11:56 AM May 30, 1997
GLOBALIZATION, WTO, MAI AND SPREAD OF CORPORATE POWER
by David Korten* Geneva, 30 May (TWN) -- To understand globalization and its implications for ordinary citizens, one needs also to look at these issues from the perspective of the financial and corporate world. Obviously this is not to defend it, but rather to understand it. We are dealing with two sharply contrasting views of reality. As the mainstream sees it, Globalization=Growth=Prosperity. And this is exactly the way it looks to the winners in the global economy because globalization opens more opportunities for them to profit. So they call for more of it. Ordinary people get a very different perspective. Globalization = Expropriation of Labor and Assets by the powerful = Growing Inequality From this perspective the institutions of the financial and corporate world are not so much mechanisms of wealth creation as they are instruments of wealth extraction. All the talk of level playing fields in the process is nonsense. The image comes to mind of a fifty foot giant in full armour and an arsenal of weapons standing on level field facing a five foot tall stark naked child with no weapons looking quite frightened. The giant is saying, "Hey, it's a level playing field." Capitalism's defenders often speak of how we have advanced from industrial capitalism to finance capitalism. It is useful to look at what this means. In the older style capitalism the capitalists had to produce something that society would buy. But finance capitalism is like the classical philosopher's stone, it seemingly creates wealth out of nothing. Of course that is impossible. What it really does is it allows the finance capitalists to capture the wealth of everyone else without producing anything useful in return. And there is considerable evidence that the major returns in 1996 were going to those who engage in pure finance. In 1996, the shareholders of the seven largest US money center banks reaped an average total return of 44%. The 24 largest diversified financial services companies yielded their shareholders an average total return of 38.4 percent. Mutual funds specializing in finance produced 26.5% return, besting all industry categories by a wide margin. Funds specializing in much touted technology stocks came in second with a 21% average return. Over the last several years the biggest corporations have been increasing their profits by an average of 20% a year. In 1996, the thirty U.S. corporations whose stock prices comprise the basis of the Dow Jones Industrial Average, averaged total returns to their shareholders of 28.2 percent for the year, a substantial increase from the average of 22.6 percent in the past three years, and an 18.3 percent average for the past five years. No more than 2.5% of the $1.3 trillion exchanged in international currency markets each day is in any way related to any real exchanges of goods and services between countries. The remaining 97.5 percent simply seeks quick financial returns from short-term price and interest changes. Though titled "When Corporations Rule the World", my book is all about how corporate decision making is in fact dominated by the demands of the global financial markets which are blind to any consequence other than their own short-term profits. Indeed, there is no way a business, other than in special niche market situations, can produce the kinds of returns demanded and be truly responsible in its behaviour. The reason is quite simple. The only way to compete for money in markets that expect such high rates of return is to externalize ever more of the corporation's costs on to the community. This cost externalization takes many forms. Direct Subsidies: Subsidy by State of Virginia to Motorola to locate a research and manufacturing facility in the state, included a $55.9 million grant, a $1.6 billion tax credit, and a reimbursement package worth $5 million for employee training. Special property tax breaks given by New York City to private companies subsidized them to the tune of $301.8 million in 1994 alone. Direct U.S. government subsidies to tobacco growers will come to $41 million in 1997. The oil and gas industry gets $2.4 billion a year in federal subsidies in the form of oil depletion allowances. Over a ten year period the U.S. government subsidized Cargil's foreign grain sales by $1.3 billion. The U.S. government is giving away spectrum rights to the broadcast industry that former Senator Robert Dole estimates are worth from $12 to $70 billion. McDonald's receives $1.6 million from the government each year to advertise its fast food products overseas. The conservative Cato Institute estimates such direct and tax break corporate subsidies total $135 billion a year. In the 1950's taxes on U.S. corporations provided 31% of the federal government's general revenues. Their share is now down to just 15 percent. In 1957, corporations provided 45% of local property tax revenues in the United states. By 1987, their share had dropped to about 16 percent. According to Paul Hawken, U.S. corporations now receive more in direct subsidies than they pay in total taxes. In addition to direct subsidies, there are also the indirect subsidies that society pays by absorbing the corporation's externalized