Stateless Corporations:
Lords of the Global Economy


by Richard J. Barnet

It is seldom noted in the mainstream press that the world's 358 billionaires have a combined net worth of $760 billion, equal to that of the bottom 45 percent of the world population; or that the average C.E.O. in the United States now brings home about 149 times the average factory worker's pay; or that in recent years an estimated 18 percent of American workers with full-time jobs earned poverty-level wages; or that every other black baby in America is born into a family living below the poverty line; or that, since 1973, the number of American children living in poverty has increased by 50 percent, so that 22 percent now grow up poor, and the number keeps increasing.

Despite such statistics and many more like them, it remains an article of faith among most politicians and in boardrooms that what is good for General Motors is still good for America. Yet global corporations chartered in Delaware and flying the American flag now see themselves, even advertise themselves, as "stateless." Corporate executives disavow any special relationship to the United States or to its people. As Martin Davis, former chairman of Paramount Communications, put it, "You can't be emotionally bound to any particular asset." As mega-companies search the world for bargain labor, sell their stock on exchanges from London to Hong Kong and pin more and more of their hopes on customers in the emerging markets, most of them in Asia, they are walking away from the enormous public problems their private decisions create for American society.

At the same time, the influence of business giants over the daily lives of Americans is growing as ownership of the media is concentrated in fewer and fewer corporations, while big money plays an ever more decisive role in the political process. With the continuing decline of unions in the private sector, widespread disillusionment with government and the resurrection of unfettered free-market ideology, transnational corporations now exercise more power over the U.S. political system than at any time since the early decades of this century.

Because of the growth of corporate power, the accountability of private enterprises to workers, managers and the communities where they operate has declined markedly in the past twenty years. More than a quarter of the world's economic activity now comes from the 200 largest corporations. Up to one-third of world trade takes place among different units of a single global company. This means that prices are set, not by the mystical forces of the free market, but by corporate administrators who can arrange to have profits show up in tax havens and accomplish other miracles of creative accounting that improve the global bottom line.

The consequences of these developments are a shrinking tax base, accelerated joblessness, mounting insecurity in the work place, increasing poverty and an ideological climate in which the breathtaking inequality between the highly publicized super rich and the growing army of the poor rarely makes it onto the political screen. By taking advantage of an expanding global menu of profitable opportunities, U.S. corporations have reinvented themselves and in the process profoundly changed their relationship to American society.

From 1950 to the mid-1970s, the interests of large, U.S.-based corporations coincided in important ways with the interests of large numbers of Americans. In those high-growth years, thanks largely to strong unions and an activist government supported by both parties, big companies created tens of millions of well paid jobs, provided health care and pensions, and brought women and minorities into the work force. The 1950s were scarcely a golden age of democracy, but corporations played a positive role in a number of important ways. The sustained industrial boom after World War II opened a window for blacks from the South to migrate to the factories of the North. Thousands made it into the blue-collar ranks, and their children entered the middle class in growing numbers. By the end of the 1980s, the percentage of African-Americans in the middle class, never more than 5 per cent in the pre-civil rights era, was over 25 percent. Women's horizons expanded in the postwar prosperity, and so in time did their opportunities in the marketplace.

In major industries across the country, corporations facing powerful unions purchased peace in the workplace with high wages and generous benefits; they passed on the cost to the consumer, but in the process they ushered in a new middle class that could buy a home and two cars on credit. Companies like l.B.M. became private welfare states, offering secure lifetime employment and pensions that both managers and workers could count on. Thanks to the new prosperity and more equitable income distribution, median family income tripled between 1950 and 1970.

The global job crisis of the l990s results from the interactions of the dramatic advances in labor-saving technologies and the equally remarkable expansion of the international labor market. "Competitiveness" is the mantra of this new economy, and the winning strategies involve "downsizing" labor costs and increasing market power through corporate takeovers. A global pool of bargain labor is available to companies making virtually anything and, increasingly, to corporations selling insurance, data of every description and legal, engineering and accounting services. About a third of the jobs in the United States are at risk to the growing productivity of low-wage workers in China, India, Mexico and elsewhere, and this new reality exerts downward pressure on wages and working conditions for millions of Americans who still hold jobs. Because corporations now control the technology to shift operations anywhere, the strike threat is rarely an effective instrument of collective bargaining. Management now wields the more credible threat: Take it or we leave.

