excerpt from the book
When Corporations Rule the World
- 2nd Edition
by David C. Korten
September 21, 2008
Those of us who seek to intervene in
policy debates in favor of economic justice and environmentally
sustainability are regularly assured by the world's power brokers
that they are fully committed to these goals so long as economic
growth and the expansion of free trade are not compromised by
governmental restraints on the market. So sacred have growth and
free trade become in our modern culture that only rarely do we
find the courage to ask why they should be given precedence over
the needs of people and nature. Indeed, why should we consider
accelerating growth and trade to be of any importance at all except
to the extent that they serve people and nature?
When the proponents of growth, market
deregulation, and free trade tout their benefits, it is well to
bear in mind what some of the most outspoken of these proponents
really have in mind. Take this account from a recent issue of
As disillusion with socialism and other
forms of statist economics spreads, private, personal initiative
is being released to seek its destiny. Wealth, naturally, follows.
The two big openings for free enterprise in this decade have come
in Latin America and the Far East. Not surprisingly, the biggest
clusters of new billionaires on our list have risen from the ferment
of these two regions. Eleven new Mexican billionaires in two years,
seven more ethnic Chinese.
Taking a slightly more populist view,
Business Week presented its own special report titled "A
Millionaire a Minute," providing this breathless account
of what the free market has accomplished in Asia.
Wealth.. . . Now East Asia is generating
its own wealth on a speed and scale that probably is without historical
precedent. The number of non-Japanese Asian multimillionaires
is expected to double to 800,000 by 1996. . . . East Asia will
surpass Japan in purchasing power within a decade. . . . There
are new markets for everything from Mercedes Benz cars to Motorola
mobile phones to Fidelity mutual funds. . . . To find the nearest
precedent, you need to rewind U.S. history 100 years to the days
before strong unions, securities watchdogs and antitrust laws.
Neither article made more than passing
reference to the 675 million Asians who continue to live in absolute
deprivation. So there we have it. In the eyes of two leading business
journals, economic success is about creating millionaires and
billionaires by denying workers the right to organize independent
unions and giving free reign to securities fraud and the extraction
of monopoly profits.
Most everyone is aware that we live in
an unequal world. Few realize, however, just how extreme the inequality
has become or how fast the gap between the poor and the super
rich is growing. Forbes tells us the world now has 358 billionaires.
Their combined net worth exceeds the combined net worth of the
world's poorest 2_ billion people. This is but one manifestation
of the extreme economic and social distortions created by the
globalized free market economy idealized by business publications
such as Forbes and Business Week.
Evidence is mounting that economic growth
and free trade are not leading us toward economic justice and
environmental sustainability. To the contrary, they are taking
us in the direction of increasing economic injustice and environmental
unsustainability. The debates over jobs versus the environment
miss a basic point. Assuring everyone the means to meet their
basic needs and achieving a sustainable balance with the environment
are mutually supportive goals. Indeed, there are powerful theoretical
arguments why, in a resource scarce world, neither is possible
without the other. There is, however, an irreconcilable conflict
between the goal of creating economically just and environmentally
sustainable societies and embracing sustained economic growth,
unregulated markets, and free trade as the organizing principles
of public policy. The resulting policies are well suited to producing
more millionaires and billionaires. They are ill suited to achieving
justice and sustainability.
THE MONEY GAME
The world's most powerful instrument of
governance is not a government. Nor is it a global corporation.
Rather it is a global financial system that is running dangerously
out of control.
Each day half a million to a million people--primarily
Western Europeans, North Americans, and Japanese--arise as dawn
reaches their part of the world, turn on their computers, and
leave the real world of people, things, and nature to immerse
themselves in playing the world's most lucrative computer game:
the money game. As their computers come on line, they enter a
world of cyberspace constructed of numbers that represent money
and complex rules by which those numbers can be converted into
a seemingly infinite variety of financial instruments, each with
its own distinctive risks and reproductive qualities. Through
their interactions, the players engage in competitive transactions
aimed at acquiring for their own accounts the money that other
Players can also pyramid the amount of
money in play by borrowing from one another and bidding up prices.
