tag:theconversation.com,2011:/us/topics/corporate-profits-76304/articlesCorporate profits – The Conversation2023-12-19T00:02:42Ztag:theconversation.com,2011:article/2193162023-12-19T00:02:42Z2023-12-19T00:02:42ZAmid allegations of price gouging, it’s time for big supermarkets to come clean on how they price their products<figure><img src="https://images.theconversation.com/files/565402/original/file-20231213-23-483trl.jpg?ixlib=rb-1.1.0&rect=0%2C14%2C4992%2C3308&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/minded-man-viewing-receipts-supermarket-tracking-1980000383">Denys Kurbatov/Shutterstock</a></span></figcaption></figure><p>With inflation driving up the cost of living, many are dreading not just the hassle of a big grocery shop, but also the bruising cost.</p>
<p>But while Australians struggle with their budget and spending, several major supermarkets made large profits in 2022–23. Coles and Woolworths, for example, made net profits of <a href="https://www.theguardian.com/business/2023/aug/23/woolworths-posts-162bn-profit-with-dramatic-lift-in-margins-despite-cost-of-living-crisis">A$1.1 billion and A$1.62 billion</a>, respectively. </p>
<p><a href="https://www.news.com.au/finance/money/costs/coles-and-woolworths-chief-executives-to-face-senate-inquiry-into-supermarket-price-hikes/news-story/0f74b6d4cac20ee65b818642f4f554ba">Allegations of price gouging</a> by Australian supermarkets have even led to a <a href="https://www.abc.net.au/news/2023-12-03/greens-move-to-establish-senate-inquiry-into-supermarkets/103179656">Senate inquiry</a> into supermarket pricing.</p>
<p>Coles chief executive Leah Weckert has <a href="https://www.colesgroup.com.au/media-releases/?page=coles-group-statement-on-senate-inquiry-into-supermarket-prices">promised</a> to appear at the inquiry, saying the company “works hard to keep prices affordable for Australian households […]” and is ready to “engage in an informed discussion on the factors that influence supermarket pricing.”</p>
<p>Woolworths Group chief executive Brad Banducci, meanwhile, <a href="https://www.woolworthsgroup.com.au/au/en/media/latest-news/2023/woolworths-group-confirms-ceo-will-appear-at-senate-inquiry-on-s.html">said</a> he welcomes the chance to explain to the Senate “how we are working to balance the needs of our customers, our team and our suppliers in the context of economy-wide inflationary pressure”.</p>
<p>But why wait until a Senate inquiry to explain all that? There’s an opportunity <em>now</em> for the big supermarkets to be more transparent about how they decide what prices to put on products.</p>
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<h2>Allegations of price gouging</h2>
<p>It’s not just <a href="https://www.abc.net.au/news/2023-12-03/greens-move-to-establish-senate-inquiry-into-supermarkets/103179656">politicians</a> and <a href="https://au.finance.yahoo.com/news/woolworths-photo-exposes-everything-wrong-with-supermarkets-002726485.html">customers</a> complaining about supermarket prices.</p>
<p>Australian farmers have also accused Coles and Woolworths of price gouging for <a href="https://www.news.com.au/finance/business/retail/aussie-farmer-shipping-beautiful-melons-to-japan-rather-than-deal-with-coles-and-woolworths/news-story/bd685cd91f934f31c02c764097f496ae">fruits and vegetables</a>, claiming supermarkets profit too much from their crops. </p>
<p>The National Farmers’ Federation has <a href="https://www.freshplaza.com/oceania/article/9583132/farmers-call-for-price-transparency-beyond-supermarket-inquiry/">called</a> for greater transparency from the supermarkets on how they decide prices. </p>
<p>A recent <a href="https://www.freshplaza.com/oceania/article/9583132/farmers-call-for-price-transparency-beyond-supermarket-inquiry/">survey</a> by AUSVEG (the peak industry body for the Australian vegetable and potato industries) found 34% of vegetable growers are considering leaving the industry in the next 12 months as they <a href="https://www.news.com.au/finance/business/retail/aussie-farmer-shipping-beautiful-melons-to-japan-rather-than-deal-with-coles-and-woolworths/news-story/bd685cd91f934f31c02c764097f496ae">struggle</a> to turn a profit.</p>
<p>When asked about calls for more transparent pricing, a Woolworths spokesperson told The Conversation:</p>
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<p>We publish both our average gross margin and EBIT (earnings before interest and taxes) margin transparently in our public financial reports.</p>
<p>Supply chain costs are different for every product and they are constantly fluctuating, as are our buying costs in the case of fresh food like fruit and vegetables.</p>
<p>Shoppers are very savvy. We operate in a highly competitive industry and we know our customers will – and do – shop around to find the best value.</p>
<p>As we start to see the rate of inflation ease, we will continue to focus on delivering savings to our customers.</p>
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<p>Coles was also contacted for comment but did not reply before publication deadline.</p>
<h2>Factoring in many costs</h2>
<p>When a retailer buys products from their suppliers, it involves a supply chain that includes supply, manufacturing, transportation and distribution, warehouse and storage. </p>
<p>There are several costs – such as product costs, transportation fees, labour, rent, inventory and more – involved at every step of the process. </p>
<p>The supermarket must factor in all costs, as well as its profit margin, when it sets the selling price for a product.</p>
<p>Organisations usually have these cost breakdowns as part of their internal decision-making – but they don’t typically disclose these calculations to their customers.</p>
<h2>Not disclosing the cost breakdowns</h2>
<p>The problem for supermarkets is that when they don’t disclose details such as their buying price or supply chain costs, it can contribute to anger among customers and suppliers.</p>
<p>Apple and Pear Australia Limited – the national peak industry body for apple and pear growers – has <a href="https://apal.org.au/retailers-need-to-demonstrate-greater-price-transparency/">called for</a> retailers to demonstrate greater price transparency, saying, “frustration at the behaviour of the major retailers has again angered many growers”.</p>
<p>Of course, supermarkets use several pricing strategies to win customer support – such as locking in prices for a certain period of time, everyday low prices on key products, specials, price-matching and discounts. </p>
<p>Supermarkets spend millions of dollars on these price-related advertisements, but perhaps they would get more community support by simply disclosing cost breakdowns on their websites and in-store to show their commitment to transparent and fair pricing. </p>
<h2>Transparent and fair pricing</h2>
