The new year began with the threat of war after the Iranian general Qassem Soleimani was killed by a U.S. airstrike. The following month, fears about climate change were stoked by the massive fires in Australia and California. And while these events were alarming, it is strange to say that they have already fallen out of focus. Humanity has turned its attention to an even more urgent crisis – the war against Covid-19.
Although the enemy in this war lacks consciousness, its strategy to thrive at our demise has been most effective. By preying upon our need for physical interaction, the disease uses its highly infectious traits to spread. The initial surprise attack sent an ill-equipped world into panic, but having overcome this first blow, we have organized a robust war effort: hundreds of millions of people have sheltered themselves in their homes; governments and state institutions are deploying their resources; factories are being re-tooled; and healthcare workers and scientists are fighting the disease on the frontlines.
Similar to the world wars of the twentieth century, profiteering has reared its ugly head. Drawing upon my on-going research, which examines profiteering in Canada during the First World War, I would like to offer some insights into what profiteering means, how profiteering controversy unfolded in the past, and how it is re-emerging today.
Some economists have conceptualized the economy as a sphere devoid of morals, but even Adam Smith, the alleged founding father of modern economics, recognized that money and morality were inseparable. The concept of ‘profiteering’ brings the moral boundaries of profit into greater focus.
In a general sense, the term ‘profiteer’ signifies the individual or business claiming profits beyond moral acceptability, while ‘profiteering’ denotes the act itself.
Of course, perfectly calibrating the moral limitations of profit is impossible. Our moral beliefs are in constant flux, so the moral boundaries of profit must be continually re-negotiated. As a society which recognizes this impossibility, our goal is not perfection, but rather to achieve a broad enough consensus to ensure that this contradiction does not become overtly de-stabilizing.
During a crisis, the moral boundaries on profit tighten and the consensus that once existed can break down. The terminology of ‘profiteering’ is well suited to address this de-stabilization, because it can facilitate a criticism of the socio-economic system through a common-sense understanding.
Profiteering in Government Contracts
One of the ways that profiteering is taking shape during our current crisis is in government contracts.
In the scramble to obtain medical supplies, the U.S. federal government awarded a $55 million contract to Panthera Worldwide to produce N95 masks. Interestingly, the company has no prior experience producing medical equipment, has not employed anyone since May 2018, and is on the verge of bankruptcy. With so many red flags, why did the government choose this particular company? Profiteering during the Great War may provide some clues.
As the war commenced in August, 1914, there was a similar scramble to obtain supplies to equip the Canadian Expeditionary Force. The Conservative-run Militia Department used a list of patronage to distribute war contracts so that party supporters could be rewarded for their loyalty. The prioritization of patronage meant that companies received contracts even without any means of production, workforce, or prior experience. The repercussions of subordinating merit to political interests had very serious consequences.
Firstly, the costs of goods were inflated well above market prices, so much so that the Auditor General had to halt and investigate numerous contracts. Although not as extreme, it is perhaps uncoincidental to learn that Panthera Worldwide is receiving 10% over market prices for their N95 masks.
Another consequence is how the subordination of merit puts lives at risk. Many of the opportunistic manufacturers during the Great War were unable to meet their timelines, leading to a shortage of supplies. When goods were delivered, it was not uncommon for them to be rejected because of their inferior quality.
The public should also be on guard for middlemen and lobbyists brokering these contracts. Panthera Worldwide secured their order from lobbying the Federal Emergency Management Agency. It would not be surprising to learn that the company used backdoor channels to secure the deal. During the Great War, it took years of investigations to unravel the complex social networking between brokers, businessmen, politicians, and state officials. The revelations were astounding. For example, the Conservative M.P. William Garland, who ran a pharmaceutical company in Ottawa, received $9,000 for facilitating the sale of American medical supplies. In another case, a close friend of the Minister of Militia made $220,000 from connecting a few American businessmen to state officials.
As present-day governments open the monetary floodgates, countless opportunities arise to exploit the new flows of money for political and financial gain. Government contracts should always be awarded through a system of open public tendering, not backdoor channels. In Canada, this form of secretive negotiations persists. Justin Trudeau has recently come under fire for making a deal with Amazon, but has not revealed the details of those negotiations to the public. It is unacceptable for public officials to conduct government business without transparency, especially during a period of crisis.
The people of Canada have already paid dearly in the past for profiteering in government war contracts. And for this reason, it is imperative that politicians, state officials, businessmen, health inspectors, or anyone involved in Covid-19 related contracts, is closely monitored and held accountable for their actions.
Amazon’s special privileges relates to another form of profiteering criticisms that does not necessarily relate to government contracts, but rather, calls into question the morality of profits in general.
A consensus is emerging on Wall St. regarding the likely beneficiaries of the Covid-19 crisis. One of the most obvious winners is Amazon, whose stock price recently soared to all-time highs. Abiding by the government-sanctioned quarantine, retail stores were forced to close, but Amazon’s facilities and delivery services have remained open for business. This has allowed Amazon to grab a massive amount of market share, and along with it, a massive spike in the company’s equity value.
