This is an audio transcript of the Behind the Money podcast episode: Are big corporate profits to blame for inflation?

Michela Tindera
Imagine a world where corporate profits are seen as a bad thing, where a company can be accused of being too successful. It sounds sort of crazy, doesn’t it? Well, maybe not so much anymore, because as it turns out, there’s an idea.

Andrew Edgecliffe-Johnson
That profit is somehow selfish and it’s somehow excluding people in the wider economy from the gains that are being enjoyed by a very few at the top of the corporate ladder.

Michela Tindera
That’s Andrew Edgecliffe-Johnson. He’s the FT’s US business editor.

Andrew Edgecliffe-Johnson
We’re now seeing the conversation shift away from that sense that profit is always good. It represents growth, and that will filter through the wider economy and benefitting other investors in those companies.

Michela Tindera
And Andrew says that he’s seen it all over the place.

Andrew Edgecliffe-Johnson
So we’ve seen corporate watchdogs accusing retailers like Kroger and CVS of pandemic profiteering or wartime profiteering, even, for not reining in their prices at a time when their profits are swelling. We’ve seen Bernie Sanders, never exactly a big friend of business, but now questioning whether semiconductor companies really need government incentives to invest when they’re already making tens of billions of dollars in profits. And we have America’s largest labour union starting to use the language of greedflation to talk about high CEO pay. So this is coming now from national politicians, from state attorneys-general who complain about price gouging by everyone from meatpacking plants to baby formula companies. And notably, we’ve seen the president himself, Joe Biden, picking a fight with the two largest US energy companies.

Joe Biden
And we’re gonna make sure that everybody knows Exxon’s profits. Why don’t you tell them what Exxon’s profits were this year? This quarter? Exxon made more money than God this year.

Andrew Edgecliffe-Johnson
Criticising ExxonMobil and mocking Chevron’s so-called hurt feelings over his critique of its profits.

Michela Tindera
And Andrew’s heard about it first-hand.

Andrew Edgecliffe-Johnson
So I found myself at a breakfast in a very expensive hotel restaurant in midtown Manhattan a few weeks ago with a very senior CEO. Now, that was an off-the-record breakfast, so I can’t tell you who it was or exactly what we discussed. But at a certain moment in the conversation, he started complaining that his industry was being unfairly beaten up on. They’re making lots of money at a time when actually Washington should have been cheering it on. And this gave me extraordinary flashbacks to the kind of thing I used to hear after the financial crisis from Wall Street bankers.

Michela Tindera
And that made him realise that two things were happening at the same time.

Andrew Edgecliffe-Johnson
One was the emergence of this new language of what’s causing inflation, this idea of so-called wartime or pandemic profiteering. This notion of so-called greedflation that was popping up all over my email inbox every morning. And the other was the sense of hurt feelings among big US CEOs. And frankly, I think they’ve been quite mystified that they’re suddenly being targeted as the villains in this inflation story.

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Michela Tindera
On today’s episode, how corporate America is grappling with this new politics of profit. I’m Michela Tindera from the Financial Times, and this is Behind the Money.

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Hi, Andrew. Thanks for coming on the show today.

Andrew Edgecliffe-Johnson
Hi, Michela. Thanks for having me.

Michela Tindera
So we’re seeing this shift in public opinion around corporate profits. So how did we get here and where is this coming from?

Andrew Edgecliffe-Johnson
Well, one of the first things that really brought me on to this subject was noticing a return of something I haven’t really heard and seen for more than a decade, and that’s executives complaining that they’re being vilified or denigrated. And these words came around a lot when you used to talk to Wall Street bankers in 2009, 2010, soon after they’d all been bailed out by Washington. They very quickly switched to complaining that Barack Obama and other Democrats, other people in Washington, were calling them nasty names. And I found this quite baffling at the time. But we’re seeing that again.

Michela Tindera
And why now?

Andrew Edgecliffe-Johnson
Well, inflation is the big economic story at the moment. It’s staring consumers in the face every time they go shopping for groceries, every time they drive past the petrol station. Prices seem to have gone up. And that is a political problem for Joe Biden’s administration. When consumers start to think that everything is getting more expensive, they look around for somebody to blame. And right now, this may be a global problem, but in the US, they’re pointing the finger at their government. And what’s fascinating in Washington is that the government, in turn, is trying to share the blame around and it’s been pointing its finger at the behaviour of some of America’s biggest companies.

Michela Tindera
And so how are businesses and business leaders, executives reacting to this messaging? What are you hearing and what are you seeing?