<p>Research shows price transparency helps businesses build trust with their <a href="https://fastercapital.com/content/The-Importance-of-Price-Transparency-in-Pricing-Psychology.html">customers</a>.</p>
<p>Many major retailers already have this information for internal decision-making, so could display this online and in stores. </p>
<p>Yes, prices change constantly due to factors outside their control – such as fuel prices, shipping problems or even supply chain issues linked to global conflict. But being more open with customers about these issues could help repair relationships and their public image.</p>
<p>Perhaps there may even be a role for government, which could collaborate with supermarkets and retailers to develop policies for transparent and fair pricing. </p>
<p>Everyday Australians deserve to be treated fairly and given the information they need about how major supermarkets price their products, so they can make informed decisions at the checkout.</p>
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<p class="fine-print"><em><span>Sanjoy Paul does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Why wait until a Senate inquiry to explain how supermarkets come up with the prices in their stores? There’s an opportunity now for the big supermarkets to be more transparent on pricing.Sanjoy Paul, Associate Professor, UTS Business School, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2007002023-03-06T19:03:32Z2023-03-06T19:03:32ZUnderlying Australia’s inflation problem is a historic shift of income from workers to corporate profits<figure><img src="https://images.theconversation.com/files/513559/original/file-20230306-20-e5xeu0.jpg?ixlib=rb-1.1.0&rect=0%2C473%2C8328%2C4201&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The three years since the onset of the pandemic have witnessed a dramatic redistribution of national income, away from labour compensation and towards business profits. </p>
<p>No one should be surprised. Supply-chain disruptions, pent-up consumer demand and inflation have provided businesses with a golden opportunity to increase their margins. Many have taken it.</p>
<p>The latest <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release#income">GDP data</a> from the Australian Bureau of Statistics confirms that, in the three years since December 2019, corporate gross operating profits have risen 43.6% – more than twice the growth in wages.</p>
<p>As a result, the share of GDP going to corporate profits has increased by 3.6 percentage points. Conversely, labour’s share shrank by 2.3 percentage points, despite low unemployment rates and rising nominal wages. Even hard-pressed small businesses, personified by the friendly neighbourhood café owner, did better. </p>
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<p>The 29% share of national income now going to corporate profits is the highest in Australian history – higher even than 2020 when profits were temporarily boosted by JobKeeper payments and other business subsidies. Meanwhile, workers’ share of GDP reached its lowest point ever (just 45%).</p>
<p>The decline has implications for inequality and social cohesion. It is translating into a notable decline in workers’ real living standards, and exacerbating the rise in inflation.</p>
<h2>No, it’s not all about mining</h2>
<p>Some claim the rise in profits <a href="https://www.afr.com/work-and-careers/workplace/business-says-unions-profit-focus-creates-us-v-them-narrative-20220722-p5b3sx">is solely due</a> to supercharged energy and mining prices, and hence does not indicate any general shift in distribution patterns. </p>
<p>The Business Council of Australia’s head, Jennifer Westacott, has <a href="https://www.afr.com/work-and-careers/workplace/business-says-unions-profit-focus-creates-us-v-them-narrative-20220722-p5b3sx">even claimed that</a> the profit share of non-mining businesses has fallen. </p>
<p>Her calculation is flawed: it excludes mining from one part of the equation (profits) but not the other part (nominal GDP). In 2022 mining’s contribution to GDP <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/dec-2022/5206045_Industry_GVA_Current_Price.xlsx">exceeded 15%</a>. </p>
<p>An apples-to-apples comparison, measuring non-mining profits to non-mining GDP, shows profits have grown relative to GDP in most of the economy, not just in mining. While mining profits surged 89% in the three years to December 2022, non-mining profits increased 29% – faster than non-mining GDP, and much faster than wages.</p>
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<p>In sum, the redistribution of national income is occurring across the economy, with a smaller share for workers and a larger share for the owners of the businesses they work for. </p>
<h2>Real wages have plummeted</h2>
<p>This decline in labour’s share of GDP just since the pandemic represents foregone earnings of close to A$5,000 a year per employee, on average. </p>
<p>This extends a longer-term ongoing erosion of labour’s share of GDP that has been occurring since the 1980s. It has occurred despite a modest uptick in nominal wage growth, and statutory increases in superannuation contributions by employers (which are included in the statistics above). </p>
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<p>Post-COVID inflation has caused a steep fall in the absolute purchasing power of wages. </p>
<p>This is confirmed by the ABS <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release#data-downloads">Wage Price Index</a> (WPI), which reports changes in average wage levels. It’s a good measure of pure wage inflation, analogous to the Consumer Price Index (CPI) for consumer goods and services. </p>
<p>The latest WPI data shows nominal wages rose 3.3% in the 12 months to December 2022. But with the CPI rising 7.8% in the same period – the biggest gap between the WPI and CPI since the Australian Bureau of Statistics began gathering this data in 1997 – wage growth has now lagged consumer prices for seven consecutive quarters. This is also a record.</p>
<p>As a result, real wages have fallen by 5% in the three years since December 2019.</p>
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<p>(The temporary spike in real wages in mid-2020 was an unusual consequence of lockdowns, which most affected low-paid jobs in sectors like hospitality and retail. The loss of these jobs pumped up average wages for the rest, but that was reversed when those sectors re-opened after the lockdowns.) </p>
<p>The real purchasing power of wages is now back to the same level as 2010. More than a decade’s worth of gradual improvement for Australian workers has been wiped out. </p>
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<p>Worse, more losses are to come through 2023, and likely much of 2024, according to <a href="https://www.rba.gov.au/publications/smp/2023/feb/pdf/statement-on-monetary-policy-2023-02.pdf">Reserve Bank of Australia forecasts</a>.</p>
