New Internationalist

Brand New World

Issue 085

While the United Nations talks of a New Economic Order - one with a more equitable distribution of the world’s resources - an entirely different world order is being quietly constructed. Giant corporations, through mergers and expansion into different products and countries are occupying more of the power structure around us. Dexter Tiranti examines this concentration of corporate wealth and the brand new world which is being built for the global family.

Photo: Peter Stalker
Photo: Peter Stalker

An assessment of the 100 largest economic powers in the world shows 53 to be countries and 47 multinational corporations. More significant for the next decade, the growth rate of these companies will be three or four time that of the industrial countries. Such growth might, in 1980, seem a commonplace we have learnt to live with. Nevertheless, it’s very recent.

The expansion of global corporations owes a lot to post-war technological advance. Breakthroughs in transportation like jet travel and the speedy, pilfer-proof containerised services, have allowed people and goods to move quickly around the globe. The international telephone and telex system, helped by communications satellites, means business managers in Hong Kong and Hamburg can be in instant touch with each other. And the computer revolution with its ability to process and recall huge amounts of information at the touch of a button, has allowed tight control from the top, not possible even 20 years ago.

In the most recent five-year span overseas investment by business increased in real value by 82 per cent; from $158 billion in 1971 to $287 billion in 1976. Most of that investment has been directed to other industrial nations. Four countries, Canada, the USA, the UK and West Germany are host to 40 per cent of it.

This has alarming implications for all of us. Although it might mean a greater variety of perfumed deodorants, we have less and less ability to choose and create the sort of society we want. The vast concentrations of wealth which operate in our economies mean increasing power over our lives and even our thoughts.

Corporation critics Barnet and Muller sum this up: ‘in developing a new world, managers of firms like General Motors, IBM, General Electric, Shell, Volkswagen, Exxon and a few hundred other make daily business decisions which have more impact than most sovereign governments on where people live, what work - if any - they will do, what they will eat, drink and wear, what sorts of schools and universities they will encourage, and what kind of society their children will inherit’.*

One essential contradiction of the global corporation in any democratic society is that it is a private - unaccountable - institution with enormous impact on public life. It emphasises individualism, competition and greed; traits Totally at *Global Reach - The Power of theMultinational Corporation. See recommended reading odds with our need for social harmony, care for our environment, worthwhile work and communal responsibility. And these multinational corporations, spawned in a white Anglo-Saxon culture, can brutalise the development aspirations of the poor world.

True, only a quarter of multinational investment is in the Third World. And true, most of that is with the OPEC countries, tax havens like the Bahamas or the few boom economies like Brazil, South Korea and Mexico. Although elsewhere foreign corporate investment is small, in weaker Third World economies its impact is high Furthermore, such activity can no longer be gauged by the total amount of cash invested. Often risk capital is provided by Third World governments or by local shareholders. The corporations, for their side of the bargain, supply the managerial expertise, the technology and the marketing skills.

Apart from the international banks lending, most foreign business activity in the developing world has been in natural resources exploitation or manufacturing. Investment in the ‘resource’ industries - mainly mining - makes up a quarter of all foreign money deployed there. Local governments’ biggest grouse against such investment is that more is not invested to process the raw ore-laden rock. In 1971, 70 per cent of Third World minerals were exported in their crude stage. The extra 70 per cent of value that comes with processing and refining, say bauxite into aluminium, ends up in the mining companies’ home country. It is money made out of Third World resources that is lost to them. Quite naturally resource-rich governments have been attempting to claw back more of the processing, and the value, by putting heavier export duties on un-processed mineral exports.

Most foreign investment in the Third World is in manufacturing. Basically there are two types:

  • Manufacturing purely for export. Generally this is on industrial estates established by the government specifically to attract ‘footloose’ companies interested in cheap labour and low taxes.
  • Manufacturing products which would otherwise have been imported - known as ‘import substitution’. Here, concessions are given by the local government, often allowing an effective monopoly to one company in exchange for its interests in their small market. The foreign subsidiary is then faced with a delicate issue - how to price their products. In other words, how much is too much? Civil servants can keep tabs on monopoly concessions by watching the profits declared. Modest returns presume an honest approach.

But such an assumption is dangerous. It begs one of the most alarming features of power in the modern international firm. Most multinational trade across national borders is between affiliates of the same concern. Opportunities for cooking the books and declaring artifically low profits are prolific - particularly as so many subsidiaries buy spare parts, skills and supplies from the parent company. Prices for such ‘intermediate’ products are nearly impossible to determine and allow headquarters ample opportunity for overcharging. For instance, how much are half-assembled Volkswagen doors worth when exported to the Brazilian subsidiary? What is a fair royalty charge by Coca-Cola to its Guatemalan subsidiary for the famous syrup formula? How much should the Aluminium Company of Canada charge its Jamaican subsidiary when consultants are called in from Montreal to solve an engineering problem?

Of course governments are not powerless against profiteering by foreign concerns. Their most obvious weapon is nationalisation - and the 70s saw a hotting up of such action. The U.N. reports that nationalisations which averaged 47 a year in the 60s increased to 140 a year this last decade.

Struggling to gain control

The most successful example of nationalisation was OPEC. They wrested control of their domestic oil industry from the major petroleum companies. Indeed, Iran’s nationalisation of the overseas petroleum affiliates has left it with the 9th largest company in the world.