The proportion of the U.S. work force in private industry organized for collective bargaining-now under 12 percent-is smaller than it was in 1936, the year after enactment of the Wagner Act, the principal New Deal labor law reform. The decline of Big Labor's political clout is reflected in changing governmental attitudes toward workers' rights. In the Reagan / Bush years, widespread retaliation against organizing activities took place while the National Labor Relations Board looked the other way. The board is now more conscientious, but most unionbusting activities-such as the permanent replacement of striking workers-are within the law, and the unions' efforts to stop the erosion of their bargaining power went nowhere even when Democrats controlled Congress. Given the mood of the new G.O.P. majorities in the House and Senate, corporations will be even freer to shift production to areas where workers are willing to settle for lower pay and fewer benefits.

As technology eliminates all sorts of routine jobs, the number of "superstar" or "winner take all" jobs, as some economists call them, has jumped spectacularly, even though they make up a tiny fraction of the work force. C.E.O.s with multimillion-dollar salaries, virtuoso deal-makers, star lawyers, anesthesiologists, TV faces and pop musicians whose talent, connections or luck have propelled them to the top of their profession bring home a fortune every year even as the median earnings of the professional class and most entertainers stay flat. Stanford economist Paul Krugman notes that between the late 1970s and the early 1990s "the real wages of low-ranked workers like janitors fell 15 percent or more, while the real earnings of high-end occupations like doctors and corporate executives rose 50 percent or more."

The great financial houses, insurance companies and real estate firms, touted in the early 1980s as the post-industrial job machine that would take care of the people who were losing their
jobs to robots or to corporate flight, provide low-paid and increasingly insecure employment. Political analyst Edward Luttwak calculated that, in 1992, the 4.9 million non-supervisory employees in these industries were making an average hourly wage of $10.14-less than the average production worker, and considerably less than is needed to raise a middle-class family in global financial capitals like Manhattan or San Francisco. The 1.1 million bank tellers and clerks earned $8.19 an hour, while the 48,500 back-office employees in brokerage houses earned an average salary of $28,142 a year. Middle managers are also casualties of corporate restructuring. The median earnings of the 2 million American men between 45 and 54 with four years of college (all but 150,000 of them white) fell in constant dollars from $55,000 in 1972 to $41,898 in 1992.

This pressure on wages and salaries is only increased by the growing lust for downsizing. In the three years ending in March 1994, five companies-IBM, A.T.& T., GM, Sears Roebuck and G.T.E.-announced layoffs totaling 324,650 employees. An American Management Association study based on interviews with corporate executives concluded that payroll-trimming is now a permanent strategy for many companies. Even an occasional C.E.O. is sacrificed in the effort to get the corporation down to fighting trim. But most executives are too politically astute to let this happen, even when their performance sags. Over the past three years, Disney's Michael Eisner earned $215,911,000 in salary, bonuses and the exercise of stock options; Anthony O'Reilley of H. J. Heinz took home $114,177,000 in the same period. Neither EuroDisney gate receipts nor ketchup sales nor the stock performance of either company would appear to warrant such princely emoluments, as Business Week suggested when naming both C.E.O.s to its select list of "those who gave shareholders the least."