costs -- costs imposed on society by the products corporations sell: For e.g., in the USA, the health consequences of the cigarettes from which corporations profit cost the public an estimated $53.9 billion a year; there is the $135.8 billion the consequences of unsafe vehicles; workers who suffer injuries and accidents due to unsafe work-places is $141.6 billion; death from workplace cancer costs $174.7 billion. It amounts to a conservative total annual figure of $2.6 trillion based on 1994 dollars not even including the direct cash subsidies and special tax breaks estimated by the Cato Institute. This figure compares to total 1994 before tax corporate profits in the United States of $515 billion. In other words society subsidizes America's corporations by more than five times the amount of the profits they generate for their shareholders. The larger and more monopolistic corporations become, the greater the financial and political power they are able to exercise in their efforts to externalize costs. That concentration is progressing to extreme levels. Of the world's 100 largest economies, 51 are corporations. Only 49 are countries. The economy of Mitsubishi Trading Corporation is larger than that of Indonesia, the world's fourth most populous country and a land of enormous natural wealth. The combined sales of the world's top 200 corporations are equal to 28% of the world GDP. These same 200 corporations employ only 18.8 million people, less than 1/3 of one percent of the world's population, even as the downsizing continues. In 1995 the total value of mergers and acquisitions for the world exceeded any prior year by 25 percent. The greater the political and economic power of the corporation, the greater its ability to externalize costs. The more costs it externalizes, the more money it has available to buy additional assets to increase its political and economic power. It is an incideous and non self-correcting process of concentration. There is no inherent limit that would end this process short of the last merger/acquisition bringing all the world's corporate assets under one corporate umbrella -- the ultimate centrally planned global economy. The only limit on this process results from the inexorable process by which the quest for wealth concentration leads the corporation to destroy its own markets, the social fabric of society, the environment, and its own institutional legitimacy. This is the one self-corrective mechanism and it is highly costly. The imperatives of the system limit corporate social responsibility. The system excludes those corporate personnel who do not maximize profits by any available means. The corporation is bought out by a corporate raider or the fund managers line up to apply pressure. There is also the corporate political agenda. Through trade associations, public relations firms, and business roundtables, chambers of commerce and industry the corporate sector is active in rewriting the rules to strengthen corporate rights and colonize ever more of society's assets and wealth creation activities. Eliminating public regulation in favour of corporate self-regulation is something like eliminating the police and courts in favour of asking criminals to self-regulate their own behaviour. Guaranteeing corporate rights to move goods and assets at will without public restraint or accountability; guaranteeing expected profits against any action by government; limiting corporate liability for externalized costs; shifting the tax burden from corporations and investors to working people; privatizing public assets and services, including retirement programs, as new sources of profits; eliminating public expenditures for services that do not contribute to the corporate bottom line; eliminating social safety nets to force people into the work place; maintaining sufficient unemployment to eliminate upward wage pressures; weakening or eliminating labor unions. NAFTA, the WTO, the MAI and other such agreements are among the instruments used to pursue this agenda, though they certainly are not the only ones. We need to oppose their efforts on many fronts through a multifaceted agenda. How can we reclaim our political spaces? We must prohibit political advertising on television and place strict limits on individual campaign contributions. The principle of democracy is one person one vote, not one dollar one vote. We must also place strict limits on campaign spending. We want to know what a political candidate can do with a limited budget, not how effectively he or she can manipulate us with large amounts of money. We must strip corporations of their fictitious human rights and get corporations entirely out of politics. Corporations are public bodies created by public charter to serve a public purpose. It is the responsibility of the corporation so created to obey the rules that people chose to set for them, not make the rules. We must eliminate the concentration of media ownership. The communications media should be subject to strict anti-trust provisions prohibiting any single individual or corporation from owning more than one major electronic or print media outlet. We must take back the corporate charter and facilitate citizen action to withdraw charters of corporations