<h2>Why is the RBA focused on wages?</h2>
<p>Claims that businesses are mere intermediaries in inflation – simply passing on higher costs to consumers – are disproved by the growth in corporate profits.</p>
<p>This is most starkly visible in mining and energy prices, one of the largest sources of recent CPI inflation. But even in non-mining sectors prices have increased faster than required simply to offset higher costs. </p>
<p>In <a href="https://futurework.org.au/report/profit-price-spiral-the-truth-behind-australias-inflation/">other research</a>, I have estimated the rise in corporate profits since December 2019 (both mining and non-mining) accounts for 69% of the jump in inflation above the RBA’s 2.5% target.</p>
<p>Workers are already paying for higher inflation through falling purchasing power. They will pay again through job and income losses from any economic slowdown (potentially a recession) caused by the RBA’s response to that inflation. </p>
<p>Yet the RBA remains narrowly obsessed with supposedly overheated labour markets and rising wages. Its February <a href="https://www.rba.gov.au/publications/smp/2023/feb/pdf/statement-on-monetary-policy-2023-02.pdf">Statement on Monetary Policy</a> mentions wages more than 70 times. Profits are mentioned just once.</p>
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Read more:
<a href="https://theconversation.com/profits-push-up-prices-too-so-why-is-the-rba-governor-only-talking-about-wages-185688">Profits push up prices too, so why is the RBA governor only talking about wages?</a>
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<h2>Acknowledging reality</h2>
<p>Concern over the redistribution of national income from labour to capital is not class envy. For working-class households it has resulted in an increasing struggle to make ends meet.</p>
<p>Addressing and ameliorating the effects of this historic redistribution will require a comprehensive and complex <a href="https://www.actu.org.au/media/1450094/actu-job-summit-papers-macroeconomics-10-august-2022.pdf">range of policy responses</a>. Crucially it requires wages growing faster than prices, both to make up for past real wage losses, and to reflect ongoing productivity growth.</p>
<p>Possible measures to short-circuit this profit-price inflation, and support a recovery in real wages, include <a href="https://www.axios.com/2022/09/06/no-longer-a-1970s-relic-price-controls-are-back">price controls</a> in energy, housing and other strategic sectors; redistributing excess profits in sectors such as mining through <a href="https://australiainstitute.org.au/post/gas-giants-reap-40-billion-in-windfall-war-profits-report/">tax</a> and transfer mechanisms; and <a href="https://futurework.org.au/report/collective-bargaining-and-wage-growth-in-australia/">stronger collective bargaining</a> provisions.</p>
<p>Such responses are controversial, and will spark debate. They will need careful research and design to ensure they do more good than harm. </p>
<p>But the first step is to acknowledge that this reapportionment of the economic pie, from labour to capital, is indeed happening – and is a problem.</p><img src="https://counter.theconversation.com/content/200700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>Since the pandemic Australian workers’ share of national income and purchasing power has fallen at an unprecedented rate. New policies are needed.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1711362021-11-04T17:14:58Z2021-11-04T17:14:58ZMetaverse: how Facebook rebrand reflects a dangerous trend in growing power of tech monopolies<figure><img src="https://images.theconversation.com/files/429957/original/file-20211103-25-16kegiy.jpg?ixlib=rb-1.1.0&rect=7%2C0%2C5168%2C3445&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/kumamoto-japan-oct-29-2021-us-2065985768">KoshiroK/Shutterstock</a></span></figcaption></figure><p>Facebook’s <a href="https://www.bbc.co.uk/news/technology-59083601">rebranding as Meta</a> has been seen by many as the company’s latest attempt at <a href="https://www.nytimes.com/2021/10/29/business/meta-fb.html">corporate crisis control</a>. The social media giant has been publicly attacked for creating an environment that <a href="https://www.npr.org/2021/03/06/974394783/far-right-misinformation-is-thriving-on-facebook-a-new-study-shows-just-how-much">fosters far-right extremism</a> and <a href="https://www.npr.org/2021/04/09/986005820/after-data-breach-exposes-530-million-facebook-says-it-will-not-notify-users">violating individuals’ data privacy</a>.</p>
<p>Yet it also represents an attempt to rebrand the growing power of tech monopolies to shape all areas of our lives through social expansion. It points to a troubling new era of “<a href="https://www.forbes.com/best/2000/0717/022.html">metacapitalism</a>” – or “capitalism on steroids” as Forbes called it in 2000. It reflects a disturbing trend of massively expanding tech conglomerates and the dangerous privatisation of technological knowledge.</p>
<h2>Rebranding tech monopolies</h2>
<p>Technology is rapidly transforming our world – from instantaneous digital communication to AI decision-making to <a href="https://www.pwc.co.uk/issues/intelligent-digital/virtual-reality-vr-augmented-reality-ar/four-ways-vr-will-change-how-we-experience-the-world.html">virtual</a> and <a href="https://www.fi.edu/what-is-augmented-reality">augmented reality</a>. The driving force behind these changes has been private technology firms, whether global start-ups or famous <a href="https://www.investopedia.com/articles/markets/103015/biggest-companies-silicon-valley.asp">Silicon Valley conglomerates</a>. But this combination of massive corporate profits and exciting technological innovation is the biggest myth of 21st-century progress. </p>
<p>The truth is much more complicated. Huge technology firms such as Google and Facebook are increasingly <a href="https://www.theguardian.com/technology/2016/aug/31/personal-data-corporate-use-google-amazon">criticised</a> for unethical data collection and the use of <a href="https://www.business-standard.com/article/technology/govt-seeks-facebook-algorithm-details-amid-hate-speech-allegations-report-121102801644_1.html">algorithms</a> which encourage hateful beliefs and viral misinformation.</p>
<p>Their technology has also encouraged unjust labour practices including hi-tech digital surveillance to <a href="https://www.independent.co.uk/news/world/americas/amazon-surveillance-unions-report-a9697861.html">monitor</a> workers, as happened in Amazon warehouses, and facilitated <a href="https://www.amnesty.org/en/latest/news/2021/03/uber-false-choice-between-workers-rights-and-flexibility/">digital platforms</a> such as Uber, which <a href="https://www.theguardian.com/technology/2021/feb/19/uber-drivers-workers-uk-supreme-court-rules-rights">refuse to provide basic worker rights</a>.</p>