Andrew Edgecliffe-Johnson
We had a really interesting letter written to the White House by the CEO of Chevron, which he complained that the Biden administration had been vilifying his industry at a time when it needed to work with it to try and address the energy shortages that were driving up prices. So that’s something that I’ve heard other executives applaud. They’re also incidentally saying that they don’t have a great relationship with this White House. They don’t feel that it picks up the phone when they, you know, when they want to talk. They feel that a lot of Democrats would rather avoid being seen with oil and gas executives at a time when maybe they should be talking about the future of the energy supply in the United States. And I think it does reflect a broader anxiety in corporate America about its standing with the current generation of political leaders who have been moving in a more populist direction.

Michela Tindera
So are political leaders simply just responding to demands from the public?

Andrew Edgecliffe-Johnson
There was a poll quite recently from Morning Consult which said that roughly a third of all voters saw companies’ attempts to maximise profits as the biggest contribution to inflation right now. Now, a third is not a majority, but that’s the same figure that’s pointed the blame at supply chain issues. And that’s massively more than the number of voters who thought that rising labour costs were to blame or something else. And what really struck me is that only 9 per cent of voters and only 2 per cent of Democrats think that companies are not responsible for inflation. So I think this is a winning message for the Democrats with their own voters. But I also think it’s resonating with a wider group of Americans than that. Even, you know, only 15 per cent of Republicans say that companies are not responsible for inflation. And I think we still traditionally think of Republican voters as much more pro-business.

Michela Tindera
This kind of rhetoric coming out of Washington, do you think that it’s related to the upcoming midterm elections?

Andrew Edgecliffe-Johnson
I’ve had a succession of conversations with Democrats and Republicans about the midterm elections, which very quickly pivot to a discussion about the economy. “It’s the economy, stupid,” we were told all those years ago, and it is still true that no president, no governing party wants to go into the midterms or any election with the economy in trouble. And inflation is the number one trouble spot in the economy right now. Gas prices, as discussed, are the most obvious of those, of the inflationary forces that politicians are worried that voters are gonna respond to.

Michela Tindera
But is it accurate? Are corporate profits causing inflation?

Andrew Edgecliffe-Johnson
We’re clearly not getting an economics lesson here from the people who are advancing this argument about corporate profiteering. But that’s not the point. The point is a) whether this actually changes the politics of inflation. Does it help Joe Biden sort of escape blame, if you like, for what’s fundamentally a global phenomenon and probably shouldn’t be put, you know, single-handedly at his door any more than it should at large corporations stores. But the second is, does it signal a shift in the winds around corporate profits more broadly? We’ve lived through a period of growing profits for corporate America. Wall Street has come to expect that investors are banking on this continuing. But if the politics get harder and if we are looking at a more populist environment, sucking in corporate America to that very different attitude, which seems to be resonating with a lot of voters, then that could really shift some of the assumptions that Wall Street is making about the future profitability of large US companies. That said, I don’t think if you speak to any serious economist and ask them what is the major cause of inflation right now, they would start with corporate profiteering.

Michela Tindera
What would an economist say is causing inflation?

Andrew Edgecliffe-Johnson
They’d probably all mention Russia’s invasion of Ukraine, which has massively disrupted energy supplies at a time when demand has been high. They’d mention the shortages of labour, which mean that restaurants are struggling to get enough people to work in the kitchens or to wait tables, that mean that airlines can’t get the pilots they need or the cabin crew to staff the flights at a time when people are actually coming back to flying again. And they’d almost certainly mention the supply chain problems that are running throughout the supply chain.

Michela Tindera
OK. So it’s a bit more nuanced, but why not corporate profits, too?

Andrew Edgecliffe-Johnson
I think one thing to remember is that high corporate profits have not happened suddenly in the same way as, say, high oil prices have, or massive disruptions to global supply chains. These have been creeping up for some time now. The step change outside a few industries which have been affected by those other factors. Driving inflation has not been so sudden as to be the singular explanation for why we’re seeing that inflation.

Michela Tindera
How do you see this playing out in the corporate world?

Andrew Edgecliffe-Johnson
I’ve spent a lot of my time in the last few years, and we at the Financial Times have spent a lot of our time tracking this shift in the corporate mood and in corporate priorities away from the Milton Friedman view of the world that a company had no social responsibility other than just to make a profit within the rules of the game to something that’s usually called stakeholder capitalism, which is this idea that companies should be looking after the interests of all of their stakeholders, so their employees, their customers, the environments, the other communities they work in and things like that, as well as their shareholders. And I think this argument, this debate that we’re having about the proper level of corporate profits is a real test of that supposed commitment to stakeholder capitalism that the biggest companies in America have made over recent years. And I think that is one reason why we’re seeing such anxiety from corporate executives about this narrative. It really tests the question of whether they will have to make some sacrifices, if they’re going to take as good care of their consumers as they do for shareholders.

