Coronavirus aid for the rich?

OXFAM criticises one-sidedness of COVID-19 aids.

Dr. S-W – 09/2020

"In times of desperation, the rich get richer, the profits more profitable!" This is one of the main conclusions of the British non-governmental organisation OXFAM in an extremely detailed study entitled "Power, Profits and the Pandemic" this September.

The NGO has a critical perspective on the behaviour of large multinational companies, which are making mass redundancies in the coronavirus crisis, passing the burden of production and demand shortfalls in the supply chains down to the weakest, distributing profits and, in all this, happily demanding and receiving Corona-related state aid. Although this doesn't always happen at the same time, the report gives a good overview of the "winners" and "losers" in the crisis worldwide. It begins with the massive profit distributions since January: Microsoft USD21 billion, Google USD15 billion, Toyota 200%, measured by its profits of the last 6 months, and BASF as much as 400%. The fact that the giants in the crisis are distributing more profits than they can report can also be observed in the 25 most profitable multinational companies in the S&P Global 100 Index. They are expected to distribute almost USD380 billion to their shareholders in 2020 – that is 124% of their net profits, compared to 103% before the crisis.

Many companies are emerging from the crisis in a stronger position: by the end of 2020, 32 of the world's largest companies are expected to make USD109 billion more in profits than in previous years, and 88% of this is expected to be distributed to their shareholders. Pharmaceutical giants are also among the winners. It is expected that the six largest pharmaceutical companies will earn USD12 billion more this year than in previous years. And the 25 richest billionaires managed to increase their assets by USD255 billion between mid-March and the end of May alone.

On the other hand, some companies are distributing profits which they have not even achieved in the current year: A number of oil and gas tycoons, such as Exxon Mobil, incurred losses totalling almost USD62 billion between January and July but still paid out a total of USD31 billion to their shareholders in the same period.

OXFAM is extremely critical of the practice of profit distribution as it essentially makes the rich even richer. Investors are relying - not without good reason - on large companies being rescued in the crisis, in contrast to many small companies, who have been the hardest hit during the crisis.

OXFAM is particularly critical of companies that benefit from state aid and at the same time distribute high profits. BASF and Bayer are in prominent positions. They have received GBP1 billion and GBP600 million respectively, but have decided to pay out GBP2.75 billion or EUR3.03 billion in dividends. Other similar examples have been found worldwide, including in Europe, and sometimes accompanied by redundancies. Many US companies that received high levels of government support (more than USD4 million each) had not paid corporate taxes in the previous year.

Nevertheless, governments did not remain completely inactive. The USA and France, for example, have at least temporarily put a stop to share buybacks for companies that received government loans. Such a buyback is a popular method of maintaining the share price.

The report also addresses worrying trends in occupational health and safety worldwide. Companies would repeatedly and irresponsibly expose their employees to COVID-19 related health risks. The mining industry as well as food retailers, call centres and clothing manufacturers are mentioned. Migrant and seasonal workers in construction, agriculture and meat processing are particularly at risk worldwide due to poor and overcrowded housing in most cases. Despite considerable health risks, companies in the affected industries had successfully resisted closures. In some cases, affected companies have even lobbied to convince politicians and governments of the need to relax safety regulations. 

It is true that the "figures" presented above certainly need to be placed into a wider context and may be biased in specific cases. Nevertheless, the non-governmental organisation is bringing up a painful subject: the often lack of transparency in the use of public funds to rescue large companies in the COVID-19 crisis. These are essentially funds that the states and the EU have yet to raise on the capital market - against interest payments.