Many large companies made billions in profits last year. At the same time, more and more households are living in poverty due to higher prices. The companies were therefore criticized from various quarters, but can you blame them for making a lot of profit?
Anyone who looked at the annual figures of listed companies in recent weeks saw one billion-dollar profit after another. For example, Ahold recorded a profit of 2.5 billion euros. At Unilever, a profit of 8 billion euros rolled out, while Swiss competitor Nestlé even had more than 9 billion euros left over. Nevertheless, Unilever and Nestlé will continue to raise their prices.
The three largest banks in our country, ING, Rabobank and ABN AMRO, also had billions left over. To top it off, there were the energy companies. BP and Total, both active in the Netherlands, had profits of tens of billions of euros. Competitor Shell even had almost 40 billion euros left over.
The profits are particularly bitter because many households actually saw their expenditure rise sharply. Fuel, energy and groceries are more expensive, while you hardly receive any interest on your savings. Food banks see the queues getting longer and longer.
There are some caveats to the profit figures. For example, Ahold mainly made profits in the United States; in the Netherlands, profits are under pressure. And at Unilever, part of the profit came from divesting business units, while Shell suffered a record loss at the start of the corona pandemic.
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Strong criticism of high profits
Still, the companies received a lot of criticism. It rained negative reactions on Twitter and the Consumers’ Association called for heavier taxes on producers of oil and gas. Politics also changed. Oil companies are also criticized for investing too little in clean energy despite high profits. The money would mainly benefit shareholders, while consumers hardly benefit from it.
“But a company wants to make a profit. Nothing says that this is not allowed,” says Boudewijn de Bruin, professor of Financial Ethics at the University of Groningen. “Sometimes a company makes more profit and sometimes less. And in some cases this is due to external factors, such as now at Shell.”
In the discussion about the high profits, De Bruin especially misses the role of the government. As far as he is concerned, the latter should intervene harder to ensure that part of the high profits end up with consumers. Now only a few benefit, for example if someone is a shareholder in Shell.
Lower prices are not included
“Companies are not quick to lower their prices, even with high profits,” thinks Aart Gerritsen, assistant professor of economics at Erasmus University Rotterdam. “However, part of it ends up with the consumer via the profit tax. In addition, the Netherlands has introduced a higher mining levy and a solidariteitsheffingbut only for energy companies.”
According to Gerritsen, you can look at the high profits in two ways. Some say that companies make risky investments and that there should be a return. “Others find it worrying that companies make so much profit. High profits can be an indication of too much market power. This would give companies room to raise prices too much.”
De Bruin once again points to the role of the government. It should do more to redistribute the high returns of companies, for example by boosting investments in sustainable energy.
“You cannot expect an oil company to be the only one to invest in sustainable energy. It then runs the risk that the competition will not do so and therefore make more profit. As a government, you should not let the energy transition depend on the willfulness of shareholders.”
De Bruin understands very well that consumers are irritated. “They think: I have to pay more and you make more profit. Those feelings are completely legitimate. But that is the consequence of the free market.”
