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Multinational corporations: an overview

STWR
19 May 2008

Multinational Corporations are the main actors driving economic globalisation which thrives when market forces are de-regulated, allowing essential goods and services to be allocated by commercial activity, not human need. The result is a world economy that favours affluent countries and their corporate interests whilst neglecting those living in extreme poverty who the market fails to reach. Below is a brief overview, some key facts and further resources that relate to multinational corporations.

Contents

Overview

Once considered dangerous and untrustworthy by governments, corporate enterprises are now the key players in the globalised economy, exerting substantial influence over governments and international organizations the world over. Their financial success seems endless; despite a widespread economic downturn in recent years, corporate profits are at an all time high, with the largest banks, oil, pharmaceutical and retail companies regularly reporting record turnovers. A significant proportion of these profits are reinvested not only in influencing politics and economics, but ensuring that people continue to consume their products.

Economic and Political Influence

Despite employing less than one percent of the global work force, 200 of the largest multinational corporations (MNCs) have sales equivalent to almost 30% of the world's GDP. Given their sheer economic might it is unsurprising that, in a period where economic growth is considered a panacea for development success, governments increasingly adopt pro-market policies and facilitate commercial activity. The result is a firmly established mutual-interdependence between corporations and governments, a phenomenon which is most evident in the United States which increasingly undermines a truly democratic representation of public interest.

While corporate-friendly policies of privatization, government downsizing and market liberalization continue to be propagated, large swathes of the public in both the North and South are suffering.  As a result, there is now a significant worldwide backlash against many of the principles and effects of economic globalization. Transnational corporations, in their relentless drive to maximize profits and bolster share prices, have been re-locating their production facilities to developing countries where tax, labour and environmental restrictions are negligible - creating large-scale unemployment in the industrialized countries.

Many argue that this is a necessary sacrifice in order to secure economic growth and opportunity in the developing world, but in many cases the result is merely a glut of labourers working in inhumane factory conditions for comparatively miniscule pay. These workers often give up their families and rural life to migrate en masse to overcrowded cities, inadvertently buying into an economic state of play which promotes unsustainable over-consumption in already wealthy countries.

At the same time, food security has sharply declined in many developing countries as large-scale agribusinesses out-compete local farmers, exporting cash crops and not growing food for those who need it locally. Consequently, communities are no longer able to grow the food they need to eat, must import food instead, and are therefore at the mercy of increasingly volatile international markets - a factor at the heart of the current food price crisis.

Influencing the public

Far from supplying public demand, corporations actively dictate cultural habits and create demand by influencing the public through a sophisticated and well-funded combination of research, marketing, advertising and media manipulation. The result is the subtle, but quite apparent, alignment of public and corporate interest. This cultural homogenization of society both nationally and globally is fertile ground for maximizing profit. Whilst levels of unnecessary and unsustainable consumption increase globally, corporate longevity is secured.

The sophistication and effectiveness of advertising and marketing methods is well understood. The ubiquity of the television and the increasing number of hours it is watched, especially by children, is particularly disturbing. In the US, watching TV is the third most time-consuming pastime after sleeping and working.

As domestic markets become saturated, or public opinion turns against a particular product, corporations - using the same aggressive marketing tactics - shift their attention to developing countries with devastating effect. Nestle is notorious for its aggressive marketing of infant milk formula in poor countries in the 1980s. Because of this practice, Nestle is still one of the most boycotted corporations in the world, and its infant formula remains controversial. In recent years, as public awareness of dire health consequences of smoking tobacco have come to light in industrialized nations, tobacco giants have also had to shift their focus to increasing demand in developing countries. The WHO has reported that 84% of an estimated 1.3 billion smokers live in developing and transitional economy countries. A 1994 WHO report estimated that the use of tobacco resulted in an annual global net loss of US $200 billion, a third of this loss being in developing countries which consequently hampers development efforts.

Corporate Greed or Public Good?

The battle for control of the democratic process is clearly being won by those with the greatest financial and economic leverage, and the phenomenon of market forces is becoming more entrenched in every aspect of public life. As many industrialized nations call for democracy to be spread abroad, the economic ideologies they have vested our future in are cancerous to these same democratic principles. True democracy can only be established if the global public is empowered to make decisions that favour cooperation and economic efficiency over competition and self interest.

