Big companies defy expectations to become even bigger

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Two of the biggest business trends in the past few years have been record amounts of labour action and a rise in antitrust cases. This year alone, for example, America has recorded the most working days missed due to strikes in almost a quarter of a century, and has also seen the most aggressive anti-monopoly action in decades. Both of these trends, which are also present in Europe and elsewhere, are a reaction to decades of corporate consolidation and record profits.

While it once seemed that rising wage inflation and a pandemic-era trend towards supply chain de-risking would start to erode corporate power, the latest UN Trade and Development Report shows that hasn’t happened yet. In fact, both consolidation and profits increased dramatically during Covid-19, with worrisome repercussions including price gouging and food insecurity. 

If concentration is a concern in the rich world, it is even more of one in poorer nations. High levels of export concentration among the largest 2,000 firms globally increased during the pandemic. This was particularly true in developing countries, where data shows that the top 1 per cent of exporting businesses within each country received between 40 and 90 per cent of total export revenues for the nation as a whole. The median rate of corporate export concentration in a database of 30 developing countries is a whopping 40 per cent.

The authors of the Unctad report note that this increase during the pandemic raises “concerns about market control and the distribution of the gains from trade” in countries that were previously counting on trade expansion to put more people in work.

The rise in corporate concentration has also mirrored the continued decline of labour share globally, which is down from 57 per cent in 2000 to 53 per cent today. As the authors put it: “The declining labour share and the rising profits of [multinationals] point to the key role of large corporations dominating international activities . . . [and] driving up global functional income inequality”.

This divide has had particularly pernicious effects in commodities markets. Despite a softening in demand, many commodity prices have not returned to pre-pandemic levels. Fuel and agricultural commodities in particular are still elevated, leading to food insecurity for millions.

Financialisation plays a key role in this. “The growing importance of financial activities as part of the business model of companies has become an amplifier of their power,” says Richard Kozul-Wright, director of Unctad’s globalisation and development strategies division, “creating many more chokepoints that can be used to extend the bottom line.”

According to the report’s authors, “unregulated activity within the commodities sector contributes to speculative price increases and market instability” that has exacerbated the global food crisis. They go so far as to blame corporate price gouging for a large chunk of high food prices. “Profiteering from financial activities now drives profits in the global food trading sector.”

Indeed, a vicious cycle has emerged between higher energy and food production costs, reduced farm yields and higher food prices. Rising fertiliser prices mean farmers use less of them, which means lower yields and higher inflation. The snowball cycle of higher prices is exacerbated by higher interest rates, which raise the cost of all inputs.

And yet, in the middle of rising prices, big commodity trading companies have enjoyed record profits. In July 2023, Oxfam estimated that 18 large global food and beverage companies had made windfall profits of $14bn in the previous two years.

How much of that is due to price gouging? It is impossible to know, but one Allianz report estimated that 20 per cent of food inflation was down to profiteering. Another study from Greenpeace found that the 10 leading momentum-driven hedge funds made $1.9bn trading on food prices in the first three months of 2022 as the war in Ukraine began.

Unctad finds correlation, though no causation, between corporate profiteering, the use of financial instruments and food volatility. Showing causal results is difficult, partly because hedging is part of the business model of commodity companies, but also due to opacity in the sector. Only eight out of the top 15 food trading companies are publicly traded.

Still, there’s a strong link between historic profits at the top four food traders — ADM, Bunge, Cargill and Louis Dreyfus — and periods of price volatility. At the very least, this suggests that we need to scrutinise how commodities companies are using financial instruments to hedge their own commercial positions, versus trading designed to ride a wave of market volatility. This was something that US regulators attempted to crack down on with the 2010 Dodd-Frank Act, after the 2008 crisis. Unfortunately, their efforts were diluted, thanks in large part to lobbying by Big Food.

The link between corporate profits and hunger is just the most egregious example of a balance of power between capital and labour that has become dangerously out of kilter. Global strikes and antitrust action are a reaction to this, and will undoubtedly continue until the pendulum swings back, as it slowly but surely always does when economic systems become unbalanced. I expect calls to reform the global trade system, which is itself both complex and opaque, will continue, too. 

rana.foroohar@ft.com