A less dramatic but increasingly common tactic is the renegotiation of terms under which foreign subsidiaries operate. Without the experience to handle a totally nationalised manufacturing sector, governments see joint ventures as an effective compromise. State or local share-holders own at least 51 per cent of company stock giving them theoretical control of the concern. Resistance to such renegotiation has not been as stubborn as predicted. Even demands for the employment of locals in senior decision-making positions have been met with equanimity. The well-established corporations put up some opposition. But newer multinationals from West Germany and Japan, unencumbered with ideological or racial baggage, have been happy to step in on terms more favourable to the state. Perhaps they more quickly recognised the reality behind the paper resolutions.

Most of the underdeveloped nations have difficulty in controlling the activities of foreign affiliates precisely because they are underdeveloped. And that did not change in the 70s. Although more favourable terms might be negotiated with foreign concerns, there hasn’t been the technical expertise to police them. Research in Indonesia into the localjoint ventures with Japanese multinationals, as elsewhere, has shown the foreign concern, despite a minority shareholding, still calling the shots.

Such ineffectual local ownership is known by Indonesians as the ‘All Baba’ relationship. The local shareholder is the Ali, the real capital and direction come from the foreign Baba. Under-the-table money is given to nationals allowing them to buy shares in the foreign enterprise. Such shareholders vote, of course, on the instruction of the Japanese. One Indonesian army general, a major shareholder in numerous joint ventures with multinationals, asserted that his only real payment in return for the shares lie had been given was that he could see the President at a day’s notice. That was, indeed, worth a great deal. And it is no accident that British American Tobacco of Kenya - affiliate of the 49th biggest corporation in the world - had amongst its shareholders in 1972 six Cabinet Ministers. The real role of such local participants is to grease the wheels in any foul-up with national bureaucrats.

Judgement on whether multinationals can help the underdeveloped world accelerate out of its poverty must begin by examining the engine that powers the vehicle. The basic corporate motivation is profit maximisation. The success or failure of business activities can be judged by a very concrete criterion - the bottom line. That’s part of the appeal of using profits. Beyond the immediate returns for corporate executives lies the need for security - a world of no surprises. And in a competitive world that means continual growth, growth into other countries, diversification into other products. Here lies safety and a spreading of risk for the corporate executive, and here lies one of the main dangers to the public interest.

The ethics of the global conglomerates are the minimum required for survival. Their morality is that of the market place, to give as little as possible and take as much as is politically acceptable. Investigations by the US Senate have revealed the willingness of business to commit crimes. By 1977, 360 US conglomerates had admitted to ‘questionable acts’ (bribes) in foreign countries. The 95 largest concerns had paid out $1 million each year over the last few years.

Such law-breaking, and more spectacular examples like British oil companies supplying petroleum to the illegal Rhodesian regime for more than ten years, hide some of the most important subversive effects of multinationals’ presence in the Third World.

Beaming the synthetic message

With their technology, business practices and assimilation of local shareholders and managers, corporations bring to the poor world a set of cultural values based on the Western way of life. Symbols of the good life become the Cokes, hamburgers, blue jeans, violence on television and film, commercialisation of sex and the glorification of consumer gadgets. Factories supply only the small elite that can afford to buy their products. Only those consumers in the developing world with living standards approaching those in the West are of real interest as a potential market. And such a market, to achieve economies of scale, must conform to Western consumer tastes,. Those too poor to buy are seldom directly exploited. In fact, multinationals pay higher wages to local workers in developing countries, on average, than local firms.

Instead the destructive influence is more subtle. Beaming the powerful corporate message at the better-off in poor societies drives a further wedge between them and the less privileged. Not only is society divided, it is diverted from development goals. Given a choice, the poorest 40 per cent would be more concerned with clean water, decent shelter, food and clothing and an appropriate education than with consumer goods. The right for people to have a say in the running of their own lives is undermined by the hierarchical decision-making within the conglomerates. Finally, town-based factories and marketing activities divert attention and resources away from the needs of the rural majority - a real priority for most of the Third World.

All too often the presence of me foreign corporation acts as a diversion from the struggle for self-reliant development. The Brazilian representative of Pepsi-Cola summed this up well: ‘In this country the young don’t have any protest channels; the present generation didn’t receive any political or social education. So we provide them with a mechanism for protest. It is protest through consumption; the teenager changes from old­fashioned Coca-Cola and adopts Pepsi, the Pepsi with a young and new image, and he is happy.’

Whether in the Third World or the First World, our prime worry about multinationals in the 80s is their increasing concentration of economic power. It is more of the same formula, a formula which has already failed to deliver. Given the obvious relationship between economic power and political decisions, the further accumulation of wealth by multinationals can only produce decisions to the advantage of the few and the disadvantage of the many. And that affects not only the Third World but all of us.

The N.I. would like to thank Karl Sauvant of the Centre on Transnational Corporations and Raphael Kaplinsky of the Institute of Development Studies, for their help in compiling this issue.

Vital Statistics

Of the top fifty multinational companies listed overleaf, 21 are based in the United States, 29 in, the rest of the world. The 21 US multinational giants knock up sales of 447,809 million (54 per cent of the total) compared with sales of $382,169 million by their 29 rivals.

The runners up, but far, far behind, are: the Germans, 10.0 of total sales; the British, 9.1 per cent; the Japanese, 7.3 per cent; the French, 6.3 per cent; and the Dutch, 5.6 per cent. (In this calculation, sales by Royal Dutch Shell and Unilever have been divided equally between Britain and the Netherlands.)

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