Information Digest – October 2023

Wages stagnate for years, corporate pay rises for years, dividend payments are pumped up, and “productive investment declines. All these things are strongly intertwined in modern capitalism as the very rich get very much richer.
This month we look at “greedflation” and profit.
If business leaders are worried about inflation, the most direct way to battle it would be to lower profit, lower dividends, and pass the savings on to creating lower prices.

Resources

Payouts to shareholders are rising up to 13 times faster in Europe than pay for working people

Payouts to shareholders are rising up to 13 times faster in Europe than pay for working people, an analysis by the European Trade Union Confederation has found.

Dividend payments increased by 75 per cent in Portugal and 66 per cent in Denmark between April and June this year, while nominal compensation in those countries rose by 6 per cent and 5 per cent.

Across Europe, dividends increase by 10 per cent – double the rate at which wages are rising – and reached a record 184.5bn US dollars.
It’s the second consecutive year that shareholders have celebrated bumper payouts thanks to the increase in corporate profits which are driving inflation and the cost-of-living crisis.

Read the full article

Growth in dividends over the past few years has primarily been driven by the banks

Growth in dividends over the past few years has primarily been driven by the banks and major miners and has also been associated with an increase in the aggregate payout ratio. This has occurred at a time of slower growth in aggregate earnings and has raised questions about the sustainability of dividend payments, particularly given some apparent reluctance by companies to reduce dividend payments even when profits decline.

Read the full article

Australian dividends growing four times faster than the rest of the world, as local banks, miners boost global payout growth

Janus Henderson Group

Australian dividends have recovered from a challenging 2020, registering record payouts in Q3 according to the latest Janus Henderson Global Dividend Index. Australia’s concentration in banks and miners boosted its performance, as financials restored dividends towards pre-pandemic levels and miners capitalised on high commodity prices.

In its most important dividend quarter for the year, Australia’s payouts grew by 126% on a headline basis, reaching a record A$41.9bn, compared to growth of just 11.3% for the rest of the world. Altogether, Australian companies were responsible for more than a third of the year-on-year A$69bn global increase in payouts delivered in Q3. This highlights the major contribution Australian companies are making to the global dividend recovery. The result is in part because Australian companies were among the worst hit last year, and payouts are rebounding from a low base.

Read the full article

Dividend payouts by Australian corporations grew $54 billion – almost 7 times as much as the Award wage increase

Research from the Centre for Future Work found that a 1% increase in Award wages increases the national wage bill by just $1.38 billion (because workers on Awards make so much less than average wages). So the 5.75% minimum wage increase announced by the Fair Work Commission will increase the national wage bill by less than $8 billion.

Compare that to the flood of extra income payouts resulting from Australia’s record corporate profits. Last year alone, dividend payouts by Australian corporations grew $54 billion – almost 7 times as much as the Award wage increase. And that doesn’t include other ways corporations payout extra cash to owners (such as share buy-backs, very common among companies that reaped more profits than they know what to do with).

Read the full article

If business leaders are worried about inflation, the most direct way to battle it would be to lower profit and dividends

Michael Buckland

Consider the facts. Inflation is caused by rising prices. The entities that set most of these prices are businesses. And they could accept lower profits in order to keep prices low.

Like wages, dividends paid flush money into the market, bidding up the price of everything including property, raw materials and manufactured components such as microchips.

More important, however, is where dividends come from: they are necessarily created by corporations charging prices in excess of what they require to survive. They are charging prices that can give a return to the shareholders. Their very existence is evidence prices are higher than they need to be for companies to be solvent.

So if business leaders are worried about inflation, the most direct way to battle it would be to lower profit, lower dividends, and pass the savings on to creating lower prices.

Read the full article

CEO pay slightly declined in 2022. But it has soared 1,209.2% since 1978 compared with a 15.3% rise in typical workers’ pay

Josh Bivens and Jori Kandra

CEO pay dipped in 2022 but remains enormous compared with the pay of other workers. CEOs are granted massive compensation packages by corporate boards because of their bargaining power, not because of their skills. CEOs’ exorbitant payouts have far outpaced the pay of typical workers over decades.

CEO pay is linked strongly to the stock market—and market declines in 2022 led to an uncharacteristic dip in CEO pay.

Cumulatively, however, from 1978–2022, top CEO compensation shot up 1,209.2% compared with a 15.3% increase in a typical worker’s compensation.

In 2022, CEOs were paid 344 times as much as a typical worker in contrast to 1965 when they were paid 21 times as much as a typical worker.

To illustrate just how distorted CEO pay increases have gotten: In 2021, CEOs made nearly eight times as much as the top 0.1% of wage earners in the U.S.

Read the full article

Shareholder pay-outs growing three times faster than wages under the Tories – TUC analysis

Shareholder pay-outs have soared £440bn above inflation since 2008, while wages have been squeezed, growing £510bn less than inflation.

Analysis demonstrates that the UK economy has the capacity for wage increases that workers are being denied.

Read the full article

Profits Without Prosperity

William Lazonick

Though corporate profits are high, and the stock market is booming, most Americans are not sharing in the economic recovery. While the top 0.1% of income recipients reap almost all the income gains, good jobs keep disappearing, and new ones tend to be insecure and underpaid.

One of the major causes: Instead of investing their profits in growth opportunities, corporations are using them for stock repurchases. Take the 449 firms in the S&P 500 that were publicly listed from 2003 through 2012. During that period, they used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock. Dividends absorbed an extra 37% of their earnings. That left little to fund productive capabilities or better incomes for workers.