Job-slashers tend to be well rewarded. According to a study done by my colleagues Sarah Anderson and John Cavanagh, the C.E.O.s of twenty-three of the nation's twenty-seven top job destroyers received raises last year averaging 30 percent (the figure does not include stock options in excess of $1 million, which most have). The irrelevance of poor corporate performance in setting executive compensation prompted Congress to make a gesture of disapproval. The Omnibus Budget Reconciliation Act of 1993 disallows tax deductions for executive remuneration in excess of $1 million. But this provision has a comfortable escape clause that exempts "performance-based compensation," that is, additional money or stock awarded an executive for meeting "performance goals" set by the corporation and approved by a compensation committee of outside directors. Since productivity growth and increased cash flow are primary corporate goals, this reform has the unintended effect of rewarding top executives for firing employees at every level but their own. According to a 1993 study by the General Accounting Office [a research arm of Congress], more than 40 percent of corporations doing business in the United States with assets of $250 million or more "either paid no income taxes or paid income taxes of less than $100,000." In the 1950s, corporations operating in the United States paid 23 percent of all federal income taxes. By 1991, it was down to 9.2 percent, while the corporate share of state and local taxes stayed about what it was in 1965. The many opportunities open to corporations and wealthy stock holders to avoid taxes are not only creating a fiscal crisis for cities and states across the nation but making the tax burden of the much-courted but much-abused middle class even heavier; states and localities seek to extract revenue in small bites from consumers and modest homeowners through regressive sales and property taxes. These states and municipalities are so desperate for decent jobs that they bid against one another in offering subsidies to bring in plants. In one such deal, Alabama gave Mercedes-Benz a $253 million package, about $ 170,000 per job. Illinois gave Sears a $240 million tract of land just to stay put, but this did not prevent large Sears lay-offs throughout the state.

Even in states like California, with a well-organized revolt against local taxation, the tax burden increases while the services that such revenues are supposed to underwrite continue to
decline. The drying up of public moneys means that for those who must depend on inadequate and demoralized public education, a national postal service that loses mail and is overburdened, and unresponsive police forces, living in America is an increasingly different experience from what it is for those who can afford private schools, Federal Express, security guards and other amenities provided by the great growth industry of the nineties, the privatization of public services.

More and more Americans now fear they will lose their job and the anchor it represents. Pensions are dangerously under funded. G.M., for example, had an estimated $14 billion in unfunded pension liabilities in 1994. As a result, workers are increasing]y expected to provide for their own retirement, sometimes with modest matching corporate contributions, often without. For millions of individuals who once had the expectation of lifetime employment and for communities with expectations of a secure economic base, what is disappearing is not just an income and lifestyle but trust in the corporation, a basic American institution that for years provided security and a sense of self worth and purpose for millions of people.

Good news for people is bad news for corporate investors. When employment goes up the stock market tends to go down, because of fears of inflation. The link between unemployment and increased family stress, child abuse, alcoholism, suicide and mental illness has been well documented in many studies. This lack of security is undermining a whole set of beliefs and expectations about opportunity, equality and community on which democratic hopes are based. For those at the bottom of our society-especially young African-American men facing unemployment rates of 65 percent or more in major American cities-the prospect, as Cornel West has put it, is for lives of "horrifying meaninglessness, hopelessness, and (most important) lovelessness." The social costs, not to mention the uncalculated economic costs, of nihilistic rage are evident in our exploding inner cities.

That rage and the fury found almost everywhere else in the country is directed almost exclusively at government because the mainstream media virtually never target global corporations as major contributors to the nation's socio-economic woes, and because even if they did, the business behemoths would seem beyond reach. You can send a message by voting out an incumbent, but sending a message that corporate bureaucracies will hear takes considerably more money, time and patience.

Citizens' movements have scored victories in the struggle to reform corporate behavior with respect to auto safety and some environmental and health issues, but these successes have taken enormous effort and the dedication of a few people. Even so, most Americans feel powerless to change institutions that are putting people last, and the more overwhelmed they feel, the more corporate power grows. Yet the implacable logic of accelerating workplace insecurity, and the social crisis it clearly implies, is not on the agenda of either the Democrats or the Republicans. Neither party is prepared to take on the core political issue that is transforming American life, because both depend on corporate money and connections to win votes in the obscenely expensive, never-ending campaign that now defines American politics.

this article is from the book

edited by Kevin Danaher

Common Courage Press
Box 702
Monroe, Maine 04951
phone - 207-525-0900
fax - 207-525-3068

and was originally in The Nation magazine

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