Alex Padilla U.S. Senator for California

WASHINGTON, D.C. — Today, U.S. Senator Alex Padilla (D-Calif.), a member of the Senate Budget Committee, called on Congress to ensure that the wealthiest corporations are not using the pandemic and supply chain bottlenecks as an excuse to increase their profits while raising prices for the American people.

WATCH: Padilla Calls for Corporate Accountability for an Inclusive Economic Recovery

During a Senate Budget Committee hearing, Padilla spoke out against the impact that corporate greed is having on rising prices for Americans. He highlighted how the earnings of S&P 500 companies rose nearly 50 percent over the past year while they cited increased costs to justify higher prices for American families.

Padilla questioned Mr. James Kwak, Research Fellow at the University of Connecticut School of Law, and Dr. Nomi Prins, Economist, Author, and former Managing Director, Goldman Sachs about the importance of addressing corporate greed in keeping food prices down and local journalism alive.

Key Excerpts:

• PADILLA: Estimates show that the earnings of S&P 500 companies rose nearly 50 percent over the past year, while they cited increased costs to justify increased prices for American families. It should be unthinkable that during a global health pandemic, while so many working families were struggling to get by, that billionaires got richer—but they did. […] So, as we continue our recovery, we need to both upgrade our nation’s infrastructure and pass the President’s plan to reduce the cost of essentials like prescription drugs, health care, child care, housing, and more. We must also ensure that wealthy corporations aren’t just using the pandemic and the supply chain as excuses to exploit consumers and increase their profits.

• PADILLA: Mr. Kwak, why is addressing the common ownership of companies important to keeping down the cost of food for American families?

• KWAK: So, I think I’m not aware of economic research that’s been done specifically on this question in this industry. But I think it’s very plausible that what is happening is what has been found to be true in banking and airlines, which is that the CEOs of these companies know who the largest shareholders are and they know that the largest shareholders will benefit from anti-competitive behavior and therefore they engage in that anti-competitive behavior. So, I think that the–I can’t prove it–but I think that the large ownership stakes of these asset management firms could be very well leading to higher prices in the food sector.

• PADILLA: Preserving local journalism is important to keeping Americans informed about what is going on in their communities, encouraging civic engagement, and countering today’s rampant disinformation campaigns, as well as the dangerous spread of misinformation. Unfortunately, in regions across the country, private equity firms have bought newspapers with no intention of ensuring long-term stability. […] Dr. Prins, how can we ensure that corporations are held accountable for getting essential American institutions like our newspapers?

• PRINS: […] in the field of journalism, or really even agricultural, the idea is we need to restrict the ability of the sort of hits on a concentration above say, a certain percentage in those industries, whether it’s related to journalism, whether it’s related to agriculture.

A full transcript of Padilla’s remarks is available below:

PADILLA: Thank you, Mr. Chair, for holding this hearing to put the spotlight on how corporate greed is–in critical sectors, especially–leading to higher prices for consumers and harming workers, and families.

There’s a number of issues I’d like to raise and ask questions about, but let me set the stage by also acknowledging that, as the American economy has come roaring back with the greatest year of job growth in our nation’s history in 2021, corporate greed still casts a large shadow over our recovery.

Now, Mr. Chairman, as you know, Angela and I are raising three boys–three growing boys. So, I can assure you that I have seen first-hand how price increases are affecting families. Families across the country. Whether that’s at the gas pump, at the grocery store, when it comes to paying for childcare, at the pharmacy, and elsewhere.

Now these price increases aren’t just because of rising costs or small businesses just trying to get by.

Many corporations are posting record profits.

Estimates show that the earnings of S&P 500 companies rose nearly 50% over the past year, while they cited increased costs to justify increased prices for American families.

It should be unthinkable that during a global health pandemic, while so many working families were struggling to get by, that billionaires got richer—but they did.

So, as we continue our recovery, we need to both upgrade our nation’s infrastructure and pass the President’s plan to reduce the cost of essentials like prescription drugs, health care, child care, housing, and more.

We must also ensure that wealthy corporations aren’t just using the pandemic and the supply chain as excuses to exploit consumers and increase their profits.

So, I’m proud to be part of this committee’s efforts to fight for solutions that help us build a more equitable, inclusive economy and hold corporate interests accountable.

