At the VVD, many find the ordinary, unfounded corporatebashing. But in the eyes of GroenLinks and the PvdA, the criticism of companies that are guilty of ‘grabbing inflation’ is entirely justified. Isn’t it now crystal clear that those companies, while customers are already sighing under sky-high inflation, are secretly boosting their profit margins by adding an extra scoop to this, in addition to cost price increases?
Research after study has now made that clear, they say – which would once again show that the business community in the Netherlands only thinks about itself. The ‘disproportionate’ price increases would have fueled the high inflation even further. Last year it was 11.6 percent. That amounts to a monthly salary of loss of purchasing power, according to some calculations. GroenLinks leader called out On Wednesday, the cabinet therefore called on the ‘exorbitant profits’ of these companies to ‘skim off’ and use the proceeds to raise the minimum wage.
The debate about the existence or otherwise of the phenomenon of grab inflation has now erupted in full force. Last week several experts appeared, from De Nederlandsche Bank and Rabobank, among others, at the request of the House of Representatives in The Hague to give party employees their analysis of what is going on. Because there are also radically different ideas about this outside The Hague.
The discussion started more than a month ago, when the trade union FNV released a report stating that companies were making massive profits. Economists from Rabobank came the next day also to the conclusion that “striking” things happened – although it certainly could not be concluded from this that there was large-scale grab inflation, the bankers emphasized.
But then was the Telegraph already got away with the Rabobank report. In large letters the newspaper headlined: ‘Study proves that grab inflation is happening’ – which sparked a national debate. Last week another economist in the trade journal made ESB right again short shrift with that Rabobank study. It allegedly made several ‘wrong assumptions’, which cast doubt on the conclusions. Meanwhile, the European Central Bank and the International Monetary Fund have also commented on the theme.
During the hearing in the House of Representatives Debbie Lancer of the Central Planning Bureau (CPB) with its down-to-earth vision, which ignores the interests of both employees and companies. Lanser is head of sector at the CPB, which is an important voice in the debate in The Hague and formally independent belongs to the cabinet. She is responsible for research into macroeconomic developments. In The Hague she left a clear, albeit not equally welcome message for all parties.
Okay, so now the million dollar question: is there or is there no question of ‘grabbing inflation’?
“The honest answer is: there are simply no figures yet to make a conclusive statement. But that doesn’t mean we can’t say anything. Our analyzes show that the profit share in certain sectors – such as energy and mining, but also agriculture and real estate – did indeed increase considerably last year.
But in the financial sector and ICT, for example, those profit shares have fallen. For the business community as a whole, therefore, there seems to be little going on for the time being. Although there are probably some companies where profits have risen more than proportionally.”
So the image of the grabbing ‘BV Nederland’ is unjustified?
“Indeed. And I would like to add: you generally see profit increases quickly, but wage increases take a little longer. Salary negotiations always take a while. It is therefore quite possible that the overall picture will be more balanced again in a while. I think it would be good if we just wait and see what happens next.”
You generally see profit increases quickly, but wage increases often take a little longer
But there are sectors where a remarkable amount of profit is made?
“Beats. But that does not necessarily mean that there is a grab. It is much more nuanced, there are other explanations as well. Take those energy companies. The fact that prices and profit margins have risen so sharply there is also a result of classic scarcity. When Russian gas disappeared, there was suddenly much less supply for the same demand. And then prices skyrocket.”
Is all the fuss unjustified? Opportunistic maybe? Is the FNV exaggerating to force higher wages?
“I wouldn’t put it that way myself, but ‘pain’ always triggers something. We have collectively become a bit poorer due to the more expensive imported energy. Then you now get into difficult discussions about sharing the pain. Households want to be compensated for the loss of their purchasing power. Unions demand higher wages. Companies see their costs increase and indicate that excessive wage increases can fuel inflation. I would also like to point out that we are seeing a catch-up here. Before that, there was lagging wages.”
The angry consumer should actually take a breather?
“We don’t see hard evidence of grab inflation, but we also don’t see hard evidence that wage increases fuel inflation, as has been claimed. I think everyone should wait a while until the situation has calmed down a bit. Wage negotiations are still ongoing. The economic tide may change, which will make it harder for companies again. And don’t forget the ‘corrective’ effect of the market. If prices are too high, consumers can switch suppliers or buy replacement products. Moreover, consumer demand is now also very high, which is a catch-up from after the corona pandemic.”
The consumer can also do something, you say? Vote with your feet?
“Beats. Let’s have a little faith in the market forces. It is of course different for essential products. You can’t pass that up so easily.”
Behind this discussion lies a bigger question: is wealth in the Netherlands distributed fairly? There are growing concerns about this. According to some, shareholders get an increasing share of the pie, while employees receive less and less. What do you see?
“We can measure that, with the labor income share. It has been around 74 percent for several decades. It indicates the portion of the national income that goes to employees. You may wonder whether this distribution is optimal. But there is no further change in the trend as a result of the current situation. Indeed, the labor income quotient fell last year, and the year before that. But before that it fluctuated. And it is possible that the share of employees will grow again in the near future, as a result of successful wage negotiations. Here too, the following applies: we are looking at an incomplete and sometimes clouded picture.”
A version of this article also appeared in the newspaper of May 27, 2023.