<p>Longer term, the <a href="https://theconversation.com/demand-for-rare-earth-metals-is-skyrocketing-so-were-creating-a-safer-cleaner-way-to-recover-them-from-old-phones-and-laptops-141360">mining</a> of rare earth metals and the massive amounts of energy required for <a href="https://www.forbes.com/sites/forbestechcouncil/2021/05/03/renewable-energy-alone-cant-address-data-centers-adverse-environmental-impact/">data processing</a> are major contributors to climate change.</p>
<p>These problems point to the threat of capitalist <a href="https://www.penguinrandomhouse.com/books/132784/technopoly-by-neil-postman/">tech monopolies</a> where, according to theorist <a href="https://neilpostman.org/">Neil Postman</a>, the culture “seeks its authorisation in technology, finds its satisfactions in technology, and takes its orders from technology”. Microsoft and Google have already been <a href="https://time.com/3553242/microsoft-monopoly/">accused of monopolistic practices</a>. </p>
<p>These “<a href="https://www.haymarketbooks.org/books/1381-bit-tyrants">bit tyrants</a>” are troubling “technopolies” which actually use their power and influence to <a href="https://www.theguardian.com/business/2019/apr/03/imf-warns-that-tech-giants-stifle-innovation-and-threaten-stability">stifle innovation</a> and <a href="https://thehill.com/blogs/congress-blog/technology/578133-big-tech-platforms-stifle-innovation-through-anticompetitive">competition</a> using – ironically – traditional practices of the old economy.</p>
<p>Perhaps even more troubling is how these companies channel innovation away from its potential for social good. Beneath the myth of Silicon Valley prosperity are big tech’s seeming attempts to <a href="https://americanmind.org/salvo/triumph-of-the-oligarchs/">promote corporate oligarchies</a> and even <a href="https://www.brookings.edu/wp-content/uploads/2019/08/FP_20190826_digital_authoritarianism_polyakova_meserole.pdf">authoritarian regimes</a> to extend their economic reach and political power.</p>
<p>The highly publicised renaming of these conglomerates is part of a wider rebranding of this technopoly. As one <a href="https://www.vice.com/en/article/qjb485/zuckerberg-facebook-new-name-meta-metaverse-presentation">commentator</a> recently observed, “Facebook’s new name is ‘Meta’, and its new mission is to invent a ‘<a href="https://www.bbc.co.uk/news/technology-58749529">metaverse</a>’ that will make us all forget what it’s done to our existing reality.” It may be a different name, but it is the same economic, political and social corporate threat.</p>
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<h2>The spread of metacapitalism</h2>
<p>In his video announcement, Facebook founder Mark Zuckerberg proclaimed this dawning of the metaverse as signalling a new technological age, providing viewers with a glimpse of it in a <a href="https://www.theguardian.com/technology/video/2021/oct/29/facebook-gives-a-glimpse-of-metaverse-its-planned-virtual-reality-world-video?fbclid=IwAR3X8Yxp1bN3TvrXrc73DAcK8Pv2hVJiGDjPeBO3BJSHXh2Ti_5pE51X1m8">virtual world</a> where people could use avatars to live out their wildest imagination in real-time with others around the world.</p>
<p>The backlash has ranged from <a href="https://www.salon.com/2021/10/29/meta-and-the-facebook-papers-why-mark-zuckerberg-has-nothing-to-fear/">moral outrage</a> over Facebook itself, to <a href="https://www.pcgamer.com/the-metaverse-is-bullshit/">ridiculing</a> Zuckerberg’s new vision for technology. What is overlooked is how this represents the desire to create metacapitalism – which uses technology to shape, <a href="https://www.theguardian.com/commentisfree/2021/oct/27/big-techs-push-for-automation-hides-the-grim-reality-of-microwork?CMP=fb_a-technology_b-gdntech&fbclid=IwAR0AEJiEeUkKH9-1P2HJ2HOJxPe_YwhRHM-NIbsFmwGvMq2_zlAvA5ZttJ0">exploit</a> and profit from human interaction. It is a completely marketised virtual reality world fuelled by the unsustainable exploitation of natural resources, unjust global working conditions and the constant invasion of users’ data privacy for private financial gain.</p>
<p>Corporate and social rebranding are fundamental to the spread of metacapitalism. Google’s 2015 <a href="https://www.independent.co.uk/life-style/gadgets-and-tech/news/google-now-alphabet-search-giant-changes-name-avoid-becoming-conventional-company-10449227.html">name change</a> to “Alphabet” reflected its desire to be more than just a search engine and <a href="https://www.theguardian.com/technology/2015/aug/11/alphabet-google-rebranding-what-happens-next">expand</a> into other areas such as driverless cars, medical devices, smart home appliances and drone delivery. Introducing the metaverse, Zuckerberg <a href="https://about.fb.com/news/2021/10/founders-letter/">said</a>:</p>
<blockquote>
<p>Think about how many physical things you have today that could just be holograms in the future. Your TV, your perfect work set-up with multiple monitors, your board games and more – instead of physical things assembled in factories, they’ll be holograms designed by creators around the world.</p>
</blockquote>
<p>He insisted, once again, that “we don’t build services to make money; we make money to build better services”.</p>
<p>These moves play into a broader strategy to socially rebrand metacapitalism positively. The introduction of the metaverse is part of a new trend of what business ethics academic <a href="https://theconversation.com/profiles/carl-rhodes-153489">Carl Rhodes</a> has referred to it as “<a href="https://theconversation.com/prince-harrys-critics-have-a-point-woke-capitalism-is-no-solution-158132">woke capitalism</a>”, noting in a recent <a href="https://www.theguardian.com/environment/2021/oct/28/progressive-gestures-big-business-useless-dangerous">article</a> that “progressive gestures from big business aren’t just useless – they’re dangerous”.</p>
<p>Whether it is the Gates Foundation initially opposing the spread of global vaccines in order to <a href="https://www.wired.com/story/opinion-the-world-loses-under-bill-gates-vaccine-colonialism/">protect</a> patent rights, or Elon Musk promising to create an “<a href="https://aeon.co/essays/elon-musk-puts-his-case-for-a-multi-planet-civilisation">multi-planet civilisation</a>” – while avoiding paying much-needed taxes here on Earth – corporations are now increasingly using philanthropy and utopian visions to hide their present day misdeeds.</p>
<h2>A force for good</h2>
<p>The irony is that technology could actually become a real <a href="https://link.springer.com/book/10.1007/978-3-030-36181-5">force</a> for radical social and economic transformation if it was freed from the narrow limits imposed on it by metacapitalism.</p>