Indeed, the money game players have been so successful in creating
play money that for every $1 now circulating in the productive
world economy of real goods and services, it is estimated that
there is $20 to $50 circulating in the world of pure finance--"investment"
funds completely delinked from the creation of real value. In
the international currency markets alone, some $800 billion to
$1 trillion changes hands each day--unrelated to productive investment
or trade in actual goods and services.
Not only is the money game challenging
and fun, the play money it generates can be exchanged for real
money to buy things from people who work in the real world--lots
of things. Unfortunately for the rest of us, though it is played
like a game and the transactions involve nothing more than moving
numbers from one electronic account to another through a global
web of computers, the money game has enormous real consequences.
Take the recent Mexican peso crisis as an example.
Mexico became touted as an economic miracle
by attracting $70 billion in foreign money over five years with
high interest bonds and a super heated stock market. As little
as 10 percent of this money went into real investment. Most of
it financed consumer imports, capital flight, and debt service
payments. It also helped to create 24 Mexican billionaires. The
bubble burst in December of 1994 as the hot money flowed out.
Mexico's stock market and the value of the peso plummeted. The
resulting Mexican austerity measures and a shifting terms of trade
between Mexico and the United States resulted in massive job losses
on both sides of the border. U.S. president Clinton put together
a $50 billion bailout package at taxpayer expense to assure that
the Wall Street firms that held Mexican bonds would be repaid.
The new link between the dollar and the peso made currency speculators
nervous and the value of the dollar fell sharply against the yen.
Not a penny of the bailout money went to the 750,000 Mexicans
who would be put out of work by government imposed austerity measures
or the million Americans expected to lose their jobs to NAFTA
by the end of 1995.
These are real world consequences of an
out of control financial system in which reckless young traders
backed by the massive financial assets of leading private financial
institutions send billions of dollars sloshing around the world
in a high stacks gambling frenzy with an almost complete absence
0. At Kidder Peabody, a major U.S. investment
house, a lone trader reported $1.7 trillion in phony trades over
a period of 2_ years before his superiors noticed anything amiss.
During this period he claimed he had earned the firm $350 million
in profits, for which he was rewarded with an $11 million bonus.
Only later was it found that he had in fact lost the company $85
million on the few trades he had actually made.
0. In one month a 28 year old trader at Barings bank lost $1.3
billion on bad derivatives bets and forced a venerated 233 year
old bank into bankruptcy.
The global financial system is wildly out of control and no one
is tending the store.
SOCIALIZING COSTS AND PRIVATIZING GAINS
In a deregulated global market economy
global corporations are accountable to only one master, a rogue
global financial system with one incessant demand--keep your stock
price as high as possible by maximizing short-term returns. One
way to do that is to shift as much of the cost of the corporation's
operations as possible onto the community. The pressures involved
make it almost impossible to manage a corporation in the larger
community interest. Indeed, any publicly traded corporation that
attempts to manage its assets responsibly will almost certainly
be bought out by a corporate raider.
Take the case of Pacific Lumber Company.
It pioneered the development of sustainable logging practices
on its substantial holdings of ancient redwood timber stands,
provided generous benefits to its employees, fully funded its
pension fund, and maintained a no lay-offs policy during downturns
in the timber market. This made it a good citizen in the local
community. It also made it a prime takeover target.
Corporate raider Charles Hurwitz gained
control in a hostile takeover. He immediately doubled the cutting
rate of the company's holding of thousand-year-old trees, reaming
a mile and a half corridor into the middle of the forest that
he jeeringly named "Our wildlife-biologist study trail."
He then drained $55 million from the company's $93 million pension
fund and invested the remaining $38 million in annuities of the
Executive Life Insurance Company, which had financed the junk
bonds used to make the purchase--and subsequently failed. Turning
reality on its head, corporate raiders refer to this process of
pirating a firm's assets as "adding value."
Once upon a time local communities looked
to corporations not only as sources of jobs, but as well of tax
revenues to help cover the costs of essential local infrastructure
and public services. For example, in 1957, corporations in the
United States provided 45 percent of local property tax revenues.
By 1987 their share had dropped to about 16 percent.
Indeed, local governments are now forced
by the dynamics of global competition not only to give most large
corporations tax breaks, but as well to directly subsidize their
operations with public funds.
