Capture economy on prowl as corporate profits rise

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Capture economy on prowl as corporate profits rise

Saturday, 03 September 2022 | Shivaji Sarkar

Corporations worldwide have clocked record profits, but the gains have not been shared with employees or customers

The high inflationary trend that has gripped India is stated to be a global phenomenon of corporate adventure to maximize profits by controlling political systems even in times of economic distress. The western inflation trends have severely impacted the Indian economy, forcing the Narendra Modi government to squeeze expenditure, the RBI increasing interest rates, plummeting rupee and the society compromising on lifestyle spending.

Studies in the US and UK are concerned about the corporate ingress into the governance structure in different countries. Studies in the US are specific that the corporations are raising prices, having more profits and transferring costs to consumers. Indian inflation has risen to 6.82 per cent in July from 6.43 per cent in June and 3.92 per cent a year back. As per the wholesale index, it is at 13.93 per cent. Primary articles cost 15.04 per cent more, food 9.41 per cent, manufactured products 8.16 per cent and fuel and power 43.75 per cent. But the International Monetary Fund puts India’s growth at 7.4 per, faster than the rest of the world though some others show lower figures.

In the US, inflation remains at 8.7 per cent, a bit lower than the highest reached in 40 years at 9.1 per cent. Inflation in Britain is at the highest level since 1982. At the August weekend, the UK hiked electricity and gas bills by 80 per cent, in a dramatic worsening of the cost-of-living crisis. Overall consumer inflation is at 10.1 per cent. It may head for a negative growth next year, the Citibank predicts, and prices are likely to rise by 18 per cent.

In contrast, Reserve Bank of India (RBI) Governor Shaktikanta Das says that the apex bank is moving towards the four per cent inflation target in a steady manner, without much growth sacrifice. After hitting its peak in April 2022, Das expects retail inflation to ease to four per cent by 2023-24. Assuming crude oil prices at $105 per barrel, the RBI Governor stated that current account deficit (CAD) will be manageable and financing will be done in a reasonably comfortable manner in 2022-23. Real gross domestic product (GDP) growth projection as per the August MPC is fixed at 5.4 per cent though overall growth rate forecast remains unchanged at 7.2 per cent.

It looks brighter but the way the corporate are raising prices and maintaining a profit trend that may hurt the people world over and Indian government in particular rushing through many infra projects. Rising prices has become a global trend for various reasons, including the Russia-Ukraine war that has changed lifestyles on both sides of Europe.

In 2021, the US companies logged their most profitable year since the 1950s, as many took advantage of economies of scale and other more efficient production processes. Yet, firms increasingly held on to the savings they gained from these reduced costs, rather than passing them on to customers in the form of lower prices, according to Alexander J Mackay. He says that between 2006 and 2019 the difference between prices charged and the marginal cost incurred by a company climbed about 25 per cent.  The new US commerce department data show corporate earnings jumped 35 per cent in 2021, while workers got an 11 per cent jump.

In 2017, Senator Sheldon Whitehouse noted that America faces a crisis of corporate capture of democratic government, where the economic power of corporations has been translated into political power with disastrous effects for people’s lives. He warns that “corporations of vast wealth and remorseless staying power have moved into our politics to seize for themselves advantages that can be seized only by control over government” through what he calls, the “immense pressure deployed by the corporate sector in our government”.

Corporate interests can vastly outspend labor or public interest groups in the US elections, he said. In 2014, business interests spent $1.1 billion on state candidates and committees compared to the $ 215 million that labour groups spent. That same year, business political action committees (PACs), spent nearly $380 million in federal elections, while labour union PACs gave close to $60 million. In 2016, it is estimated that $1 out of every $8 went to super PACs. They from corporate sources raised $1.8 billion for the 2016 elections. He found that $800 million of political spending were from obscure donors.

Mackay apprehends that large political contributions will prevent Congress from tackling the important issues facing Americans today, like the economic crisis, rising energy costs, reforming health care, and global warming. A World Bank publication “Seize the State, Seize the Day” says some firms in transition economies have been able to shape the rules of the game to their own advantage, at considerable social cost, creating what it calls a “capture economy”.

(The writer is a senior journalist. The views expressed are personal.)

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