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<p>Digital platforms are already enabling greater <a href="https://platform.coop/">cooperative ownership</a> and <a href="https://unhabitat.org/innovation-and-digital-technology-to-re-imagine-participatory-budgeting-as-a-tool-for-building">direct democratic participation</a>. Big data could be deployed to allow for <a href="https://www.buildingsiot.com/blog/what-big-data-can-do-for-building-energy-management-bd">efficient energy use</a> through better tracking of energy consumption. It also allows for the community ownership of our information and the economy generally. 3D printers have the <a href="https://link.springer.com/article/10.1007/s43253-020-00014-3">potential</a> to revolutionise manufacturing so that we can easily and sustainably produce all that we require.</p>
<p>Crucially, <a href="https://www.wired.com/story/opinon-the-future-of-american-industry-depends-on-open-source-tech/">open-source technologies</a> which allow for their information to be freely available to use, modify and redistribute, could foster international collaboration and innovation on a scale previously unimaginable. They point to a realistic and utopian “<a href="https://www.versobooks.com/books/1847-four-futures">post-capitalist</a>” future that could <a href="https://www.versobooks.com/books/3156-fully-automated-luxury-communism">transcend</a> the need for exploitation based on principles of shared development and collective prosperity.</p>
<p>The rebranding of technology companies is not merely cosmetic, it represents a dangerous attempt to monopolise all forms of technology development linked to a metaverse and the spread of metacapitalism. What is needed instead is a real discussion about fostering open-source culture, data rights and ownership, and the use of technology for positive social transformation – not simply selling more products.</p><img src="https://counter.theconversation.com/content/171136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Bloom does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Corporate rebranding is fundamental to the spread of metacapitalism which uses increasingly sophisticated technology to shape, exploit and profit from human interaction.Peter Bloom, Professor of Management, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1511932021-02-08T13:37:55Z2021-02-08T13:37:55ZCorporate concentration in the US food system makes food more expensive and less accessible for many Americans<figure><img src="https://images.theconversation.com/files/381811/original/file-20210201-23-sw9ipn.jpg?ixlib=rb-1.1.0&rect=22%2C0%2C2500%2C1654&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Volunteers prepare boxes at the Greater Boston Food Bank on Oct. 1, 2020.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/volunteers-quality-check-and-prepare-boxes-to-load-for-news-photo/1229827185?adppopup=true">Iaritza Menjivar, The Washington Post via Getty Images</a></span></figcaption></figure><p>Agribusiness executives and government policymakers often praise the U.S. food system for producing <a href="https://www.msnbc.com/morning-joe/meat-industry-responds-the-meat-racket-msna270286">abundant and affordable food</a>. In fact, however, food costs are rising, and shoppers in many parts of the U.S. have limited access to fresh, healthy products. </p>
<p>This isn’t just an academic argument. Even before the current pandemic, millions of people in the U.S. went hungry. In 2019 the U.S. Department of Agriculture <a href="https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics/#householdtype">estimated</a> that <a href="https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics/">over 35 million people were “food insecure</a>,” meaning they did not have reliable access to affordable, nutritious food. Now <a href="https://apnews.com/article/race-and-ethnicity-hunger-coronavirus-pandemic-4c7f1705c6d8ef5bac241e6cc8e331bb">food banks</a> are struggling to feed people who have lost jobs and income thanks to COVID-19. </p>
<p>As rural sociologists, we study <a href="https://scholar.google.com/citations?user=V_pXnRUAAAAJ&hl=en">changes in food systems</a> and <a href="https://scholar.google.com/citations?user=X8JjxZEAAAAJ&hl=en">sustainability</a>. We’ve closely followed corporate consolidation of food production, processing and distribution in the U.S. over the past 40 years. In our view, this process is making food less available or affordable for many Americans. </p>
<h2>Fewer, larger companies</h2>
<p>Consolidation has placed key decisions about our nation’s food system in the hands of a few large companies, giving them <a href="http://www.ipes-food.org/_img/upload/files/Concentration_FullReport.pdf">outsized influence</a> to lobby policymakers, direct food and industry research and influence media coverage. These corporations also have enormous power to make decisions about what food is produced how, where and by whom, and who gets to eat it. We’ve tracked this trend <a href="https://www.globalagriculture.org/transformation-of-our-food-systems/book/updates/howard-hendrickson.html">across the globe</a>.</p>
<p>It began in the 1980s with mergers and acquisitions that left a few large firms <a href="https://www.bloomsbury.com/us/concentration-and-power-in-the-food-system-9781472581112/">dominating nearly every step of the food chain</a>. Among the largest are retailer <a href="https://corporate.walmart.com">Walmart</a>, food processor <a href="https://www.nestle.com/aboutus/overview">Nestlé</a> and seed/chemical firm <a href="https://www.bayer.com/en/crop-science/crop-science-division">Bayer</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graphic showing consolidation in the global seed industry" src="https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=503&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=503&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=503&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=633&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=633&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382364/original/file-20210203-17-1lokhn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=633&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Between 1996 and 2013 Monsanto acquired more than 70 seed companies, before the firm was itself acquired by competing seed/chemical firm Bayer in 2018.</span>
<span class="attribution"><span class="source">Philip Howard</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Some corporate leaders have abused their power – for example, by allying with their few competitors to fix prices. In 2020 Christopher Lischewski, the former president and CEO of Bumblebee Foods, was convicted of <a href="https://www.nytimes.com/2020/06/16/business/bumble-bee-tuna-price-fixing.html">conspiracy to fix prices of canned tuna</a>. He was sentenced to 40 months in prison and fined US$100,000. </p>