that demonstrate disregard for law or otherwise fail to serve the public good. To reclaiming our economic spaces, we must have market efficiency audits. We must require large corporations to prepare public audits reporting as a public subsidy the full amount of the costs they externalize onto the community. This figure would be reported in their prospectus as a percentage of sales and profits and on product labels as a proportion of the product price. We can institute a 0.5% financial transactions tax on the purchase and sale of financial instruments such as stocks, bonds, foreign currencies, and derivatives to discourage short-term speculation and arbitraging. We should have a graduated surtax on short-term capital gains to make most speculation unprofitable, stabilize financial markets, and lengthen investment perspectives without penalizing long-term productive investment. The surtax on the sale of an asset held less than a week might be as high as 80 percent. We can have a 100 percent reserve requirement on demand deposits to reduce the ability of the financial system to create money by pyramiding loans. This would make it possible to restore the connection between the creation of money and the creation of wealth. There should be preferential treatment of community banks. Governments should guarantee only deposits placed in unitary community banks that channel the majority of their funds back to the community. There should be rigorous enforcement of anti-trust laws. Corporate income taxes should be eliminated simultaneously with the introduction of a requirement that corporations pay out their profits each year to their shareholders. This could be combined with requirements for a percentage of local ownership. We must eliminate Corporate Subsidies. Welfare reform should give top priority to getting dependent corporations off the welfare rolls. Intellectual Property Rights should be defined and interpreted narrowly and granted only for the minimum period of time necessary to allow those who invest in research to recover their costs and a reasonable profit. The patenting of any life form or genetic process, any discovery funded with public monies, or any process or technology that gives the holder effective monopoly control over a type of research or class of products should be precluded by law. Those forms of advertising that serve to encourage consumption rather than simply inform prospective customers regarding the availability and specifications of products should be banned. Credit cards, which encourage indebtedness and consumption beyond one's means should be replaced with debit cards, which are merely a convenient substitute for cash. There should be a guaranteed income sufficient to meet basic subsistence needs; highly progressive income and consumption taxes on levels of income and consumption above those required to comfortably meet basic needs; taxation of inheritance and trust income at the same rate as any other income to avoid creating a perpetual privileged class and provide an incentive for the offspring of wealthy families to make their own creative contribution; and a reduced workweek to allocate available paid employment equitably. In the international arena, the public international debts of low income countries should be eliminated through a two-step process. Odious debts contracted without public consent or for purposes that did not serve public purposes should be repudiated through appropriate internationally sanctioned legal processes to pass the costs onto the responsible individuals and financial institutions. The remaining debts should be repaid out of an international fund under agreements that preclude recreating them. There should be an international financial transactions tax on all spot transactions in foreign exchange. The funds generated should be used to retire Third World debt and fund the United Nations. The World Trade organization (WTO) and the International Monetary Fund (IMF) should be closed and the responsibility for international economic management transferred to the United Nations, with the mandate to maintain a balanced and equitable system of economic relationships among nations that encourages and supports substantial environmental and economic self-reliance. Responsibilities would include negotiating and enforcing agreements establishing standards of conduct for transnational corporations, coordinating international antitrust action, and protecting the rights of all nations to chose with whom they will trade under what terms and to set rules and standards for businesses operating in their jurisdictions. Decision-making processes should be transparent and open to public participation. An international monitoring system should be established to report imbalances in flows of environmental resources between countries as a step toward limiting the ability of one country to pass the environmental burdens of its consumption to another. (David Korten, a US academic and President of the People Centered Development Forum, is the author of the book "When Corporations Rule the World". The above is based on his presentation at the Agora on Globalization, WTO and Development at the recent World Conference of the Society for International Development) [B.