The state of South Carolina in the United
States has been warmly praised by the business press for its successful
competitive bid for a new BMW auto plant. The company was attracted
in part by cheap, nonunion labor and tax concessions. In addition,
when BMW said it favored a 1,000 acre tract on which a large number
of middle class homes were already located, the state spent $36.6
million to buy the 140 properties and leased the site back to
the company at a $1 a year. The state also picked up the costs
of recruiting, screening, and training workers for the new plant,
and raised an additional $2.8 million from private sources to
send newly hired engineers for training in Germany. The total
cost to the South Carolina taxpayers for these and other subsidies
to attract BMW will amount to $130 million over thirty years.
This is what global competition is really
about--local communities and workers competing against one another
to absorb ever more of the production costs of the world's most
powerful and profitable corporations.
Another tactic for externalizing costs
is through "downsizing"--a process by which the U.S.
Fortune 500 companies reduced their total employment by 4.4 million
jobs between 1980 and 1993--a period during which their sales
increased by 1.4 times, assets increased by 2.3 times, and CEO
compensation increased by 6.1 times. Some observers claim that
downsizing means the largest corporations are losing out to smaller,
more agile and competitive enterprises. The claim has as much
substance as the claim by tobacco company executives that cigarettes
are not addictive.
While the giants are shedding people,
they are not shedding control over money, markets, or technology.
The world's 200 largest industrial corporations, which employ
only one third of one percent of the world's population, control
25 percent of the world's economic output. The top 300 transnationals,
excluding financial institutions, own some 25 percent of the world's
productive assets. Of the world's 100 largest economies, 51 are
now corporations--not including banking and financial institutions.
The combined assets of the world's 50 largest commercial banks
and diversified financial companies amount to nearly 60 percent
of The Economist's estimate of a $20 trillion global stock of
Concentration of control over markets
is proceeding apace. The Economist reports that in the consumer
durables, automotive, airline, aerospace, electronic components,
electrical and electronics, and steel industries the top five
firms control more than 50 percent of the global market, placing
them clearly in the category of monopolistic industries. In the
oil, personal computers and media industries the top five firms
control more than 40 percent of sales, which indicates strong
Downsizing is really about consolidating
the firm's monopoly control of markets, technology, and money
in a small, well-paid headquarters staff. Everything else is contracted
out to smaller firms that are forced into intensive competition
for the firm's business. The contractors--commonly located in
low wage countries--compete by hiring workers at substandard wages
under often appalling working conditions.
For example, the popular Nike athletic
shoes that sell for US$73 to $135 around the world are produced
by 75,000 workers employed by independent contractors in low income
countries. A substantial portion of these workers are in Indonesia--mostly
women and girls housed in company barracks, paid as little as
15 cents an hour, and required to work mandatory overtime. Unions
are forbidden and strikes are broken up by the military. In 1992,
Michael Jordan reportedly received $20 million from the Nike corporation
to promote the sale of its shoes, more than the total compensation
paid to the Indonesian women who made them.
An unregulated global market is shifting
the financial rewards away from those who do productive work to
those who control money and are successful at convincing people
to buy what they do not need and often cannot afford. This goes
to the heart of growing income disparities around the world.
The world's most powerful corporations
are also active in shaping public policy in ways that virtually
forces us into a pattern of overconsumption that yields large
profits to themselves at the expense of our quality of living.
Evidence is mounting that to make our societies sustainable we
will have to restructure our systems of production and consumption
to largely eliminate:
0. Dependence on personal automobiles;
0. Long distance movement of goods and people;
0. The use of chemicals in agriculture; and
0. The generation of garbage that we cannot immediately recycle.
In each instance, we have an opportunity to substantially increase
the quality of our living while reducing our burden on the environment.
Why aren't we doing it? Who wants to give over their living spaces
to automobiles, take long business trips, eat contaminated foods,
or live in a garbage dump?
One important reason we live this way
is because it is profitable for politically powerful corporations.
For example, the steel, automobile, construction, and oil companies
have a major stake in policies that make survival without an automobile
nearly impossible in most of our towns and cities. Chemical and
agribusiness companies have had a similar stake in maintaining
chemical and energy intensive agriculture systems that provide
us with foods of dubious nutritional value laced with toxic poisons.
Other industries benefit from encouraging our use of excessively
packaged low durability products. So long as these corporate interests
are allowed to dominate public policy processes, change is unlikely.
Global civil society is mobilizing to reclaim the power that these
interests have co-opted.