<p>In the same year, chicken processor <a href="https://www.wsj.com/articles/pilgrim-s-pride-reaches-plea-agreement-with-justice-department-on-chicken-price-fixing-allegations-11602649655">Pilgrim’s Pride</a> pleaded guilty to price-fixing charges and was fined $110.5 million. Meatpacking company <a href="https://news.bloomberglaw.com/antitrust/jbs-settlement-of-pork-price-fixing-suit-is-worth-24-5-million">JBS</a> settled a $24.5 million pork price-fixing lawsuit, and farmers won a class action settlement against peanut-shelling companies <a href="https://thecounter.org/price-fixing-peanut-farmers-lawsuit-georgia-antitrust-adm/">Olam and Birdsong</a>. </p>
<p>Industry consolidation is hard to track. Many subsidiary firms often are <a href="https://philhoward.net/2020/09/24/organic-processing-industry-structure-2020/">controlled by one parent corporation</a> and engage in “contract packing,” in which a single processing plant produces identical foods that are then sold under dozens of different brands – including labels that compete directly against each other.</p>
<p>Recalls ordered in response to food-borne disease outbreaks have revealed the broad scope of contracting relationships. Shutdowns at meatpacking plants due to COVID-19 infections among workers have shown how much of the U.S. food supply flows through <a href="https://www.msn.com/en-us/foodanddrink/foodnews/13-us-meat-plants-are-down-25percent-of-pork-and-10percent-of-beef/ar-BB1396Ys">a small number of facilities</a>.</p>
<p>With consolidation, large supermarket chains have closed many <a href="https://doi.org/10.1080/10106049.2010.510583">urban</a> and <a href="https://doi.org/10.1080/15528014.2016.1145006">rural</a> stores. This process has left numerous communities with limited food selections and high prices – especially neighborhoods with many <a href="https://doi.org/10.1016/j.socscimed.2015.08.005">low-income</a>, <a href="https://doi.org/10.2105/AJPH.2014.302113">Black or Latino</a> households.</p>
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<figcaption><span class="caption">In 2006, the Community Grocery Store in the small town of Walsh, Colorado, avoided going out of business by selling stock to residents. The store is still in business in 2021.</span></figcaption>
</figure>
<h2>Widespread hunger</h2>
<p>As unemployment has risen during the pandemic, so has the number of hungry Americans. <a href="https://www.feedingamerica.org/about-us">Feeding America</a>, a nationwide network of food banks, estimates that <a href="https://www.feedingamerica.org/research/coronavirus-hunger-research">up to 50 million people</a> – including 17 million children – may currently be experiencing food insecurity. Nationwide, demand at food banks <a href="https://www.ksat.com/news/local/2020/12/10/unprecedented-need-san-antonio-food-bank-has-seen-30-increase-in-demand-since-onset-of-covid-19-pandemic/">grew by over 48%</a> during the first half of 2020. </p>
<p>Simultaneously, disruptions in food supply chains forced farmers to <a href="https://theconversation.com/why-farmers-are-dumping-milk-down-the-drain-and-letting-produce-rot-in-fields-136567">dump milk down the drain</a>, leave produce rotting in fields and euthanize livestock that could not be processed at slaughterhouses. We <a href="https://farmactionalliance.org/concentrationreport/">estimate</a> that between March and May of 2020, farmers disposed of somewhere between 300,000 and 800,000 hogs and 2 million chickens – more than 30,000 tons of meat. </p>
<p>What role does concentration play in this situation? Research shows that <a href="https://doi.org/10.1093/erae/jby026">retail concentration</a> correlates with <a href="https://doi.org/10.1002/agr.20058">higher prices for consumers</a>. It also shows that when food systems have fewer production and processing sites, <a href="https://doi.org/10.1007/s13412-015-0292-2">disruptions can have major impacts on supply</a>. </p>
<p>Consolidation makes it easier for any industry to maintain high prices. With few players, companies simply match each other’s price increases rather than competing with them. Concentration in the U.S. food system has raised the costs of everything from <a href="https://web.archive.org/web/20200530152228/http:/www.zwickcenter.uconn.edu/documents/issuepapers/ip6.pdf">breakfast cereal</a> and <a href="https://www.ceoafterlife.com/marketing/why-price-fixing-continues/">coffee</a> to <a href="https://www.justice.gov/atr/case-document/file/486606/download">beer</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graphs showing concentration in U.S. food markets" src="https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=828&fit=crop&dpr=1 600w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=828&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=828&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1041&fit=crop&dpr=1 754w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1041&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/374610/original/file-20201213-18-par9e7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1041&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The combined share of sales for the top four firms (CR4) for selected U.S. commodities, food processing/manufacturing and distribution/retail channels.</span>
<span class="attribution"><a class="source" href="https://farmactionalliance.org/wp-content/uploads/2020/11/FFAAConcentrationUS.pdf">Family Farm Action Alliance</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>As the pandemic roiled the nation’s food system through 2020, consumer food costs <a href="https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx">rose by 3.4%</a>, compared to 0.4% in 2018 and 0.9% in 2019. We expect retail prices to remain high because they are “<a href="https://nationalaglawcenter.org/wp-content/uploads/assets/crs/R41224.pdf">sticky</a>,” with a tendency to increase rapidly but to decline more slowly and only partially.</p>
<p>We also believe there could be further supply disruptions. A few months into the pandemic, meat shelves in some U.S. stores sat empty, while some of the nation’s largest processors were <a href="https://www.warren.senate.gov/oversight/letters/warren-booker-open-investigation-into-meatpackers-manipulation-of-covid-19-crisis-to-raise-prices-and-exploit-workers">exporting record amounts of meat to China</a>. U.S. Sens. Elizabeth Warren, D-Mass., and Cory Booker, D-N.J., cited this imbalance as evidence of the need to crack down on what they called “<a href="https://www.warren.senate.gov/newsroom/press-releases/warren-booker-release-information-from-their-investigation-into-giant-meatpackers-exploiting-workers-and-consumers-during-covid-19">monopolistic practices</a>” by Tyson Foods, Cargill, JBS and Smithfield, which dominate the U.S. meatpacking industry. </p>
