023 even as the Federal Reserve worked to slow the broader economy with aggressive interest rate hikes.
After spending more than a year openly targeting the labor market and workers' wages, Fed Chair Jerome Powell has acknowledged in recent months that lower corporate profits could help curb inflation.
On earnings calls, top executives of major corporations have openly credited continued revenue and profit growth to their ability to raise prices even as business costs fall.
"Pricing has continued to be the big driver behind our top-line growth over the last three quarters," Kimberly-Clark's chief financial officer said during the company's April earnings call.
Liz Zelnick, director of economic security and corporate power at Accountable.US, said earlier this month that "it's clear the corporate profiteering epidemic will persist no matter how many times the Fed doubles down."
"Corporate greed is a stubborn thing and requires serious action from Congress," she added. "The Fed has not seen an adequate return on its investment in a policy that has already created fissures in the economy that could lead to recession. It's just not worth it."
Keep ReadingShow Less
The Rise and Fall of Greece’s Radical-in-Name-Only Syriza Party
Lack of experience in governance, ideological confusion, severe structural constraints, crude political opportunism, and broken promises guaranteed that Syriza’s downfall was just a matter of time.
May 25, 2023
On January 25, 2015, Greece’s left-wing party Syriza (Coalition of the Radical Left), which subscribed to no particular ideology but ran an election campaign that vowed to end the sadistic austerity measures that had been imposed on Greece by its international creditors, shred the bailout agreements into pieces, write off a big chuck of the debt, and create jobs for hundreds of thousands of unemployed, won the legislative elections by taking 36% of the popular vote. The result of the election sent shock waves through Europe’s political establishment and marked the return of hope for Greece and left-wing parties and movements around the world.
It was indeed a historic victory for the Left, especially considering the fact that, ten years earlier, Syriza was struggling to gain just a few seats in the Greek parliament. The Communist Party of Greece was far more popular than the Coalition of the Radical Left, whose ranks included an array of leftists ranging from Trotskyists, Maoists, and neo-Marxists to greens and feminists. Indeed, while the Communist party had solid links with working-class people and exerted decisive influence on trade union activism, Syriza’s “impact on civil society was confined to the ideological attraction that it had for a small segment of the academia."
On May 21, 2023, elections were held in Greece and the conservative New Democracy party of Prime Minister Kyriakos Mitsotakis scored a landslide victory, trouncing Syriza by 20 percentage points. However, the new electoral system of proportional representation that had been introduced under the former prime minister and Syriza leader Alexis Tsipras prevents New Democracy’s 40% vote to win an outright majority of the 300 seats in parliament. Mitsotakis had revealed all along that he is not interested in sharing power, so a second election is going to take place in late June where the winning party needs to achieve just 37% of the popular vote.
It was abundantly clear to any unbiased observer that Syriza’s inner circle consisted of people who were dedicated to the pursuit and maintenance of power rather than bringing about radical change.
The scale of Syriza’s defeat in the parliamentary elections of May 21 (lost all but one of the 59 electoral regions in Greece) may signify the end of the road for the party of Alexis Tsipras. The party’s demise has in fact been underway from the very first weeks that Tsipras took office as Greece’s prime minister. Lack of experience in governance, ideological confusion, severe structural constraints, but also crude political opportunism and broken promises pretty much guaranteed that Syriza’s downfall was just a matter of time.
First, the radical-in-name-only Syriza party formed a government with the right-wing and xenophobic party Independent Greeks. There were deep disparities of all sorts between the two parties, but obviously this did not matter to Tsipras since he saw forging an alliance with right-wingers as a necessary tactical move to secure power. And power was all that ever mattered to Syriza’s leader and his inner circle. During the 2023 election campaign, Tsipras would leave many leftist voters flabbergasted by courting voters from the neo-Nazi party Golden Dawn.
Second, Tsipras signed an agreement to extend the austerity measures imposed on Greece by the euro masters, only a few weeks after coming to power.
Third, Syriza’s leader gambled on Greece’s future with a sham referendum in order to save his government from collapse and then went on to betray an entire nation that voted overwhelmingly against the continuation of austerity by signing a new bailout agreement that continued Greece’s status as Germany’s “de facto colony.”
Tsipras called the new bailout agreement “a necessary choice,” though he had engaged in ferocious attacks against his predecessors for having signed similar bailout agreements with the international creditors.
More than 40 Syriza MP’s spoke against the new measures, and half of Syriza’s central committee sided against the new agreement. But none of this mattered. Syriza had very weak democratic structures, no real links with the Greek working-class, and Tsipras had total authority over party decisions as most policy issues were decided in unofficial meetings with people close to the “great leader.” Moreover, Syriza as a party had lost its autonomy once it gained power and “was subsumed into the state.”