Now, the first issue I want to ask about deals with the agricultural industry and the dynamics of consolidation.

Now, not only have mergers and acquisitions changed the landscape of the agricultural industry, but financial investments, including from equity-related funds in the sector, has grown significantly in recent years.

At the end of 2016, the top five asset management firms owned at least 10%, upwards of 30% of the shares of the top firms in the agricultural and food sector. Now given this common ownership across the industry, these firms have little incentive to bolster competition and innovation between individual firms. Instead, they can encourage inexplicable price increases to make even more profits across the entire sector. And the end result is higher prices at the grocery store for American families.

So, Mr. Kwak, why is addressing the common ownership of companies important to keeping down the cost of food for American families?

KWAK: Thank you for the question, Senator.

You’re absolutely right that the food sector is highly concentrated.

So, for example, in poultry, hog, and beef processing, I believe the top four companies and each of those industries has more than 50% and up to 85% of the market share. The same is true in agricultural inputs, such as seeds, herbicides, and pesticides. And to give you one example, in the agricultural input markets, the largest companies are Bayer, which bought Monsanto, BASF and Corteva and Syngenta. Syngenta is owned by a Chinese company. BlackRock is the largest shareholder of Bayer and BASF. And Corteva has three largest shareholders of Vanguard, BlackRock, and State Street.

So, I think I’m not aware of economic research that’s been done specifically on this question in this industry. But I think it’s very plausible that what is happening is what has been found to be true in banking and airlines, which is that the CEOs of these companies know who the largest shareholders are and they know that the largest shareholders will benefit from anti-competitive behavior and therefore they engage in that anti-competitive behavior. So, I think that the–I can’t prove it–but I think that the large ownership stakes of these asset management firms could be very well leading to higher prices in the food sector.

PADILLA: Thank you Mr. Kwak. Clearly more research to be done in this area.

Now, Mr. Chair, let me shift for a minute from talking about putting food on the table, to those who give us food for thought.

Preserving local journalism is important to keeping Americans informed about what is going on in their communities, encouraging civic engagement, and countering today’s rampant disinformation campaigns, as well as the dangerous spread of misinformation.

Unfortunately, in regions across the country, private equity firms have bought newspapers with no intention of ensuring long-term stability. Instead, we see instance after instance of these firms gutting newsrooms to maximize short-term profits.

And I’ll give you one of many, many examples: a hedge fund bought the Vallejo, California’s Times-Herald newspaper. As soon as that happened, the number of newsroom staff was slashed. The remaining staff’s ability to cover and investigate local stories obviously dwindled, and its final reporter was fired after criticizing the extreme cost-cutting measures.

Now, these types of acquisitions have contributed to the decline in newspaper newsroom employment by 57% since 2008, leaving more than 3 million Americans without access to a local paper. So, the question is for Dr. Prins: Dr. Prins, how can we ensure that corporations are held accountable for getting essential American institutions like our newspapers?

PRINS: Thank you, Senator, that’s an excellent question.

All of the points that you’ve made in your statement related to this question are very important to answering it.

First of all, we need to make sure, and this is largely private equity-driven execution of journalism in terms of the takeover patterns, and as you mentioned, the short-term gain interest versus the longer-term information outflow or democratic journalism interest. That’s, that’s not the point of what private equity institutions do. They want short-term turnaround.

And so, in the field of journalism, or really even agricultural, the idea is we need to restrict the ability of the sort of hits on a concentration above say, a certain percentage in those industries, whether it’s related to journalism, whether it’s wage agriculture, however, however, it winds down on the different industry levels. Because otherwise, we basically open the field to the sense of capital, only striving to really destroy, rather than to build up, certain institutions like journalism, as well as certain businesses, and sectors like agriculture that, you know, work towards all of the American people in terms of, if we don’t concentrate them and get rid of the competition within them, then we can have a better price competitive nature, and that will reduce prices.

So, I think it’s all connected to reducing the influence of that private equity sector.

PADILLA: Thank you very much. Thank you, Mr. Chair.

SANDERS: Well, Senator, I do thank you for your excellent questions. And let me thank each of our witnesses for appearing before the committee today.

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