<p>Tyson Foods <a href="https://thefeed.blog/2020/07/21/sharing-our-commitment-to-team-member-safety-with-elected-officials-leaders/">responded</a> that a large portion of its exports were “cuts of meat or portions of the animal that are not desired by” Americans. Store shelves are no longer empty for most cuts of meat, but processing plants remain <a href="https://www.marketplace.org/2020/12/29/beef-market-still-feeling-the-effects-of-covid-19/">overbooked</a>, with many scheduling well into 2021.</p>
<h2>Toward a more equitable food system</h2>
<p>In our view, a resilient food system that feeds everyone can be achieved only through a more <a href="http://www.ipes-food.org/_img/upload/files/Concentration_FullReport.pdf">equitable distribution of power</a>. This in turn will require action in areas ranging from contract law and antitrust policy to workers’ rights and economic development. Farmers, workers, elected officials and communities will have to <a href="https://doi.org/10.1007/s10460-020-10092-y">work together</a> to fashion alternatives and change policies.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1354861566777294853"}"></div></p>
<p>The goal should be to produce more locally sourced food with shorter and less-centralized supply chains. Detroit offers an example. Over the past <a href="https://tostadamagazine.com/2018/02/28/history-in-photos-detroits-farm-a-lot-program-set-the-stage-for-urban-gardening-movement/">50 years</a>, food producers there have established <a href="https://visitdetroit.com/urban-farming-detroit/">more than 1,900 urban farms and gardens</a>. A planned <a href="https://detroitpeoplesfoodcoop.com/about-us/">community-owned food co-op</a> will serve the city’s North End, whose residents are predominantly low- and moderate-income and African American. </p>
<p>The federal government can help by <a href="https://www.rma.usda.gov/en/Policy-and-Procedure/Insurance-Plans/Whole-Farm-Revenue-Protection">adapting farm support programs</a> to target farms and businesses that <a href="https://www.ams.usda.gov/services/grants">serve local and regional markets</a>. State and federal incentives can build community- or cooperative-owned farms and processing and distribution businesses. Ventures like these could provide economic development opportunities while <a href="https://planning.baltimorecity.gov/sites/default/files/Baltimore%20City%20Food%20Resilience.pdf">making the food system more resilient</a>. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>In our view, the best solutions will come from listening to and working with the people most affected: sustainable farmers, farm and food service workers, entrepreneurs and cooperators – and ultimately, the people whom they feed.</p><img src="https://counter.theconversation.com/content/151193/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip H. Howard is a member of the International Panel of Experts on Sustainable Food Systems, and a member of the Rural Sociological Society. He has received funding from the National Science Foundation and the US Department of Agriculture. </span></em></p><p class="fine-print"><em><span>Mary Hendrickson is a member of the Rural Sociological Society, Agriculture Food and Human Values Society, and serves on the North Central Region SARE Administrative Council. She has received funding from USDA's National Institute of Food and Agriculture, USDA's Sustainable Agriculture and Research Program and various foundations. </span></em></p>Food production in the US is heavily concentrated in the hands of a small number of large agribusiness companies. That’s been good for shareholders, but not for consumers.Philip H. Howard, Associate Professor of Community Sustainability, Michigan State UniversityMary Hendrickson, Associate Professor of Rural Sociology, University of Missouri-ColumbiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1235602019-09-17T20:18:18Z2019-09-17T20:18:18ZWall Street is ignoring the omens of recession – here’s why<figure><img src="https://images.theconversation.com/files/292871/original/file-20190917-19083-1xltqir.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Why is this man smiling?
</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Financial-Markets-Wall-Street/ed7d188d87344e5caab8c8aa639a2dfb/21/0">AP Photo/Richard Drew</a></span></figcaption></figure><p>The world is on the <a href="https://www.cnn.com/business/live-news/recession-fears-august-2019/index.html">brink of a recession</a>, if all the <a href="https://www.businessinsider.com/next-recession-credit-investor-fears-at-record-high-baml-survey-2019-9">breathless</a> <a href="https://fortune.com/2019/09/11/is-recession-coming-us-manufacturing-trump-country/">headlines</a> are to be <a href="https://www.cnn.com/2019/09/06/business/recession-yield-curve-ny-fed/index.html">believed</a>. So why are U.S. stocks near all-time highs?</p>
<p>That’s a question my <a href="http://www.bu.edu/questrom/">MBA students</a> have been asking me lately. Even the Federal Reserve is concerned – at least <a href="https://www.bloomberg.com/news/articles/2019-09-18/fed-makes-second-straight-rate-cut-splits-on-further-action?srnd=premium">worried enough</a> to reduce U.S. borrowing costs for the second time this year. </p>
<p>Stocks are <a href="https://www.investopedia.com/investing/why-do-companies-care-about-their-stock-prices/">usually considered a barometer</a> of a company’s future prospects, so rationally you’d think market prices would be a lot lower if a <a href="https://www.cnbc.com/2019/09/11/trump-approval-rating-on-the-economy-falls-during-recession-fears.html">recession were close at hand</a>. After all, recessions are a drop in economic activity, which means consumers and businesses are buying less stuff. </p>
<p>The answer to <a href="http://businessmacroeconomics.com/">my students’ question</a> has a lot to do with profits and interest rates, but also “animal spirits.”</p>
<h2>Moving in mysterious ways</h2>
<p>Both the <a href="https://www.bloomberg.com/quote/INDU:IND">Dow Jones Industrial Average</a> and the <a href="https://www.bloomberg.com/quote/SPX:IND">Standard & Poor’s 500</a>, Wall Street’s two main gauges for the U.S. economy, hit record highs in July and have been hovering near them ever since. </p>
<p>At the same time, <a href="https://theconversation.com/how-to-invest-if-youre-worried-a-recession-is-coming-122003">signs</a> of <a href="https://theconversation.com/how-to-invest-if-youre-worried-a-recession-is-coming-122003">trouble</a> for the global economy – and the U.S. – <a href="https://markets.businessinsider.com/news/stocks/baml-fund-manager-survey-finds-fears-of-recession-at-highest-since-2009-2019-9-1028529820">have been growing</a>. By Deutsche Bank’s reckoning, U.S. stocks <a href="https://www.marketwatch.com/story/the-sp-500-should-be-13-lower-because-a-recession-is-coming-warns-deutsche-bank-2019-09-17">should be 13% lower</a> than they are today. </p>