After 30 years of economic globalization and the decadent rise of multinational corporations, almost half the world is still denied even the most basic of goods and services such as clean water, basic food, energy and medicine. Whilst small to medium-scale business is crucial in a thriving and interdependent society, the commercialisation of all resources and their distribution through a tiny number of oligarchic corporations will never supply the most essential resources to those who need them most. Small-scale, localised industry combined with international economic sharing is likely to play a significant role in creating a sustainable future.  This will only be possible, however, when corporate rights are scaled down to a level where corporations act in a limited and regulated capacity to serve the public's economic needs.

Key facts

Size and Income

Many corporations have a greater turnover than the GDP of most countries. Of the 100 largest economies in the world, 52 are corporations and 48 are countries, and these corporations have sales figures between $51 billion and $247 billion.

Seventy percent of world trade is controlled by just 500 of the largest industrial corporations, and in 2002, the top 200 had combined sales equivalent to 28% of world GDP. However, these 200 corporations only employed 0.82% of the global work force.
 

In the US, ninety-eight percent of all companies account for only 25 percent of business activity; the remaining two percent account for nearly 75 percent of the remaining activity. The top 500 industrial corporations, which represent only one-tenth of one percent of all US companies, control over two-thirds of the business resources in the US and collect over 70 percent of all US profits.

According to the International Finance Corporation (IFC), inflows of foreign direct investment to the emerging markets have grown by an average of 23 percent per year between 1990 and 2000. The combined value of stock markets in emerging economies is set to exceed $5 trillion in 2006, and has more than doubled in the past decade.
 

Chevron's CEO received $37 million in total compensation in 2005, whilst Exxon's CEO received a $400 million pay and retirement package. In the meanwhile the minimum wage in America (£5.15 per hour) is at a 50 year low.

Corporate growth is around four times as high as global economic growth.
 

In 2005 the number of millionaires globally swelled to 8.7 million, 5.7 million of whom are based in North America and Europe. Forbes reported a 15% rise in the number of billionaires since 2005, who now have a combined worth of $2.6 trillion.

Job Losses

Between 1980 and 1993, over four million jobs were shed by the largest 500 industrial corporations in the US. Since President Bush took office, two million have lost their jobs and in 2004 nearly one in ten could not find a full time job.
 

The International Labor Organization (ILO) calculates that global unemployment rates are at an all time high. Of the 2.8 billion workers in the world in 2005, nearly 1.4 billion still did not earn enough to lift themselves and their families above the two dollars a day poverty line - the same proportion as ten years ago.

Health

Nestlé's fierce marketing of powdered milk in the 80's caused the deaths of an estimated 1.5 million children through the contaminated water used to make the infant formula.
 

Nestle is still one of the most boycotted corporations in the world, and its infant formula is still controversial. In Italy in 2005, police seized more than two million litres of Nestle infant formula that was contaminated with the chemical isopropylthioxanthone (ITX).

In recent years tobacco giants have had to shift their focus to increasing demand in developing countries. The WHO has reported that 84% of the estimated 1.3 billion smokers live in developing and transitional economy countries. A 1994 WHO report estimated that the use of tobacco resulted in an annual global net loss of US$ 200 billion, a third of this loss being in developing countries, stumping development efforts.
 

Human Rights

Chevron and Coca Cola have been indirectly involved in the violent killings of workers and union officials in developing countries in attempts to suppress workers rights. Instances of kidnappings, torture, discrimination, health violations, fuelling conflicts, privatizing and contaminating local water sources, using child labour and even sex trafficking have all been documented as occurring under the responsibility of the largest corporations.
 

Sweatshops are often used in developing countries by the apparel industry which usually pay negligible wages to under age workers who often work long hours in terrible conditions.

Corporate Welfare

Government support to farmers in OECD countries totalled $283 billion in 2005, representing 29% of total farm income. The majority of farmers who own small to medium sized farms do not benefit from these subsidies. 30% of farmers in the US do not receive any of the $26 billion of US subsidies, and over 85% go to only 20% of the largest farms, a pattern repeated in the EU.
 

