Here is the opening of the following article: Economist explains record corporate profits despite rising inflation
“Prices are up all over the place – at the gas pump, at the grocery store, at the car lot. This week, the [US] federal government reported a 7.5% increase in the cost of goods all across the board compared to a year ago. The consumer price index showed a 4% rise in housing, a 12% increase in the price of meat, and the cost to buy a used car is up more than 40%.
But here’s another reality. While families are dealing with sticker shock, profits for companies that put these goods on shelves – well, those are skyrocketing. Data from the U.S. Commerce Department shows that corporate profit margins are the largest they’ve been in 70 years…”
Essentially during the most difficult economic times we’ve seen in decades, companies have gouged consumers in order to maximize profits. While car owners pay dearly for transportation, oil and gas companies are recording record profits for their shareholders. Meanwhile the price of gas remains painfully high.
The shareholder model of capitalism is broken. The corporation might create or distribute a desired product, but neither the product nor the end user is what is being served. The customer is the shareholder, and their desire is profit; Not a great product, not a value to the end user, just profit per share.
The CEO does not meet bonus numbers due to end-user satisfaction surveys. The CEO does not answer to anyone except a board, who themselves want to see high profits. The middle managers knows that their main job is to manage and care for the people under them, but their incentives are almost always number driven, and they know that profit is the priority.
It’s the tragedy of the shareholder: self interest for personal profit, without consideration of anything else. Profit at the expense of common good. Maybe there was a time when companies cared about the end user, when customer satisfaction trumped shareholder satisfaction, but stock prices and shareholder greed are the only things capitalism seems to feed these days. The idea that during a pandemic, rampant inflation, and supply chain shortages, a company will seek maximum profits and gains is capitalism at its worst. The almighty dollar is all that matters.
Meanwhile, what are these companies doing with the excess cash? They are buying back shares which a) keeps the prices of shares up, b) pays their shareholders who get to ‘sell high’, and c) make themselves look more financially attractive to new investors. The high profits create the promise of still higher profits, providing wealthy shareholders a chance to see gains in a market that the people they are gouging with unnecessary price increases can’t afford to participate in or gain from.
The system is rigged so only the shareholders win. Oh, and will these companies share the windfall with their employees? Only the upper echelon who already earn healthy 6 and 7 figure salaries will see bonuses, but not the majority of workers who face high inflation and cost of living increases and are actually falling further behind. Their wage increases, if they get any, won’t match inflation.
I don’t know how to fix it, but the system is broken. While stories like this show promise, for providing fair wages to employees, the stock and shareholder model doesn’t really provide avenues for this to happen. Instead, while the vast majority of citizens around the world are poorer now compared to before the pandemic (with respect to buying power), shareholders are seeing the best returns in decades.
