Multinational Companies Don't Rule the World

Roger Kerr

nullAccording to Guardian columnist George Monbiot, “the struggle between people and corporations will be the defining battle of the twenty-first century. If the corporations win, liberal democracy will come to an end. The great social democratic institutions which have defended the weak against the strong … will be toppled”.

There is much evidence to support the conclusion of Financial Times associate editor and chief economics commentator Martin Wolf that “the radical critics of contemporary global economic integration detest corporations.” Wolf – who delivered the New Zealand Business Roundtable's 2004 Sir Ronald Trotter Lecture on the role of the state in an era of globalisation – examines claims about corporations in his book Why Globalisation Works .

The first claim he scrutinises is that corporations are more powerful than most countries. In 2000, the left-of-centre Institute for Policy Studies in Washington, DC published an influential paper arguing that 51 of the world's 100 biggest economies are corporations. Wolf wonders “whether this is true and, if so, whether it matters”. He finds the answers are no, and no. The Institute for Policy Studies confused gross sales with GDP – it should have looked at companies' value added rather than sales. In 2000, for example, the sales of General Motors were $185 billion, but its value added was only $42 billion.

Even this exaggerates the power of multinational corporations. The US economy is 156 times bigger than the biggest corporation in the world. Economic activity in advanced countries dwarfs those of the largest corporations. In 2000 the top 10 multinationals generated 0.9 per cent of world GDP, about as much as South Korea. Companies differ from countries because they cannot force their customers to buy from them. Countries have coercive control over territory and the ability to force people to pay taxes.

nullThe second proposition Wolf examines is that brands give companies control over customers. The staunchest proponent of this argument is No Logo author Naomi Klein. Her beliefs, says Wolf, are based on the belief that “corporations do not compete, but control; they are not subservient to customers, but coerce them”, through the power of the brand. This is the reverse of reality. Brands make companies susceptible to public opinion. Companies will go to great lengths to protect the value of their brand in the eyes of customers. Another of Klein's arguments – that the performance of multinational companies is due to brands – is also flawed. The top multinational company in 2000 by value added was Exxon Mobil. Its value lies not in its brand, but its organisational capacities.

The third and most important economic charge, by far, is that multinationals exploit poor countries and workers. Economic life is about beneficial mutual ‘exploitation'. Wolf believes the difficulty facing most poor countries is that they are not being ‘exploited' enough. “It is right to say that transnational companies exploit their Chinese workers in the hope of making profits. It is equally right to say that Chinese workers are exploiting transnationals in the (almost universally fulfilled) hope of obtaining higher pay, better training and more opportunities than would otherwise be available to them.” The evidence that multinational companies generally pay more – and treat their workers better – than local companies is overwhelming. As Wolf points out, they can do so because their superior know-how makes them more efficient – that is why these companies have become multinationals in the first place.

Another claim, made by unions in wealthy countries – notably the United States, but also New Zealand – is that the export of capital forces workers to accept lower wages or lose their jobs. Several unsuccessful US presidential candidates vowed an end to ‘outsourcing' – the exporting of jobs to nations with lower labour costs.

In reality, most investment from the United States goes to high-income countries with wages close to – or even higher than – US wages. There is no connection between microeconomic changes such as labour-intensive investment in developing nations and overall employment. Wolf concludes that investment abroad “simultaneously destroys and creates jobs.” He does, however, find that foreign investment has weakened the grip of labour unions, partly because companies have an additional opportunity of exit.

The final allegation made against corporations is that they control states and subvert democracy. George Monbiot sees the corporation as a bastion of unaccountable power that dominates the political process. The bottom line is that corporations have influence, but not decisive power. There are many other forces with influence in contemporary democracies, from churches, to NGOs, to labour unions, to academia. The fear that democracy will founder under the assault of corporate interests is widely exaggerated.

Martin Wolf argues that, “Perhaps the core faith of globalisation's critics is the power and the malevolence of the corporation. This is their Satan.” It is right to be on guard against the power of all special interests. It is wrong, however, to assume that any one group dominates.


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  • Anonymous says

    -proudly brought to you by Ernst & Young and Roger Kerr, head of the business round table

    ... would suggest readers have a watch of the documentaries "The Corporation" and "The world according to Monsanto" before taking Roger at his word. It may be for the moment that Corporations don't control the world, but oh how they would love to !
  • W says
    Big Hmmm.. from me too

    Roger's makes the points that:

    ...corporations are not really that powerful because someone once confused value with sales.. and by scale there are bigger entities.. but Roger... power is derived from activity and leverage rather than intrinsic value and... at least countries have some accountability.

    ...on whether brands give companies control over customers.. Roger feels this is the reverse of reality and argues that brands make companies susceptible to public opinion.. but Roger.. companies exist by consumption and branding is but a tool to aid this.

    ...and finally the argument that Corporations don't exploit the poor but the poor exploit them is chilling, vampyre propaganda.

    For all our sake, let's hope Roger sticks to counting pennies rather than shaping opinion


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