Why are such massive resources dedicated to stock buybacks? Because stock-based instruments make up the majority of executives’ pay, and buybacks drive up short-term stock prices. Buybacks contribute to runaway executive compensation and economic inequality in a major way. Because they extract value rather than create it, their overuse undermines the economy’s health. To restore true prosperity to the country, government and business leaders must take steps to rein them in.

The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

Read the full article

Profits and the Pandemic

In August 2019, CEOs of 181 of the largest, most profitable, and most influential companies in America committed to move toward a more inclusive model of capitalism and pay their workers “fairly.”

The pledge to do business differently was a tacit acknowledgment that the long-dominant model of shareholder primacy was unsustainable. Over the past four decades, the rich have grown exponentially richer, capturing an ever-larger share of the economic pie, while wages for middle-class and low-wage workers barely budged. Nearly half of all American workers earn wages so low they struggle to cover even basic expenses.

Two years ago, the COVID-19 pandemic put these corporate commitments to the test. The lives of millions of low-wage frontline essential workers and their families were suddenly at risk. As the pandemic ripped through the economy, millions of these workers lost their jobs. Lines at food banks stretched for blocks, even as the stock market soared to new heights. The virus exposed and amplified the economy’s stark inequality.

Read the full article

Now even the Bank of England admits greedflation is a thing

A rebound in corporate profit margins over the next year could prevent inflation falling as quickly as the Bank of England is expecting. That’s not the conclusion of a leftist thinktank or trade union. It’s a clear message from the central bank itself, or more precisely from a group of its in-house economists, whose published research examines how a wide spectrum of businesses plan to cope over the next few months and into 2024.

The data is stark. According to the research, 45% of companies surveyed say they plan to increase their profit margins in the coming 12 months. Almost a third (32%) expect “no material change” to margins and only 23% expect to suffer a fall.

Phillip Inman: https://bankunderground.co.uk/2023/09/07/profit-margins-and-firm-price-growth-evidence-from-the-decision-maker-panel/#more-12755

Read the full article

Runaway CEO Pay Has Created the Perfect Storm for “Greedflation”

AFL-CIO Secretary-Treasurer Fred Redmond

So what is Greedflation?

It’s when CEOs force price increases onto working people as consumers while pocketing record profits and giving themselves a raise.
In fact, according to the Economic Policy Institute, corporate profits have accounted for half of all rising prices since the economic recovery from COVID began.

And the data from the AFL-CIO Paywatch report backs our definition of greedflation up.

Last year, S&P 500 Index company profits grew by a record 17.6 percent. And the CEOs of those companies received, on average, $18.3 million in total compensation. That’s an 18.2 percent increase in just one year. Meanwhile, workers’ real wages fell 2.4 percent after adjusting for inflation. during the pandemic, the ratio between CEO and worker pay jumped 23 percent.

Read the full article

Nixon’s Famous Price Freeze Did Stop Inflation

Barbara G. Ellis

Strange as it may seem to those who remember “Tricky Dickie” as the ultimate corrupt, conniving pollie (until Donald arrived), his political instincts were generally pretty sound as fas as survival goes. He could read the “vibe”, and his record includes health and safety laws and environmental laws that have been gutted since.

With inflation rising in the late 60s and early 70s (pre oil price shocks) he acted, against wishes of corporate executives, to freeze prices. It seems to have been successful for a time. “Boxed into a political corner by Patman, Nixon knew signing that bill would alienate major supporters: Big Business, Wall Street, the ruling class, profiteers, and the Republican National Committee. But as he emphasized to devastated political advisors and campaign staff about the impact on re-election chances in 1974: “I’ve never seen anybody beaten on inflation in the United States, [but] I’ve seen many people beaten on unemployment.” (Patman here was the driver of the push for price freezes. He was Chair of the House of Reps Banking Committee and a Democrat from Texas). Nixon hated it but knew he had to go along to get along. Ellis outlines what was right and wrong about it.

Read the full article

Unite Investigates: Profiteering across the economy—it’s systemic

Politicians, media, and the Bank of England still largely ignore the profiteering crisis – instead issuing warnings that workers may cause “spiralling” inflation if they demand wages rise to match living costs. But this narrative flies in the face of reality: real wages have seen their biggest falls in decades.

It also contradicts what firms themselves are saying. In a survey from March 2022, 56% of US retailers said inflation had allowed them to raise prices beyond what was required to offset increased costs, with 63% of large businesses reporting they were using inflation to boost profits. BP’s chief executive has said his business is a “cash machine”, while BMW’s chief financial officer talks about “a significant improvement in pricing power.” When they tell us they are ripping us off, we should listen.

Politicians try to shift the blame onto workers, while tinkering with minimal answers like an oil and gas windfall tax that is full of get-out clauses. But this report shows how the problem is systemic. Profiteering is rife both in “competitive markets” and where there is government regulation. Across a range of industries and markets, bosses and investors have been reaping gains from crisis – while the economy systematically fails the vast majority of us, both as workers and as consumers.

Unite’s first report on profiteering, published in June 2021, showed how many companies pushed up their profits at the end of the pandemic. Profit margins of the UK’s biggest listed companies – the FTSE 350 – were 73% higher in 2021 than they had been in 2019. Whilst the cost-of-living crisis continues, the profit margins of the FTSE 350 soared even further in the first half of 2022, reaching 89% higher than in the first half of 2019.

Read the full article