Greedflation: Harbinger of Revolution?
Inflation has come roaring back after more than a decade spent in hibernation, and at a level not seen since shoulder pads were in vogue. Much of the cause of this inflationary pressure can be explained by snarled supply lines due to COVID-19-induced chaos that cannot easily be resynchronised. Another component is expansionary fiscal policy by governments around the world in response to COVID-19-related economic pain. But there is a third, insidious factor, that is unique to this period of rising prices; greedflation. That is, companies using the spectre of inflation to jack up prices further than is needed to account for higher input costs in the pursuit of wider profit margins.
You might be asking, “wasn’t this part of the equation during previous bouts of inflation?”, and the answer is likely yes, but to a far lesser extent.[1] Market concentration, or more plainly, the number of larger and mega-corporations arising through takeovers and mergers, has been rising across the developed world for decades. With market concentration comes market power, meaning when corporations raise prices, you’ve fewer places to turn to source cheaper alternatives. So raise prices they did. Not just to afford their newly expensive, supply-restricted inputs, or rising labour costs, but to rake in record profits. Yes that’s right, record profits, during one of the most turbulent economic periods in living memory. Pure, unadulterated, corporate greed.
Counterintuitively, on paper the pandemic has also been a boon for many workers, with trillions in government stimulus spending and job retention scheme funding flowing through the global economy to prop people and small businesses up through lockdowns and their associated economic disruption. The ‘great resignation’ that followed several waves of pandemic relief reflected a reluctance in workers to return to their previous working conditions, many of who leaned on their stimulus cheques to shop around for a better gig. This forced companies to pay more to attract staff, and wages rose. This was especially the case for low-wage workers, who, in the US at least, have seen little in terms of real wage increases for decades.
Just as workers, particularly low- and middle-income earners, began to obtain and leverage a skerrick of negotiating power, corporations helped to blow inflation out to 40 year highs, sending real wages backwards again. This coincides with an increasingly severe global housing affordability crisis plaguing almost every major city in the world. Cost of living pressures have rocketed to the top of people’s list of concerns, with profound implications for the global political landscape and for national political machinations. Elections are now being won or lost on whether political parties can muster credible proposals to address this increasingly dire issue.
The issue’s intractable nature has meant that urban residents in countries around the world are spending a greater and greater share of their income on accommodation, leaving less for other essentials, and eating into disposable income. These historically high levels of inflation we are witnessing today, that have now shot ahead of wage growth, are compounding the plight of many that are now facing unprecedented financial strain. With no end in sight for either inflation, or declining global housing affordability, we can expect the political salience of understanding how we got to this point to rise dramatically.
In the US, the Biden administration is pointing the finger firmly at corporate greed as a key determinant, and has already begun executive actions to tackle it. He will not be the last politician to highlight the role our modern oligopolistic markets are currently playing in this cost of living crisis. Interest rate rises will continue in an attempt to tame inflation, further straining household budgets for those with mortgages, and causing many companies to begin shedding employees, or to stop hiring. If the recession that many economists are predicting is just over the horizon eventuates, the chorus of questions asking how we got here could well reach fever pitch. Politicians who understand the potency of corporate greed-based rhetoric will sharpen their knives and aim for the jugular. Rightly so.
Where things go from here is anyone’s guess, but perhaps we are on the verge of a historic realignment of our economic systems away from a concentration of corporate power, and corporations that have shown their contempt for the working class in this moment of crisis.
[1] Study in this area during previous periods of inflation was not undertaken due to a lower concentration of market power.
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