The quarantine has also forced commerce and social life to transition onto digital platforms, and consequently, has allowed tech companies such as Apple, Microsoft, Nvidia, and Facebook, to benefit.
Similar to Amazon, the advantages resulting from the quarantine has caused money to cycle from riskier equities into their stocks. Zoom Video Communications Inc., has actually more than doubled its value since January. Even streaming services, such as Netflix, has hit all-time highs in wake of the global pandemic.
On the commodities front, businesses selling household consumer goods have proved very resilient. A number of multi-national corporations seem relatively unphased for the time-being and could show signs of abnormal profits. Such upcoming prosperity was shown when companies like Procter & Gamble and Johnson & Johnson continued to increase their dividends, while countless other companies struggle for survival.
The one sector that benefits directly from the virus, rather than the quarantine, is the pharmaceutical industry. Companies, such as Moderna, have been receiving hundreds of millions of dollars in government funding to develop a vaccine. This has sent pharmaceutical stocks soaring and may very well commence a golden age for some pharmaceutical companies.
Drawing upon the experiences of the Great War, corporate profits such as those described above could warrant charges of profiteering. It did not matter to some whether a company was profiting directly from the war or just wartime conditions. Any signs of “excessiveness” immediately prompted public condemnation. For instance, The Grain Growers’ Guide denounced the Montreal Ammunition Company for issuing dividend payments equal to 750% of its stock value in less than one year. Meanwhile, a meat-packing company saw its profits surge over 10,000% between 1914 and 1917.
The opposition to any abnormal profits became so intense that it led to Canada’s first direct taxes, including a corporate profits tax and federal income tax. It should be noted that the federal government was very resistant to implementing these measures and prioritized the interests of big business. When the government eventually conceded to public pressures for taxes, they allowed corporations to evade the taxes by purchasing tax-exempt war bonds. To add insult to injury, companies even received generous interest payments from the war bonds at the public’s expense.
In light of the fact that some companies will earn abnormally high profits from the war on Covid-19, adjustments to fiscal policy may be in order. Some pundits have already begun questioning whether we should re-instate the excess profits tax used during World War Two. But there are other options to consider as well. For instance, we should ask ourselves whether it is acceptable for corporations to pay dividends or stock buy backs, while the government is spending billions to stabilize the economy through tax-free loans and grants. Considering the preferential treatment being shown to big businesses like Amazon, it should be expected that the current federal government is likely to resist penalizing them in the absence of public pressure.
Another strikingly similar development to the Great War has been the outrage towards “food profiteers.”
As the quarantine loomed, consumers rushed to stores to stock up on goods. Important items, such as sanitizers, cleaning products, and toilet paper, were quickly depleted, so consumers turned to online shopping. They were shocked to find common household products and medical supplies selling between five to ten times their normal value. In some cases, it was even higher. On the Wal-Mart marketplace, a two litre bottle of hand sanitizer was selling for nearly $270! As it turns out, in the absence of purchase limits, some consumers made bulk purchases, then turned to online platforms to slowly unload their goods at exorbitant prices. This hoarding and price-gouging has prompted some media outlets to condemn these “Covid-19 profiteers,” in addition to the companies for facilitating their price-gouging.
During the Great War, consumers were similarly outraged towards food profiteers. Inflation and lowered global food output caused food prices to double on average. The public became widely suspicious of food hoarding and price-gouging. Large corporations were prime suspects, but even small family-run grocery stores and restaurants were accused of profiteering. Public pressure became was so intense by the end of the war that it was one of the leading causes behind the massive strikes that swept across the country in 1919. Consequently, the federal government was forced to distance itself from their laissez-faire political economy and experiment with price and profit controls.
The Path Ahead
Perhaps the greatest insight my research can provide is to stress the importance of engaging the debates on profiteering. Public concern towards profiteering provides a unique opportunity to address the underlying socio-economic inequalities of our society. During periods of stability, discussions on the morality of profit can be muted and the broader public alienated. However, a crisis provides the opportunity to highlight inequalities, which are more visible from the suffering and prosperity tied to the crisis itself.
Had organized labour, farmers, reformers, and veterans remained idle during these debates during the Great War, Canada would likely feature even greater socio-economic inequalities than it already does. It was their lobbying, militancy, and mobilization against profiteering that provided crucial support for significant reforms. Even the success of the Progressive Party during the post-war period was tied to a united front against profiteering. Without this success, federal politics could be structured even more firmly around a two-party system.
I have no doubt that the war against Covid-19, like the world wars of the twentieth century, will re-shape our society. In the past, the people of Canada were not willing to tolerate profiteering during a time of crisis – the question is, will the same be said about the people today?
Ryan Targa is a PhD candidate and Adjunct Professor in the Department of History at York University. His dissertation examines profiteering controversy during the Great War in Canada, and further considers how it became a source of power for organized farmers and labour.
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License. Blog posts published before October 28, 2018 are licensed with a Creative Commons Attribution-NonCommercial-ShareAlike 2.5 Canada License.