In my last piece on inflation, I wrote at one point that:
The same inflation could result in very different revenue distributions depending on the wage-setting institutions in the economy and who owns the economy’s enterprises.
I didn’t elaborate on that point in the piece, but I do so here.
To rehash: price rises increase firm revenues. Those revenues are then either paid to workers in the form of wages or owners in the form of profits. After noticing that more of the revenue from price rises is going to owners than to workers, some have confusingly claimed that the owners are “causing” the inflation.
By now, I think it’s clear enough, as DeBoer writes about at length, that this claim is not really meant to be an alternate theory of the “cause” of inflation, but rather a way of drawing attention to who is benefiting from and who makes the final decision on price increases.
But I think it is worth emphasizing, as I say in the quote above, that the same general rise in prices can result in very different distributions depending on wage-setting institutions and ownership.
When European authorities started writing about “greedflation,” they found that, when looking at the Eurozone as a whole, owners received more from the higher prices than workers did. But in that same data, you can see that this is not true in Finland, France, or Belgium.
In the most extreme case of Finland, workers’ share of the inflation-driven revenue increase was 39% higher than owners’ share of it. This could be a matter of happenstance, but it may also have something to do with the fact that the Finnish labor market sets wages via negotiation with powerful sector unions that represent nearly all of the country’s workers.
We take for granted the idea that profits flow to rich capitalists while wages flow to the lowly worker. And this is certainly true overall. But this could be reversed by increasing public ownership of firms.
In Finland, the Helsinki public utility, Helen, saw its profits skyrocket alongside a major rise in electricity prices that hit all of Europe. Because Helen is owned by the Helsinki government, the ultimate result of this was that the city government received a huge dividend from the company.
Social wealth funds are also able to capture the share of inflation revenue that flows to profits. Information about SWF returns come at a lag, but it’s safe to say that the universal dividend paid to Alaskans from the Alaska Permanent Fund will be higher than it would otherwise be and that Norway’s government will be cashing in via the Government Pension Fund (which is not actually a pension fund).
All of this is just to say the obvious, which is that ceaseless conflict, anger, and paranoia about the operating surplus is not a necessary part of an economic system. It’s a contingent part of the system we have right now that is driven by the extreme concentration of ownership in private hands and the relative weakness of workers in the wage-setting relationship.
Put differently, and as DeBoer gets at in his piece, the fact that a relatively small group of passive owners are able to outmuscle everyone else for inflation-driven revenue boosts is not a theory of inflation’s causes. It’s just capitalism. Which sucks, but for more fundamental reasons that have little to do with post-COVID price jumps.