Profit Slorping Big Business Hates One Thing Above All Else: Competition

If a company sets its profit levels based on cost of goods sold or services provided, all those nasties that pushed prices through the roof in the post-pandemic era actually benefit corporate America. Huh? Even though the average percentage of revenue attributed to profits almost never, until recently, exceeded 11% (it’s up today, past 12% and rising, as no surprise to you), in terms of hard dollars, it’s pretty obvious that a stable percentage of a much larger and rising gross revenue number will produce more money, more profits.

Simply, if your profit level is 10%, if your pricing structure is based on $1 billion in revenue, that’s a tasty $100 million. But if prices rise, and consumers are willing to bear those increased costs (some as high as 20% or more above pandemic pricing), clearly gross revenues rise proportionately. So, a pricing structure based on a 20% revenue increase, even as the percentage level of profits remains the same, under the above hypothetical: 10% x $1.2 billion = $120 million… adding that whoppingly higher number to that company’s hard dollar profits. Oh, and all those hard dollar cost increases have already been passed on to your consumers!

Global supply chain costs – from underlying materials to shipping – are somewhat amplified further by our higher wages and the higher interest rates mandated by the Federal Reserve. Consumers exploded out of the pandemic with deferred and pent-up spending, undeterred by steadily increasing prices. So, with so much demand, corporate America had little reason lower prices… so they didn’t.

As former Labor Secretary Robert Reich said in 2022: “If corporations were competing vigorously against each other, they’d swallow these cost increases in order to keep their prices as low as possible — especially when they’re making huge profits. Yet corporations have been raising prices even as they rake in record profits. That’s because they face so little competition that they can easily coordinate price increases with the handful of other big companies in their industry. That way, all of them come out ahead — while consumers and workers lose.” It’s a vicious cycle, wages rise to meet a higher cost of living, then factored into the determination of profits, but instead of reducing profits, as noted above, they actually increase profits. The Federal Reserve sees all this as inflationary and has elected to keep interest rates high to compensate. Ouch!

Making this even more painful has been the government’s silent hand in making matters much worse, at regulatory, legislative and judicial level. We do not tax most wealth (except real estate property taxes, money garnered from the sale or transfer of assets and estate taxes), so as corporations build corporate value – usual a multiple based on “earnings” calculated in one form or another – while the profits themselves can be subject to tax, the disproportionate rise in corporate value (remember, it’s usually based on a multiple) is not.

The Trump-era reduction in the federal corporate tax rate (from 35% to 21%) resulted more in a flurry of mergers and acquisitions with virtually no impact on productivity or creating new good jobs… which tanked the federal deficit by trillions of dollars, another inflation factor which the Federal Reserve notes. Added to these missteps is the pattern of a reduction in corporate regulations and antitrust pressure over the past 50 years. Mergers and acquisitions, which most certainly reduce the number of competitors, have slid by the FTC and Congress with minimal limitations. The Biden appointed a new aggressive head of the Federal Trade Commission, Lina Khan, who has returned to deploy antitrust laws with a vengeance.

But federal regulatory agencies have been seriously eviscerated by the recent Supreme Court rejection of the decades old practice where courts deferred to governmental regulatory expert analysis and interpretation, usually in complex arenas – the “Chevron Deference.” Now trial courts, usually deeply off-base, are able to use their amateur skills and biases to overrule exceptionally educated scientists and economists. Consumer fraud, corporate shenanigans (and there are many), food and drug analysis, etc. are now regulated by defanged federal agencies.

One such example is the recently accelerated use of non-compete agreements – which limit what jobs an employee can pursue after leaving. These were used as tools to keep highly compensated senior employees and engineers from filching clients, financial information and business plans, engineering designs and other clearly private proprietary values when moving to a new employer. But now – as reported by LA Times correspondent Michael Hiltzik on July 10th – “Once applied chiefly to executives, engineers and others with access to a company’s trade secrets, they have expanded to cover almost anybody — low-wage security guards, rank-and-file factory workers and even fast-food counter workers… A recent academic survey estimated that nearly 1 in 5 American workers, or about 30 million people, are subject to noncompetes…

“Noncompetes tend to suppress wages. They also undermine innovation… For these and other reasons, the Biden administration took aim at noncompete clauses in 2021, instructing the Federal Trade Commission to ‘curtail’ those that ‘may unfairly limit worker mobility.’… After more than a year of study, the FTC followed through with a proposed rule, issued April 23 and scheduled to take effect Sept. 4, that banned new noncompetes and forbade the enforcement of existing clauses except for senior executives who were already subject to the restrictions.

“You probably know what happened next: Big Business, in the form of the U.S. Chamber of Commerce, sued to block the FTC’s rule. The lawsuit was filed not in Washington, D.C., where the agency resides, but in Texas, where it was almost certain to come before a conservative judge appointed by a Republican… Sure enough, it came before federal Judge Ada Brown of Dallas, a Trump appointee, who on July 3 blocked the FTC from implementing or enforcing its rule until further notice.” Huh? This Texas federal judge is consistent with other Trump-appointed trial judges, in red districts where either there is a small panel of available of rightwing biased judges or it is a rampantly conservative judicial venue.

Why else would a judge in a court farfrom the federal courts in Washington, D.C., which are traditionally the venues where national issues and where the relevant regulatory agencies are focused? It’s called “forum shopping,” and these are the venues for evangelically biased, pro-business supporting and conspiracy theory loving plaintiffs. Administrative agencies hate these courts, and often the federal appellate circuit above them, because they have led the charge on the bulk of major cases that have led to anti-abortion, voting rights, and administrative oversight limiting decisions that have made their way to the US Supreme Court. Winners: evangelicals, conspiracy theorists and mega-wealthy players. The losers: all the rest (most of us).

I’m Peter Dekom, and we all should be acutely aware that one of the most powerful realities of the American presidency is the ability to reshape the nation for decades to come via the ability to appoint federal judges (with a lifetime term).