OK everybody, back to sleep
Unite the Union tells us that inflation - in fact everything that’s wrong with the economy in general - is because of corporate profiteering. No, really:
Thousands of UK companies have exploited their corporate power to increase profit margins since the pandemic, redistributing wealth from employees to employers and shareholders, according to the biggest study yet of data since 2019.
A trawl through the accounts of 17,000 companies by the trade union Unite found pre-tax profit margins were 30% higher on average in 2022 compared with the average across 2018 and 2019. Post-tax margins were on average 20% higher.
Werl, obvious, innit? There’s your problem. The capitalists are stealing it all.
In the actual report:
We've looked at profit margins before tax in 2022 compared with the average across the two pre-pandemic years of 2018 and 2019. We calculate the mean profit margin (see below) by dividing the total profit of all 16,600 companies by their total revenue. In 2022, the overall average profit margin was 8.3%. That is significantly higher than 7.1% in 2018, and just 5.7% in 2019. Averaging across those two years, profits increased 30% since the pandemic. Those figures are based on profits before companies paid tax. Profit after tax saw a smaller, but still large, increase of 20%.
It’s possible to wonder whether 5.7% was a good number to be starting with, whether 8.3% is too high now or a return to some welcome stability and so on. Eyeballing very slightly different measures of the same idea tells us that profit margins are significantly down on a decade ago. So it might well be that welcome return to a profitable capitalism. Which says something about this complaint:
Profiteering has gone hand-in-hand with under-investment. Have companies put their increased profits to use for long-term investment to rebuild our industries? Our analysis shows they haven't. In fact, investment has fallen.
If the returns to investing have risen - that’s the claim at least - then clearly we’d expect investment to increase - the gold piled up from doing so has increased and no one’s actually accusing the capitalists of being stupid, are they? If investment isn’t increasing at a time of risen profitability of investment then there might be something wrong with the numbers being used. And, of course, there is. The measure of “investment” being used here is only of reinvestment into the extant firm from profits made within that firm. Money paid out to shareholders that then gets invested in some other portion of the economy isn’t counted at all.
But the real issue here is that the numbers being complained about aren’t enough to explain the effects claimed.
The capital share of the economy is around - and about, you understand - 20%, or which corporate profits is about half. So, 10% of everything. That’s gone up by 30% or so - 3% of everything. The labour share (no, the labour share, not wages. The labour share is wages plus taxes paid on employment (both sets of NI) plus pensions contributions, plus, plus plus, all the compensation people gain from going to work) is about 70% of the economy. So, even if this effect is exactly as stated, that means wages are 4.2% lower than they would be without the capitalists carving an ever larger slice off the pig for themselves.
Sure, a 4% pay rise is nice, not having it is not nice. But it’s not an adequate explanation for everything that’s wrong with the British economy now, is it? It’s just not large enough to be the problem claimed.