Indeed, it was abundantly clear to any unbiased observer that Syriza’s inner circle consisted of people who were dedicated to the pursuit and maintenance of power rather than bringing about radical change. Subsequently, following his government’s capitulation to the euro masters, Tsipras took steps to rebrand the party as a “progressive” political force and begun to tap into the legacy of the Pasok party, one of Greece’s center-left political parties, and to emulate more and more the political persona and political tactics of its charismatic founder and former Prime Minister Andreas Papandreou, who, incidentally, also appeared on the Greek political scene as a radical who made exorbitant promises to the people, such as socializing the economy, modernizing the countryside, terminating membership in NATO, and shutting down U.S. military bases in Greece.
Since the end of the Second World War, sadly enough, the Greek left has been betrayed by its own leaders on multiple occasions. The end result of Syriza’s abandonment of radicalism was defection on the part of hundreds of thousands of mostly working-class voters, though its metamorphosis into a mainstream political party attracted many center-left voters to its ranks.
In the 2019 legislative elections, Syriza still managed to gather 31.5% of the popular vote, losing just less than four points since its last victory in 2015, but the conservative New Democracy party not only won and secured a comfortable majority of 158 out of 300 seats, but had a remarkable 11-point increase from 2015.
Moreover, unlike Tsipras’ “leftist” government, Mitsotakis' conservative government kept many of its campaign promises and handled some foreign policy crises rather effectively. For example, Mitsotakis kept his promise to cut taxes, including a 22% cut to an unpopular property tax introduced during the first bailout agreement, suspended the value added tax on new construction, and reduced the insurance costs of employees and businesses.
Big capital and the middles classes have been the main beneficiaries of Mitsotakis’ efforts to rejuvenate the Greek economy. Because of the pandemic, Greece’s gross domestic product (GDP) contracted by 9% in 2020, but grew by 8.43% in 2021 and by 5.91% in 2022. Tourism contributed greatly to the strong rebound in GDP, and the economic prosperity of Greece remains strongly tied to the development of tourism.
However, Greece’s current accounts deficit increased substantially in 2022, mainly due to the worsening of the balance of goods. And the government debt-to-GDP ratio stood at 171.3% at the end of 2022, which is really at unsustainable levels, though the mainstream press in Greece would not devote space to presenting gloomy economic data ahead of the elections.
But it’s doubtful that doing so would have made any difference. The truth of the matter is that there is an impression among many Greek voters that the Mitsotakis’ government has stabilized the economy, protects the national interest more than adequately, and that it would be suicidal to have Syriza back in power after all its broken promises and flimsy statements made about the economy by key party members during an election campaign, which included a proposal for “local complementary currencies” by the party’s former minister of finance and which came only a few days after Yanis Varoufakis (rightly or wrongly, one of the most unpopular political figures in all of Greece) had called for the adoption of a parallel currency “Dimitra.” Syriza’s shaky position on key issues of national security was also a major drawback for many voters.
Indeed, it seems that what lies at the heart of the 2023 Greek legislative election results is that many voters were distrustful of Tsipras and his politics. This is most likely why so many voters appeared unfazed by revelations of a major surveillance scandal that engulfed the conservative prime minister himself. Mitsotakis’ New Democracy government is made up of right-wing conservatives and even includes in its ranks a couple of high-ranking officials with a history of involvement in far-right politics, but it seems that voters were more concerned with Syriza’s own deficiencies rather than those of the ruling conservative party.
Voters also delivered “a crushing defeat” to Yanis Varoufakis’ MeRA25 party as it failed to cross the 3% threshold to re-enter parliament.
Among left-wing parties, only the Greek Communist party performed better, gathering 7.23% of the popular vote over 5.3% in 2019.
In sum, the future of the left in Greece looks anything but promising at present. With the revival of Pasok, which had been in steep decline electorally since 2012 but managed to get 11.46% of the popular vote in the 2023 legislative elections, Syriza’s long demise may be complete a few years from now. And it will be very difficult for the current Communist party to climb into double digits even if Syriza returns to the dark days of securing low-to-mid single digit votes.
But the Greek left has suffered many crippling blows in the past and always finds a way to resurrect itself, to rise like a phoenix from the ashes. Because as long as exploitation, injustice, and extreme inequality remain central aspects of human society, there will always be a need to create a radical vision for the future.
Keep ReadingShow Less
This Is Not a Repeat of the 2008 Financial Crisis, But It Is the Same Capitalist Rot
Since 2008, governments and central banks have been trying to prop up the banks through a combination of socialism for the banks, and austerity for everyone else. The result is what we see today.
Mar 17, 2023
Every systemic banking crisis has a trigger that sets it off. In the case of SVB, the reason for its bankruptcy is twofold.
Responding to worried questions raised by many about the ongoing banking crisis that started in the US with the bankruptcy of the Silicon Valley Bank (SVB), and is now affecting Japan and other countries, I can offer the following brief analysis.
The trigger
Every systemic banking crisis has a trigger that sets it off. In the case of SVB, the reason for its bankruptcy is twofold.
- The fall in prices in the secondary market for bonds – basically, US government bonds (treasuries) – which was caused by the Fed rate hike which, in turn, was “imposed” on all central banks by inflation.