<p>But understanding exactly why stock markets move up or down is exceptionally difficult. </p>
<p>One of the greatest economists of all time, John Maynard Keynes, believed there were “<a href="https://www.economist.com/media/pdf/animal-spirits-akerloff-e.pdf">animal spirits</a>” – essentially, emotions, instincts and other unquantifiable human behavior – that drove people to waves of optimism or pessimism, as he explained in his 1936 book “<a href="https://www.palgrave.com/gp/book/9783319703435">The General Theory of Employment, Interest and Money</a>.”</p>
<p>Keynes believed these “spirits” had a huge influence on financial market prices and conditions. But beyond these mysterious movements there are two primary factors that push overall stock prices up and down: profits and interest rates.</p>
<h2>Profit sharing</h2>
<p>The value of a public company and its shares is based on its profits. </p>
<p>Profits are just the difference between a business’s sales and its costs. Buying shares in a company gives the buyer a claim on a portion of these profits. During an economic expansion, <a href="https://hbr.org/2019/04/companies-need-to-prepare-for-the-next-economic-downturn">profits go up</a>. During a recession, profits for most companies go down.</p>
<p>Stock prices are directly related to profits because when profits rise companies have more money to give out to shareholders in dividends. This makes stocks more valuable. </p>
<p>Rising profits also mean companies have <a href="https://www.cnn.com/2019/07/30/investing/stock-buybacks-debt-leverage/index.html">more money to buy back their own shares</a>, which leaves fewer available on the open market. This reduction pushes stock prices up because each one now gets a slightly larger share of profits. </p>
<p>The impact of a share buyback is no different from what happens when any kind of product becomes hard to find. Sellers see lots of demand while they have relatively little product to supply. To balance this excess demand, they raise prices.</p>
<p><a href="https://www.cbsnews.com/news/heres-the-most-recent-sign-the-economy-is-headed-for-recession/">During recessions, companies’ profits fall</a>. Less profit means lower dividends and less money for share buybacks. Both of these reduce share prices since there is less incentive to invest.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/292870/original/file-20190917-19040-366mx2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Federal Reserve Chair Jerome Powell has been easing monetary policy in recent months.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Global-Economy/49214b2c4de642cbb327f48044701425/171/0">AP Photo/Kiichiro Sato</a></span>
</figcaption>
</figure>
<h2>The impact of interest rates</h2>
<p>The connection between profits and stock market prices is fairly easy to understand. Interest rates, on the other hand, are a bit less straightforward but are just as potent at driving stock prices. </p>
<p>In simple terms, stock prices are inversely related to interest rates. When interest rates fall, <a href="https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/">stock prices usually go up</a>. And when rates rise, stock prices tend to fall.</p>
<p>Interest rates have this effect because <a href="https://www2.deloitte.com/us/en/insights/economy/issues-by-the-numbers/rising-corporate-debt-levels.html">many companies borrow money</a> to operate their business. When interest rates fall, it costs less to run the company since businesses pay less to service their debts, boosting profits. On the other hand, when rates rise, costs go up, squeezing corporate earnings. </p>
<p>Lower interest rates also boost the share prices of companies that don’t borrow money because they <a href="https://www.investopedia.com/calculator/pvcal.aspx">increase the present value</a> of their future profits. This is why money earned tomorrow is worth less than money earned today. </p>
<p>The simplest way to see this is to imagine <a href="https://theconversation.com/how-winning-1-54-billion-in-mega-millions-could-still-lead-to-bankruptcy-105275">winning a million dollars</a> right now. You’d be a lot less thrilled, however, if you were told you wouldn’t receive a dime for 25 years. And so lotteries typically let winners <a href="https://theconversation.com/got-the-winning-lottery-ticket-an-economist-explains-what-to-do-with-all-that-money-105700">take a greatly reduced lump sum</a> immediately or receive the total in smaller payouts over many years. </p>
<p>It’s the level of interest rates that determine just how much future income is worth today. Higher rates reduce the value of future prizes and profits; lower rates increase it. </p>
<h2>What occupies Wall Street</h2>
<p>To understand why stocks keep going up, we have to consider what profits and interest rates are doing, and what Wall Street traders are focused on. </p>
<p>Corporate profits, which have been <a href="https://www.bloomberg.com/opinion/articles/2019-09-01/corporate-profits-are-down-but-wages-are-up">hitting their own record highs</a> in recent years, <a href="https://www.cbsnews.com/news/heres-the-most-recent-sign-the-economy-is-headed-for-recession/">are currently stagnating</a> and are forecast to dip as a result of the <a href="https://www.thestreet.com/markets/rates-bonds/chart-corporate-profits-are-stagnating-15088966">trade war</a>. </p>
<p>However, central bankers around the world are also worried about a recession. They are working hard to prevent this recession by driving down interest rates now. For example, the European Central Bank on Sept. 12 <a href="https://www.nytimes.com/2019/09/12/business/ecb-europe-recession-stimulus.html">cut a key interest rate</a> and took other steps to ease borrowing costs for companies and businesses. And the <a href="https://www.wsj.com/articles/powell-set-to-address-economic-outlook-ahead-of-fed-meeting-11567762202">Fed followed suit</a> on Sept. 18 with a quarter-point reduction. </p>
<p>Lower interest rates encourage consumers, businesses and governments to borrow and spend more money – and boost the value of stocks. Although some investors are concerned about a recession, apparently most believe actions by the Fed and other central banks will be enough to keep the global economy humming – or at least enough to keep corporate profits high. </p>
<p>How long will the rising stock market continue? Who knows. But that’s what makes following financial markets so interesting for academics and so frustrating for individual investors.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/123560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An economist unravels the seeming contradiction between stocks flirting with all-time highs and growing fears of a recession.Jay L. Zagorsky, Senior Lecturer, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.