Inflation: Reforms or statism?
“What profit margin did your business operate at in the last financial year?” This was one of the questions asked by PricewaterhouseCoopers to around 4,700 CEOs of large companies around the world, as part of its 27th annual global survey of their assessments and forecasts for the economy and for the business they lead. Seventy-eight CEOs of Greek companies participated in the survey.
The answers are interesting: Globally, the profit margin stated was 10.8%, in Western Europe it was 11.1%, in Central and Eastern Europe 10.5% and, in Greece, 15.8% – almost 50% above the global average.
In Greece the profit margins are higher because many companies operate under a regime of protection from competition, and they have the ability to work with margins that are not found elsewhere
Of course, the sample was not representative, the numbers may not accurately reflect reality in other countries or here. However, the PwC survey captures and strengthens a picture that is widely agreed upon: that in Greece the profit margins are higher because many companies operate under a regime of protection from competition, and they have the ability to work with margins that are not found elsewhere, and especially not in European countries. That is because healthy competition – that which through investments in equipment, knowledge and people increases productivity and produces better-quality products at cheaper prices – is not our forte.
Competition is weak in several branches of the Greek economy, according to successive reports by the Bank of Greece, think tank IOBE, and the Center of Planning and Economic Research (KEPE) – all highly reliable organizations. Here, they say, is a root cause both of the perennially high level of prices in basic necessities compared to their prices in other European countries, and of the comparatively higher increases in Greece in recent years, after the energy crisis in 2021 and the invasion of Ukraine in 2022. The situation is getting worse in some sectors, where we don’t just have weak competition but strong private oligopolies. In some cases, those oligopolies resulted from the privatization of state companies which was done to strengthen competition.
All over the Western world, this became known as “greedflation” – inflation caused by a disproportionate increase in profit margins. And the crucial question is, since you want to limit or stop the erosion of the purchasing power of the weaker classes in particular, how do you deal with this inflation? One can distinguish two responses: One is by strengthening competition structures, freeing the markets from barriers that prevent entry to them, strict regulation and inspections in the base markets (e.g. energy), a powerful Competition Commission that will be able to confront the well-paid lawyers and accountants of large companies, progressive legislation and strengthening of the consumer movement and trade unions. This is the progressive answer to the problem, through reforms.
The other response has limited ambitions: You attempt superficial changes in the markets, without touching any structures, without changes that will produce lasting results, just enough to achieve immediate and temporary impressions, until we turn the corner, and then it’s all back to business as usual. You call, for example, businesses, supermarkets, manufacturing units, you tell them, “I don’t care what you do, but I want to see reduced prices,” and let it be understood that otherwise they will have problems with the state. You send some inspection teams repeatedly to make your threat credible, and you wait to reap the fruits of your labor – i.e. to see inflation recede until the polls show government approval ratings which will start with 3 and not 2. It is the conservative answer to the problem through statism.