- The plummeting in the share prices of Big Tech and of the entire digital ecosystem of small tech start-ups around Big Tech – a decline caused by the Fed’s termination (due to inflation) of money printing.
In more detail, SVB took two hits at the same time.
- The first hit its funds, which were mainly invested in US treasuries. This happened as the rise in interest rates reduced the resale price of these bonds (Why buy “second hand” an older bond that yields 0.5% when you can buy a “new” one that yields 3%?). In itself, this development was not sufficient to bankrupt SVB. As long as SVB was not obliged to sell at a reduced price the older bonds it held, there was no problem. However, because of the second hit, SVB was forced to sell at a large discount. And that’s where the problem started.
- When inflation forced the Fed to stop printing new money (i.e. no more quantitative easing), the flow of funds that were keeping the shares of Big Tech companies in the stratosphere also stopped. Thus, Big Tech shares deflated. As these companies (Google, Amazon, Meta, Twitter, Netflix, Airbnb, Uber, etc.) based their funding on loans taken out by putting up their overvalued stock prices as collateral (e.g., that’s how Elon Musk bought Twitter), Big Tech suddenly ran out of cash. That’s why they started pulling their deposits from banks like SVB.
In short, at the same time as SVB’s capital base was being reduced, depositors were asking for their deposits back. As soon as the news got out that SVB was late in returning depositors’ funds, a classic bank run began.
The cause
The underlying reason why the failure of a medium-sized bank in California created so much angst worldwide is that international capitalism has never been able to get back on its feet after 2008.
In more detail: Central banks (the FED, the ECB, etc.) have one basic tool – the interest rate. When they want to put a brake on economic activity to keep inflation in check, they raise the interest rate, and vice-versa. But, in addition to price stability, central banks have two other goals: the stability of the banking system, and the balancing of liquidity with investment. The interest rate chosen by the central bank is one. That same number (e.g. 3%) must achieve three objectives simultaneously: price stability, banking system stability, and balancing between liquidity and investment.
What could be done as an alternative? The exact opposite: austerity for the banks, with nationalisation of those who cannot survive.
And herein lies the reason why I argue that, after 2008, capitalism cannot recover: There is no longer one interest rate that can achieve all three of these objectives simultaneously. This is the tragedy of central bankers: If they want to tame inflation (at a high enough interest rate), they trigger a banking crisis and, as a result, they are forced to bail out the oligarchs who, despite being bailed out, drive investments below liquidity. If, on the other hand, they impose a lower interest rate to avoid triggering a banking crisis, then inflation gets out of control – with the result that businesses expect interest rates to rise, which discourages them from investing. And so on and so forth.
Back to 2008, then?
No, for two reasons. First, the problem for US banks today is not that their assets are junk (e.g. structured derivatives based on red loans) as they were in 2008, but that they own government bonds which they are simply forced to sell at a discount. Second, the Fed bailout announced yesterday is different from the one in 2008 – today it is the banks and depositors who are being bailed out, but not the bank owners-shareholders. These two reasons explain why bank stocks are falling but there is no total collapse of stock markets.
The fact that there is no total collapse of the stock markets does not, of course, mean that the crisis of capitalism – which has been developing continuously since 2008 – is not deepening. It simply does not have the characteristics of an instantaneous, heavy-handed fall.
What does this development mean for Europe?
In 2008, Berlin and Paris were rejoicing that the banking crash was American and did not concern them – or so they thought. Until they realised that Franco-German banks were loaded with the toxic US derivatives that bankrupted Lehman.
Today, Franco-German banks don’t seem to have the same problem – rather, they are being spared due to the antiquated structure of the European economy. What do I mean? Franco-German banks have not lent large amounts to European Big Tech for the simple reason that European Big Tech doesn’t exist – they still lend to car manufacturers and extraction companies. So, I don’t see a European SVB on the horizon.
That doesn’t mean, of course, that European banks are safe. Their own funds are also invested in bonds whose prices have fallen. A large deposit flight will create the same problems here as we are seeing in the US. Such a flight could come from parts of the financial system that one cannot imagine – for example, from the insurance sector (as in Britain last autumn) or from a collapse of the weak Credit Suisse, which has long been suffering.
What should have been done?
Since 2008, governments and central banks have been trying to prop up the banks through a combination of socialism for the banks, and austerity for everyone else. The result is what we see today: The metastasis of the crisis from one “organ” of capitalism to another, with the magnitude of the crisis increasing with each such metastasis.
What could be done as an alternative? The exact opposite: austerity for the banks, with nationalisation of those who cannot survive. And socialism for workers – a basic income for all, a return to collective bargaining and, further out, new forms of participatory ownership of high- and low-tech companies. In other words, nothing short of a political revolution.
To those who fear the idea of a political revolution, my message is simple: Prepare to pay the price of the escalating crisis of a capitalism determined to take us all to its grave.
Keep ReadingShow Less
Most Popular