The face of the enemy: The “Global 500” corporations

I think the biggest problem with protest movements over recent years is that they lack a clear definition of the enemy.  The global frustrations are evident – unemployment, poverty, declining wages and benefits, austerity, rising inequalities, insecurity, small business failures – but who is to blame?  It’s all so vague.  It can’t be just a matter of dictators because we see just as much frustration within the democracies.  It’s great to rid oneself of tyrants of course, but the Egyptians and Tunisians will surely soon discover their lives won’t change too much.  Those in the western democracies already know how little the vote actually means.

Each of the frustrations listed above are economic and this should give us a strong clue that the underlying problem is related to economic power.  We need to put a face on that power, though, if we’re to make any progress in challenging it.  We could simply say that the problem is capitalism and, while I’d agree, it’s still far too nebulous.  Capitalism in the public mind is often associated with an efficient market economy, democracy, and freedom.  What specifically is being opposed?  We have to get more specific.

My view is that the root problem is concentrated economic power.  So I propose we put a concrete face on that power and point our fingers directly at what Fortune Magazine has identified as the “Global 500” corporations.  These are the largest 500 corporations in the world and they were able to accumulate a staggering $23 trillion dollars in revenues in 2010, almost 40% of global GDP!  This is an incredible concentration of economic power that necessarily affects all facets of global politics, income distribution, and life chances.  These companies are clearly the drivers of our current world.  All are global in nature and it’s quite simple to identify their key interests: low income taxes, open global markets, flexible and low cost labor, limited regulation, and small government focused on competition.  And what are the economic policies of virtually every state and all key international economic bodies?  Low income taxes, open global markets, flexible and low cost labor, limited regulation, and small government focused on competition.  We can’t be too far off target when we point to these 500 companies as the concrete face of the enemy.  They, far more so than our governments, are our rulers.

The Global 500 are not economic atoms existing in the free market world of supply and demand curves which we find in our economics textbooks; far from it – they’re oligopolistic titans which have purposely corrupted the very nature of free markets in order to maximize their power.  They each have the power to price as if they were monopolies, have the wherewithal and incentive to corrupt and control political systems, channel extreme wealth to the already wealthy, and, by controlling virtually all important means of production, force vast majorities into modern day versions of dependency.

Economists and other elites often refer to our system as a “market economy” as it evokes impressions of fairness, transparency, and equal exchange.  But we must recognize that the global world system is not at all like that. The great historian Fernand Braudel in his profound “Civilization and Capitalism – 15^th to 18^th Century” provides an extremely useful historically informed way to look at the true nature of capitalism.  His essential message is that capitalism is very different from the market economy.  He saw the market economy as a distinct “floor” of an economic structure.  On that floor, transparent markets operate within the norms of our textbook theories of supply and demand.  Here we see normal everyday transactions for everyday life; we see the town market.  Capitalism doesn’t operate on this floor, though, but on the next floor up.  It’s hierarchical in character and able to manipulate exchange for its advantage; it’s the world of speculation and big business.  He notes that just a few wealthy merchants in 18^th century Amsterdam or 16^th century Genoa could throw whole sectors of the world economy into confusion.  This is the “shadowy zone” hovering over the “sunlit world” of the market economy.  “Capitalism is the top floor with its mighty networks, its operations which already seemed diabolical to common mortals.”  It’s an accumulation of power, a form of “social parasitism”, not the true market economy but often its opposite.  “Above the market economy – the anti-market where great predators roam and the law of the jungle operates”.  The capitalist stood in a certain position in society and had the advice and wisdom of peers.  “There was no need to be a genius if one stood among those controlling the system”.  He notes that more capital was used for speculation than innovation and points out that the idea that capitalism is responsible for growth identifies it too closely with the market economy.  Any reinforced form of domination “secretes” capitalism as we see it moving from Venice to Amsterdam to England: it was always the same reality.  Braudel identifies the normal methods of capitalist control – notice how consistent they are to today.  The key is to get outside of the regular market price system; buy grain before it’s harvested, wine before the grapes are picked etc.  Prices are controlled by hoarding or buying directly from the producers so that people are obliged to buy from them.  Prices can be maintained by restricting supplies of commodities and competition can be put out of business by underselling.  All big business is based on monopoly.  Anti-competitive mergers and acquisitions are probably the biggest additional tool used today.

With Braudel’s help, we can see that capitalism today is no different in kind than centuries ago.  But in size and concentration, it certainly dwarfs its ancestors.  We are living under the near complete domination of global capitalism and the direct face we can put on it is the Global 500.

Ownership of these 500 companies is so diffuse that the very term becomes meaningless.  They’re controlled by an executive management team that has virtually no ownership.  The technical owners are mere passive stockholders who normally know nothing about the business and provide none of the normal responsibilities of ownership.  On what basis do they have any rightful claim to the profits of these massive organizations?  On what basis do they have any right to rule over us?

I think one of the best examinations of the large corporation was written way back in 1932 by Adolf Berle and Gardiner Means: “The Modern Corporation and Private Property”.  They note that the economic argument in favor of owners receiving the profits is based on the perceived societal benefits of inducing risk taking and assuring that businesses are operated efficiently.  But since passive stockholders are completely absent from any control, they have no economic justification for reward.  The economic case would actually call for the rewards going to those who are running the business – management.    As Berle and Means point out, the corporation is a different animal to which the old logic of Adam Smith no longer applies.  There’s little economic reason to reward passive wealth and, since they’ve surrendered their responsibilities for control, they have no clear cut right to the profits.

So, what’s the conclusion?  I’d conclude that the stockholders of the Global 500 have no moral or economically valid claim to profits.  The companies should be nationalized and operated in the interests of the broader public by competent managers at significantly reduced compensation.  Operating these giant production machines in the interests of society would almost certainly go a long way in changing the dynamic of poverty and insecurity.  And especially so in light of the monetary insights of Functional Finance and Modern Monetary Theory.  I’d also conclude that concentrated economic power is by its very nature corrosive and should be ended wherever it exists.  While there can be a place for a market economy, there can be no place for capitalism.  Of course individual countries can’t nationalize all these companies alone.  Capitalism has always been a global problem and it can ultimately only be addressed at that level.  But much is still possible at the state level and the fight has to start somewhere.  Clearly identifying the enemy is a critical beginning.