When U.S. President Joe Biden decided to take on inflation, he took a big swing directly at corporations.
He issued an executive order, set up a high-profile antitrust unit, told it to crack down on profiteering, and pinpointed exactly where he wanted to see action.
Airlines, telecommunications, prescription drugs, the web giants — the executive order called them out.
And Biden hollered loudly.
“The heart of American capitalism is a simple idea: open and fair competition,” the president said. “That means that if your companies want to win your business, they have to go out and they have to up their game: better prices and services, new ideas and products.”
The jury is out about whether any of this will actually bring prices back down to earth. But it certainly hasn’t hurt. And with inflation running so hot that low-income families are turning to food banks to make ends meet, everything is worth a try.
Contrast this with Canada’s approach.
Here, the focus is on making sure workers hit by higher consumer prices don’t push for higher wages. The fear is they’ll set off a wage-price spiral that would launch already-high inflation into the stratosphere.
Putting corporations on notice, on the other hand, has been far quieter and more passive — despite the very real possibility that companies may be tempted to jack up their prices now that everyone else is doing it.
Wages have been creeping up at a much slower pace than inflation. In February, average hourly earnings rose 2.7 per cent from a year earlier, while consumer prices rose 5.7 per cent. Of course, the numbers bounce around month to month, and wages are picking up a bit of steam. But they’re not on fire like the prices workers face when they go to buy their groceries or fill their cars with gas.
Just to make sure wages don’t surge, the federal government is easing the way for a huge influx of temporary foreign workers in low-wage industries. And the Bank of Canada is raising its key interest rate repeatedly in order to send a signal to the public that it would rather crush economic growth than let anyone start thinking that rising prices are here to stay.
Corporate profits, on the other hand, are on a breakaway. Net income for corporations across all industries was up 5.9 per cent in the fourth quarter of 2021 compared to the three months earlier. On an annual basis, non-financial industries were seeing profits 52.2 per cent higher, while financial industries were up 14.2 per cent on the year.
To be sure, profits a year earlier were in rough shape so the comparison is not perfect. But there’s enough known about the momentum in wages, profits and inflation to state with confidence that inflation is hot, wages are not, and corporations are profiting handsomely.
“Are they covering costs or are their margins and profits exploding as they exploit consumers’ willingness to pay more?” asks David Macdonald, senior economist at the Canadian Centre for Policy Alternatives and one of the few to take a hard look at that very question.
The response from federal authorities? It’s not nothing, but it leaves a lot to be desired.
When Russia invaded Ukraine and Canadian gas prices soared in February, Innovation Minister Francois-Philippe Champagne said he had better not find any companies trying to take advantage of that atmosphere.
Gas prices have climbed since then, and if there was any suspicious behaviour, it’s not anything the Competition Bureau wants to talk much about.
The bureau’s mandate during the pandemic and the ensuing inflation has been to ensure companies don’t start using supply chain issues as an excuse to raise prices beyond reason. According to its annual plan issued a month ago, “anti-competitive conduct related to supply chain issues and deceptive claims about support benefits” is its top priority.
The bureau will not talk about results though. A spokesman said he won’t confirm investigations and they’ll only become public if they go to court.
At the same time, the Competition Bureau is seeing its funding increased a bit, penalties are on the rise, and there will be a review of the legislation supporting the bureau, including a look at digital business practices.
That’s all completely appropriate given that the last review was about 14 years ago and Canada has fallen far behind its global counterparts in cracking down on anti-competitive behaviour.
But it’s hardly the loud warning that would prompt corporations to look hard at their costs before jacking up prices and exacerbating inflation.
Meanwhile, the Ottawa Food Bank reports its highest number of clients ever. Usage is up 20 per cent compared to a year ago, and up 39 per cent from 2017. One centre is serving more than 1,000 families a month, compared to its pre-pandemic 220, and is having a tough time keeping the shelves stocked.
“We are unsure of our sector’s sustainability if the numbers continue to rise at this pace,” says food bank CEO Rachael Wilson.
If that’s not something to holler about, what is?
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