Michela Tindera
Do you think any actual policy will or could come out of this criticism on oil and gas companies? Are there policies elsewhere that could rein in profits?

Andrew Edgecliffe-Johnson
Inflation is a political issue everywhere and the US is not unique in passing politicians try to shift the blame elsewhere or try to lower inflation by punishing large corporations. So we’ve seen Spain become the largest country in the eurozone to impose a windfall tax on banks. In response to this, it’s been heavily criticised by the banks as a crude form of populism.

Michela Tindera
Could you define just kind of what that is, windfall tax, what that would look like?

Andrew Edgecliffe-Johnson
It is essentially to impose higher taxes on the profits of companies above a certain level if they are deemed to be profiting unfairly and not sharing the pain with the consumer. But we’ve also seen other countries try and do the same. We’ve seen Hungary introduce similar measures. We’ve seen the ruling party in Poland warning that banks could be hit with a new windfall tax if they mistreat their customers. So I think there is a broader shift around and what’s happening in the US should be seen in that context.

Michela Tindera
But the idea of a windfall tax hasn’t really picked up steam in the US. So is there anything more realistic that might happen closer to home?

Andrew Edgecliffe-Johnson
So I suspect many of the Democrats who’ve been advancing this narrative of profiteering are hoping not just to pass the blame to corporate America, but to shame a lot of executives in corporate America into lowering their prices, or at the very least, stopping further price rises. But I do think that the more we hear about profiteering, about gouging by large corporations, the more that question is gonna rise to the fore about what is a proper and sustainable level of profit, which benefits not just the company itself or the people who run it and the people who have shares in it, but the wider society in which it operates at a time when it is claiming to be a good stakeholder capitalist.

Michela Tindera
So on one end, corporate executives feel like they’re being vilified. But on the other end, it seems like corporations have a more outsized role in our culture today than kind of any other time. How do you think those two things mesh or not?

Andrew Edgecliffe-Johnson
That’s a fantastic subject. What we think of as the social role of business has changed massively in recent years. But I think this debate now over profit, over what is proper profit versus profiteering, is raising a really interesting and difficult question, which is, does the social responsibility of business extend to making products affordable for the average consumer? And that is not a question that I’m hearing asked by many executives right now or by many of the politicians who are going after them for the profits that they’re making.

Michela Tindera
Yeah, I think it’s an interesting question because, you know, you see, you know, like last month was pride. You see, like businesses slapping a rainbow on whatever product. But maybe they’ve raised the price of it by 50 per cent compared to a year before. You know, it’s kind of an interesting dynamic there.

Andrew Edgecliffe-Johnson
And that gets into another important point, which is there is growing concern about potential hypocrisy in some of those activities that companies have engaged in, some of the marketing of their social responsibilities, their social activities, if you like. There’s this question of the social responsibility of business. The place of business in our society is increasingly contested. We’re seeing not just sceptical lefties who’ve always worried about the role of big business, about the power of big companies. But now we’re seeing a lot of people on the right who think that companies have been too powerful in these debates about everything from immigration to abortion, and they’re uncomfortable with that. And they’d like to see companies get back in their box and just concentrate on the bottom line again. And so this context, I think, colours the debate about the proper sort of social role, if you like, that corporate profits play as well.

Michela Tindera
So where do you see this going in the coming months?

Andrew Edgecliffe-Johnson
I think the heat is gonna rise as we get closer to the midterm elections unless we see a sudden and surprising reversal in inflation. But I think the shift to a more populist view of corporate profits is something that is gonna be with us long beyond the midterms. I think if we assume that Republicans do take the House and maybe the Senate, there are plenty of big corporations in their sights, too. There are lots of big, big executives who Republicans do not feel very fondly about right now who could have a pretty sticky time of it in the new Congress. I think that shift to a more populist view of big companies and the profits they’re making is something that’s gonna be with us for some time to come.

Michela Tindera
So with that, I just wanted to say thank you for coming on the show today.

Andrew Edgecliffe-Johnson
Thanks for having me, Michela.

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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Stephanie Horton is our contributing producer. Topher Forhecz and Manuela Saragosa are executive producers, sound design and mixing by Sam Giovinco. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

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