Saturday, March 25, 2023

Capture economy, raise prices: WB, us, India firms hit highest profits

Shivaji Sarkar

The high inflationary trend that has gripped India is stated to be a global phenomenon of corporate adventure to maximize profits through controlling the political system even in times of economic distress.
The western inflation trends have severely impacted Indian economy forcing the government to squeeze expenditure, the RBI increasing interest rates, plummeting rupee and the society compromising on lifestyle.
The US and UK studies are concerned about the corporate ingress into the governance structure in different countries. The US studies are specific that the corporate are raising prices, having increase in profits and transferring costs to consumers.
Indian inflation has risen to 6.82 percent in July from 6.43 percent in June and 3.92 percent a year back. As per the wholesale index it is at 13.93 percent. Primary articles cost 15.04 percent more, food 9.41 percent, manufactured products 8.16 percent and fuel and power 43.75 percent. But International Monetary Fund puts India’s growth at 7.4 per, faster than the rest of the world though some others show different lower figures.
In the US inflation remains at 8.7 percent, a bit lower than the highest reached in 40 years at 9.1 percent. Inflation in Britain is at the highest level since 1982. At the August weekend, the UK hikes electricity and gas bills by 80 percent, in a dramatic worsening of the cost-of-living crisis. Overall consumer inflation is at 10.1 percent. It may head for a negative growth next year, the Citibank predicts, and prices are likely to rise by 18 percent.
In contrast, Reserve Bank of India (RBI) Governor Shaktikanta Das says that the apex bank is moving towards the four per cent inflation target in a steady manner, without much growth sacrifice. After hitting its peak in April 2022, Das expects retail inflation to ease to four per cent by 2023-24. Assuming crude oil prices at $ 105 per barrel, the RBI Governor stated that current account deficit (CAD) will be manageable and its financing to be done in a reasonably comfortable manner in 2022-23. Real gross domestic product (GDP) growth projection as per the August MPC is fixed at 5.4 percent though overall growth rate forecast remains unchanged at 7.2 percent.
It looks brighter but the way the corporate are raising prices and maintains a profit trend that may hurt the people world over and Indian government in particular rushing through many infra projects. Rising prices has become a global trend for various reasons including that is attributed to Russia-Ukraine war that has changed lifestyle on both sides of Europe.
In 2021, US companies logged their most profitable year since the 1950s, as many took advantage of economies of scale and other more efficient production processes. Yet, firms increasingly held on to the savings they gained from these reduced costs, rather than passing them on to customers in the form of lower prices, according to Alexander J Mackay. He says that between 2006 and 2019 the difference between prices charged and the marginal cost incurred by a company climbed about 25 percent. The new US commerce department data show corporate earnings jumped 35 percent in 2021, while workers got an 11 percent bump.
In 2017, Senator Sheldon Whitehouse notes that America faces a crisis of corporate capture of democratic government, where the economic power of corporations has been translated into political power with disastrous effects for people’s lives. He warns that “corporations of vast wealth and remorseless staying power have moved into our politics to seize for themselves advantages that can be seized only by control over government” through what he calls, the “immense pressure deployed by the corporate sector in our government.”
Corporate interests can vastly outspend labor or public interest groups on the US elections, he says. In 2014, business interests spent $1.1 billion on state candidates and committees compared to the $ 215 million that labour groups spent.
That same year, business political action committees (PACs), spent nearly $380 million in federal elections, while labour union PACs gave close to $60 million. In 2016, it is estimated that $1 out of every $8 went to super PACs. They from corporate sources raised $ 1.8 billion for the 2016 elections. He found that $ 800 million of political spending were from obscure donors.
Mackay apprehends that large political contributions will prevent Congress from tackling the important issues facing Americans today, like the economic crisis, rising energy costs, reforming health care, and global warming.
Corporate lobbying is part of the UK politics and this helps change decisions in their favour. The corporate power has turned Britain into a less honest state, a Guardian report says and are marked by government policy changes.
A World Bank publication “Seize the State, Seize the Day” : State Capture, Corruption, and Influence in Transition, says some firms in transition economies have been able to shape the rules of the game to their own advantage, at considerable social cost, creating what it calls a “capture economy” where public officials and politicians privately sell “a range of rent generating advantages “a la carte” to individual firms. “The State capture, influence and administrative corruption are all shown to have distinct causes and consequences”, the study says.
A 1981 report in Economic and Political Weekly says that dependence of the private economy in India has come to mean its dependence on the political parties. For the last over two decades they are supposed to have played roles in decision making. The top 20 companies continue to have 70 per cent profits, as per Mercilius Investment Managers, and higher product prices in a supposedly subdued market. Unilever, Suzuki Motor, and JSW Steel all are in the game of raising prices. They also opt for reducing the pack sizes. The official mechanism only occasionally delves into their affairs.
India has brought transparency into donations through electoral bonds in 2016, former minister Arun Jaitley mentioned in his 2017 budget speech. Election Commission tells Supreme Court in March 2019 in an affidavit that the electoral bonds wreck transparency in political funding and with removal of cap on foreign funding, they invite corporate powers to impact Indian politics.
Corporate are becoming cleverer and know their ways. To counter big money, rebalancing of democracy and empowering people to engage politically as a countervailing force across the globe are necessary through rule changes. It sounds good but not easy so prices and profits may not be put in check for the consumers.

Don't Miss

Must Read