Are big corporations profiteering from inflation?

As prices of most goods and services keep increasing, U.S. companies are sitting on “a record $7 trillion in cash, up 33% from pre-Covid levels” – this according to a reliable business source, Bank of America’s global investment advisory arm. Inflation may have some of its roots in pent up demand bouncing back so quickly as the global pandemic lockdown has eased, with the resulting supply chain issues. But the data is clear, corporations are benefiting mightily while the average citizen struggles. 

The report states that “these cash balances grew at the fastest pace in two decades” during the pandemic. It is hard not to see the connection. Are corporations profiteering from the pandemic, even as they have received massive Republican-driven tax cuts and government stimulus help?

And what have they done with this money? Did they invest in new businesses? In better pay? In lowering their costs? Again, from the same reliable business source, much of it has gone primarily to buying up other companies, and to rewarding their shareholders with bigger dividend payments and stock buy backs (more on that in another article in this newsletter). 

And whom does this benefit? Buying up competitors certainly helps the big boys get bigger and more profitable as they increase their prices because they have less competition. 

As New Rural Virginia previously reported, industry consolidation, due to weakened antitrust oversight promoted by Republican politicians as “good for business” is behind the huge increases in meat prices. Four beef processors now control over 80% of the market – up from just 25% in 1977 – while hitting record profits.  Two of them are Brazilian, and the largest pork producer in the U.S. is Smithfield Foods, based in Smithfield, Virginia, that was bought up by WH Group of China. Meanwhile farmers have been left out of that money trough, and consumers are paying ever higher prices. 

The same dynamic has been playing out across most industries in America. Yet Republican politicians still spout the mantra that reducing regulations helps businesses? Which businesses? The big ones of course that pour money into their campaigns to keep the playing field unfair.  

But the Biden administration is tackling the problem. The President signed an executive order in 2021 as a blue print for addressing the problem, saying “To keep our country moving, we have to bring fair competition back to this economy.” The White House says the rate of new business formation has fallen by almost 50% since the 1970s as large businesses make it harder for Americans with good ideas to break into markets. “Let me be very clear” he said, “capitalism without competition isn't capitalism, it's exploitation". 

Read more on the Biden executive order here (Reuters, July 7, 2021)