Corporate profitability – the heart of capitalism – has had a good run. USA Inc and UK plc have increased their abundance, give or take the strange downturn most years. But interest group capitalism, or investing to meet environmental, social and governance standards (ESG), implies structural change.
Saving the planet jeopardizes profits for Big Oil. Royal Dutch Shell says oil production peak reached in 2019. Shell, BP and America’s Exxon wrote off tens of billions of dollars in stranded, uneconomic assets. Future profits require investments in new technology to bear fruit.
Saudi Aramco, one of the world’s most profitable companies, continues to leverage its future – and $ 39 billion of projected annual capital expenditure – on oil. But its ebitda margins are shrinking gradually, from 70 percent in 2016 to 58 percent in pre-pandemic 2019.
Meanwhile, governments eager to protect citizens and increase national income are targeting the technology industry. Several countries, including the UK, have introduced digital levies that will remain in place until a global tax treaty enters into force. Technical companies are no longer given free rein to disrupt society in search of new revenue streams. See Metas partial withdrawal of facial recognition.
Workers have seen their share of the loot decline for decades. A shifting labor market places more power in their hands. Problems in the gig economy have created legal challenges. Uber has claimed prices could double if it is subject to a California bill aimed at reclassifying some concert workers as employees. A British Supreme Court ruling granting executives holiday pay and a minimum wage has prompted the company to set aside $ 600 million for historic claims.
But to see real change, look at Communist China. Why go through the middle layer of taxation to redistribute wealth when you can only allocate a portion of the profits? This year, technology groups including Alibaba and Pinduoduo, responded to a regulatory constraint by “donating” profits to charity and promoting the government’s “common prosperity” action. Compared to China’s repression, any changes due to ESG seem soft.