Some large multinational corporations have been very open with their investors that price increases are resulting in higher revenue. In 2021, multinational Proctor & Gamble said that they needed to raise prices to offset increased costs and uncertainty. But in January 2022, they reported to shareholders that their revenue in the last three months of 2021 actually had been up 6 per cent from the year before. This news prompted their stock price to go up, leading to even more profit for senior executives and shareholders.
How can companies get away with higher than necessary price increases during a global pandemic? And why do they feel comfortable drawing attention to their skyrocketing profits?
The past 20 years have seen a huge amount of consolidation in many sectors of the economy, globally and within Canada. Fewer and fewer companies control more and more of the market. For example, most baby diapers sold in North America are made by only two corporations – Proctor & Gamble and Kimberly Clark.
According to economic theory, the threat of competition from other companies is what keeps prices low. This means that when two or three big companies corner the market, we often see prices rise faster than costs. Canada’s economy is especially vulnerable to this trend because, when evaluating potential mergers, our competition laws prioritize the efficiency gains possible with larger companies.
When people have few alternatives for goods, companies don’t worry about seeming too greedy when celebrating rising prices and profits. There is also evidence that openly discussing rising prices and profits can lead to increases in executive compensation.
A recent report from the Canadian Centre for Policy Alternatives showed that bonuses like stock options continue to drive executive pay, accounting for 82 per cent of total compensation for the top 100 Canadian CEOs in 2020. As such, executives’ total earnings depend heavily on stock price. And it’s clear that companies that draw attention to higher prices and higher profits, as Proctor & Gamble did last year, have been rewarded with higher stock prices.
Pandemic profiteering isn’t the only thing driving current inflation, but it seems to be a factor in Canada as well as the US. Research from Canadians for Tax Fairness revealed that 50 of Canada’s largest companies made record profits in 2020. Big pandemic winners in Canada included finance and insurance companies, Dollarama, the convenience store chain Couche-Tard, and five Real Estate Investment Trusts (REITs), among others.
So, when someone tries to blame workers for the rising cost of living, just point out how corporate profits, shareholder dividends, and executive compensation have continued to climb throughout the pandemic. Pandemic profiteering is yet more proof that wealth does not trickle down. We need to fight for fair wages and fair corporate taxation.