As household budgets reel under the impact of soaring prices for fuel, food, rent and other necessities, oil companies and other sections of big business reap massive profits, in part thanks to consumer scams.
According to a new report by the liberal think tank Roosevelt Institute, a review of data from 3,698 U.S. companies found that profit margins and profits have risen to their highest level since the 1950s.
In 2021, the average markup reached 1.72, meaning that the typical price charged by a business was 72% above its costs. This is up from a 1.56 mark-up throughout the 2010s. Last year saw the largest rise in margins since the 1950s and two and a half times higher than the next largest annual margin . Among the sectors that the study found to have the largest profit margins are oil and gas, real estate, quarrying and mining. The study found that the financial sector had the largest overall profit margin, indicating massive profits from Wall Street banks.
The report also looked at net profit margins, net income divided by net sales. “Here we see a more consistent range, with net profit margins dropping from an annual average of 5.5% from 1960 to 1980 to an average of 6% during the 2010s. In 2021, it has increased to 9 .5%, again its highest value on record. Profits grew steadily across all definitions.”
Oil companies, in particular, made massive profits in the first quarter of 2022, buoyed by price increases triggered by the war in Ukraine. Oil giant ExxonMobil alone made $5.5 billion in profit, double its results in the first quarter of 2021. Shell raked in $9 billion in the first quarter, its best quarterly result ever. BP reported $6.2 billion for the quarter, not including a loss for offloading its holdings in a Russian-controlled oil company. It was BP’s best quarter in 10 years and Shell also reported a significant rise. Chevron has surged and Conoco’s profits have increased more than fivefold since 2020. In total, the five oil giants raked in $35 billion in the first quarter. The top 25 oil companies made $205 billion in profits in 2021.
According to a recent New York Times article, S&P 500 earnings were up 70% in 2021 from 2020 and 33% more than in 2019 before the pandemic. The same report notes that, overall, the companies earned “an estimated $200 billion in incremental operating profit last year as a result of this increased margins.”
These figures further debunk business-friendly claims that inflation is the result of a “wage-price spiral” where supposedly excessive wage increases drive up the prices of goods. The Roosevelt Institute study concluded: “We find that 2021 was largely driven by increased sales, with costs (including wages) increasing only marginally. This is inconsistent with any indication of a wage-price spiral.
He added that “changes to labor and worker compensation are not driving factors in the recent increases. Indeed, workers are not the only economic agents that affect companies’ pricing decisions.
The claim that wage demands are a driver of inflation is further undermined by the fact that real hourly wages fell 3.0 between May 2021 and May 2022, according to the US Bureau of Labor Statistics.
Inflation rose to an annual rate of 8.6% in May. The Consumer Price Index, a more realistic measure of inflation based on a sample of goods and services purchased by a typical urban customer, rose 9.2%. Wage increases were well below that level, ranging from 2% to 4% for most union-negotiated contracts in 2021, which was lower than the average increase for non-union workers.
Last February, a day after the Russian invasion of Ukraine, the United Steelworkers (USW) announced it had reached a new contract settlement for 30,000 US oil refinery workers, stalling a strike. USW President Tom Conway boasted that it was a “responsible” settlement, which “did not add to price gouging and inflationary pressures”, as if the gross profits of ExxonMobil et al. was somehow the fault of the workers. The deal imposed a tiny 2.5% increase in 2022, guaranteeing another massive reduction in living standards for oil workers, whose wages have already been slashed by inflation.
Despite union sabotage, strikes are on the rise as workers struggle to keep pace with inflation. According to the Cornell University School of Industrial Relations Strike Tracker, there were 153 strikes involving about 73,500 workers from January through May this year, compared to 78 strikes involving some 22,500 during the same period in 2021. That’s a near doubling in the number of strikes and tripling the number of workers on strike
The fiction of an “overheated” labor market is used to justify a series of steep interest rate hikes by the US Federal Reserve aimed at undermining workers’ attempts to defend their standard of living by causing a recession and increasing unemployment. The rate hikes will hit the budgets of working-class families harder by increasing the amount they have to pay for credit cards, car loans, mortgages and other debts.
While there is no doubt that powerful corporations have used the crisis to further defraud the public, soaring global inflation is fundamentally the result of the financial policies both sides have pursued since the crash of 2008. Central banks poured literally billions of dollars into the financial sector. markets and directly into corporate coffers. Moreover, the criminal decision to allow the pandemic to spread unchecked in all countries except China has led to the disruption of supply chains and chaos in the economy more broadly. This was aggravated by the Russian invasion of Ukraine provoked by imperialism.
Add to that the staggering cost of the current armament in the United States and in the countries of Western Europe, absolutely unproductive from the point of view of social needs. This will be paid for by the working class through cuts in social spending and continued rising prices.
Biden blamed Russia for soaring inflation, calling rising living costs “Putin’s price hike.” At the same time, he pointed the finger at oil companies for gouging “wartime” prices. But the president will do nothing to stop Big Oil’s profits. Meanwhile, in conjunction with the unions, he imposed a de facto reduction in real wages on workers.
While the authors of the Roosevelt Institute study document corporate price hikes, they offer only lukewarm solutions, suggesting stronger antitrust enforcement or an excess profit tax. Along those lines, US Senate Finance Committee Chairman Ron Wyden of Oregon has introduced legislation to provide for an excess profit tax for oil and gas companies with revenues over $1 billion.
Apart from the fact that these measures are political theater and have little or no chance of being passed, they do not address the fundamental problem, which is the private ownership of banks, oil and gas, transport and services. other vital economic pillars. Oil companies will evade an excess profit tax just as they use an army of accountants to avoid paying corporate taxes now.
Inflation is part of a larger catastrophe inflicted on humanity by the failure of the capitalist profit system, which allowed the unchecked spread of a preventable pandemic and now threatens to ignite a world war.
In response to the oil companies’ massive profits, socialists propose placing them under the democratic ownership and control of the working class and running them as public utilities for the common good, not private profit. This requires the industrial and political mobilization of the independent working class of the pro-corporate unions and the Republicans and Democrats, the twin parties of big business.