Jul 24 2024 July 24, 2024 July 24, 2024 1Comment by Mike Callicrate

Beyond prices: The role of Monopoly Power in global inflation

Posted in

Rodrigo Fernandez and Boris Schellekens

Published on: 24 July 2024

In our new series of long reads, we examine the manifestation of monopoly power across various sectors and countries. We want to unravel the complex ties between corporate concentration and power, focusing on four key aspects:

  1. The power to extract profits.
  2. The power to distribute profits.
  3. The power to profit without producing.
  4. The power to extract value from a value chain.

We used data from 51,000 publicly listed firms, over 100 countries, and 180 exchanges over the past three decades to research these four dimensions. We particularly emphasise the largest 1 per cent of publicly listed firms worldwide (by market capitalisation), providing fresh insights and discussing each dimension in detail.

The power to extract profits

This first article takes a look at the power to extract profits. It focuses on the recent short period of profit-driven inflation, which took place from 2020 to 2022. This extraordinary spike in corporate profits needs to be understood as part of the growing monopoly power of the 1 per cent.

The top 1 per cent managed to expand their profits before, during, and after the Covid-19 pandemic and the Russian invasion of Ukraine, showing that these monopolists will thrive in times of upheaval. While the top 1 per cent experienced a 78 per cent nominal rise in gross profits from 2020 to 2022, the bottom 50 per cent of publicly listed firms worldwide saw their profits decline by 29 per cent.

Accelerating Monopoly Power

This difference in the power to appropriate profits follows a pattern that began in the 1980s. Since then, monopoly power has been on the rise, and it has accelerated in the 21st century. In 2017, UN Trade and Development(opens in new window)  (formerly UNCTAD) already warned about the emergence of “rentier capitalism” due to growing corporate consolidation. In the same year, the US House of Representatives erected an Antitrust Caucus to investigate and address monopoly issues amidst growing media coverage of “America’s monopoly problem(opens in new window) ”. In 2019, just before the COVID-19 outbreak, the International Monetary Fund(opens in new window)  (IMF) highlighted the escalating monopoly power as a key factor in negative global economic trends, including decreased investments, sluggish productivity growth, and widening inequality.

“Sellers’ Inflation”

Subsequently, the pandemic struck, followed by the Russian invasion of Ukraine, which contributed to the sharpest inflation increase since the 1970s. The rise of inflation led to the first global drop in real wages in this century, feeding an ongoing cost-of-living crisis. Isabella Weber identified the remarkable surge in profits in specific, systemically significant sectors – such as energy and food – as a key driver of this unusual inflation spike and termed it “sellers’ inflation(opens in new window) ”.

This inflation was largely driven by historical circumstances that created the conditions for temporal monopolies in these strategic upstream sectors. In response to these price increases, Weber argued, firms downstream increased prices to protect or grow their margins. This led to a much more generalised process of profit-price inflation. As more data emerged, key international economic and monetary institutions, such as the European Central Bank (ECB) and the IMF(opens in new window) , acknowledged the role of corporate profits in fuelling profit-price inflation.

Surging profits

In public debate, this recent surge in profit-price inflation has not been connected to the broader, decades-long rise in global monopoly power. Although the energy sector’s surge in profits was remarkable and largely tied to the unique historical circumstances stemming from the Russian invasion of Ukraine, a broader observation reveals that the entire top 1 per cent managed to uphold their markups more effectively than other firms. This underscores how the structural increase in monopoly power enables major corporations to safeguard their profit margins at the detriment of smaller entities, workers, and public finance in periods of instability.

The persistent rise of monopoly power will likely create more instances of profit-price inflation as we face overlapping and interacting crises (the climate crisis and cost-of-living crisis, the rise of the radical right, and geopolitical tensions). These simultaneous crises interact and create a cocktail of exceptional historical circumstances conducive to the manifestation of sellers’ inflation.

Click here to read the full article at SOMO.nl.