Member States of the European Union are experiencing unprecedented rates of inflation. In Germany, inflation hit double digits at 11 percent, while Austria follows closely at 9.3 percent. These rates can be attributed to supply chain disruptions and fossil fuel shortages caused by Covid-19 and the invasion of Ukraine – until recently both countries were hugely dependent on energy. EU citizens now face skyrocketing prices, not only in energy supply, but in all other areas of life, including food. At the same time, companies in some sectors are recording windfall profits, caused by shortages of strategic resources. Faced with this collapse of market mechanisms, the state must intervene.

US energy company ExxonMobil is expected to post $43 billion in profits this year, double the previous year. The same goes for oil giant BP (British Petroleum), whose first-quarter profits of $9.1 billion were triple those of a year ago. The German energy group RWE increased its profits by a third in the first half of 2022, to 2.8 billion euros. Austria’s ÖMV recorded a 124% increase in profits over the same period.

greed

Joe Biden Slams ExxonMobil Profits and Everyone Else Profiting from the Crisis: “We’re Going to Make Sure Everyone Knows This [about] Exxon’s profits. ExxonMobil has made more money than God this year. The implication is that Exxon’s profits are not a reward for improved performance, achieved through investment and technological progress. On the contrary, they reinforce the belief that companies in oligopolistic and monopolistic strategic sectors exploit consumer dependence in the crisis and demand disproportionate prices for essential products. This has been dubbed “greedflation” in the United States. Meanwhile, European Commission President Ursula von der Leyen declared war on this phenomenon in her State of the Union address: “In these times, it is wrong to receive extraordinary record profits through to war and on the backs of consumers”.

The concept of greed challenges the traditional view of the market, based on the balance between supply and demand. From this perspective, the unlimited maximization of corporate profits in a market economy is perfectly natural and certainly not a matter of greed. Greed, on the other hand, raises the question of whether high selling prices are really the result of higher production costs. It also puts the very structure of the market under closer scrutiny. While the supply and demand model sees inflation as the result of natural competition, greed defines it as being driven by the naked greed of big business and cartels.

In the United States, while between 1979 and 2019, wage increases accounted for 61.8% of price increases, since 2020, they represent only 7.9%.

In other words, these profits are not made through improved performance, stimulated by competition, but enabled by the monopoly position of firms. In such a market, in the absence of an alternative, prices can be pushed up at will. This type of monopolistic market structure is fundamentally problematic, causing even free market proponents to doubt the viability of market self-regulation.

The pricing powers of corporations in monopolized markets are so great that they accelerate inflation. Such windfall profits almost inevitably lead to a social crisis, when inflation is not dampened by higher wages. Indeed, since 2020 we have witnessed a downward spiral in wages and prices. In the United States, for example, if between 1979 and 2019 wage increases accounted for 61.8% of price increases, since 2020 they have only accounted for 7.9%. In the current dynamic period, characterized by sharp price increases and falling real wages; The question arises more and more of the justification of this market order, not to mention the question of social power.

Creation of an exceptional tax

Strange time, indeed, when the German and British trade unions embark on wage negotiations with demands for a 10% wage increase, while the French industrial unions are demanding a 25% increase in the minimum wage?

One idea of ​​how this wage-profit spiral can be tamed to restore social balance in price formation is what is known as an excess profit tax. This might more accurately be called a windfall tax. Disproportionate profits without a significant increase in performance or increase in production costs should be taxed.

In the meantime, many European states have introduced an excess profit tax. In the UK it is 25%, while Spain expects it to bring in €7 billion over the next two years.

Bernie Sanders put this approach on the American agenda in March 2022. But that’s not new. An excess profits tax was imposed in the United States during World War I and World War II to absorb windfall corporate profits derived from the extraordinary circumstances of wars. More recently, this was applied during the oil crisis of the 1980s. In the meantime, many European states have introduced an excess profit tax. In the UK it is 25%, while Spain expects it to bring in €7 billion over the next two years. Norway expects a 50% increase in tax revenue this year. There is political reluctance in Austria, although the Austrian Trade Union Federation estimates that such a tax would bring in 4 or 5 billion euros.

While some governments are dithering, the European Union could intervene. In its proposal for a regulation on emergency measures in response to high energy prices, the European Commission proposes a “solidarity levy” on the excess profits of the fossil fuel sector in 2022. This levy would amount to to 33 percent of taxable profits. From a trade union perspective, it is clear that the myth that corporations “earn” high profits, regardless of market structure, is untenable in times of war. Or, as Ursula von der Leyen puts it: “the benefits should be shared”. The trade unions will take the President of the Commission at her word and ensure that this does not remain empty rhetoric.

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