The number of small farms in the US has decreased from 6.8 million in 1935 to 1.5 million in 1998. In global commodity markets these subsidies mean that producers in developing countries, many of whom produce their goods with more efficiency and less cost than the US and EU, cannot compete with agri-business suppliers.

The US Government Accountability Office (GAO) reports that 95 percent of corporations paid less than 5 percent of their income in taxes, and 6 in 10 paid nothing at all in federal taxes from 1996 through to 2000. The corporate share of taxes paid fell from 33 percent in the 1940's to 15 percent in the 1990's. The individual's share of taxes has risen from 44 to 73 percent.
 

Externalities

Every year corporations are fined hundreds of millions of dollars as their externalities create serious environmental catastrophes, neglect employee rights and even cause deaths. Examples include Chevron, guilty of some of the worst environmental and human rights abuses in the world such as the dumping of 18 billion gallons of toxic waste into rivers used for bathing water in the Amazon, devastating the health of the local community.
 

Taking the cost of these externalities into account, Ralph Estes estimated that the public cost of private corporations was over $3 trillion in 1995. His externalities included "workplace injuries, pollution, employment discrimination, consumer rip-offs, corporate white collar crime, tax abatements and all the other instances of corporate welfare, government contracting fraud and creative accounting"

The World Bank

Foreign direct investment now exceeds $1 trillion per year for World Bank projects such as privatization of public utilities and creating banking systems. 1% of all multinationals own 50% of the total stock of all foreign direct investment.
 

IMF

When these corporations made bad loans to developing countries, the IMF provided multi billion dollar bailouts. For example, it bailed out foreign investors in Russia with an $11 billion package and orchestrated a massive bailout of the big banks that made bad loans to Asian countries. In 1995, the IMF gave almost $18 billion to Wall Street investors who stood to lose billions with the peso devaluation. 
 

WTO

WTO rulings have often resulted in national governments being sued by corporations simply for placing national interests above corporate profit. The overall effect is the harmonizing of international regulations and standards to their lowest denominator.
 

The success of corporate influence on the global economy is measurable, as 70% of global trade is now controlled by just 500 corporations

The developing world, where 75% of people's livelihoods depend upon agriculture, is the source of 90 per cent of all biological resources. Yet transnational companies based in developed counties hold 97 percent of global patents. Since 1985 there have been 10,778 patents on plants registered in the US. Overall, patent applications at the World Intellectual Property Organization have soared from 3,000 in 1979 to 67,000 in 1997.
 

Influencing Governments

Eighty percent of all corporations reside in the US and EU. Over 30,000 corporate lobbyists are based in Washington and Brussels, vastly outnumbering the US Congress and European Commission staff that they lobby.
 

The vast majority of lobby groups represent business interests who spend billions of dollars annually advocating their main cause, which is currently market access in emerging economies. In the US, corporations and their agencies spent $9.7 billion lobbying Congress between 1997 and 2000, about $4.5 million per year per member of Congress.

In his book Captive State (2000), George Monbiot lists 43 individuals who, since the 1997 elections in the UK, have been appointed as ministers, heads, chairmen, and advisors to as many government departments and independent committees. In each case their previous corporate positions (mostly as directors, chairmen or chief executives) and existing links to industry present a direct conflict of interest with their governmental roles.
 

The President, Vice-President, Commerce Secretary and National Security Adviser all have strong ties to the oil industry. The Bush family had strong ties to Enron-which was President G. W. Bush's largest corporate source of funding.

Vice-President Dick Cheney amassed some £50m-$60m while he was chief executive of Halliburton Oil Company. Condoleezza Rice was a director of Chevron. Secretary of Commerce Donald Evans held stock valued between $5m and $25m in Tom Brown Inc, the oil and gas exploration company he headed.
 

Influencing Society

In the US, watching TV is the 3rd most time consuming pastime, after sleeping and working. In the US, 75% of commercial television time and 50% of public television time is paid for by the 100 largest corporations. Projected global advertising expenditure for corporations in 2006 is over $427 billion dollars.
 

Public Relations

All major corporations, particularly those which have the greatest negative impact upon the environment, have repackaged themselves recently as having ‘green' credentials to great effect. The oil giant BP's new green, flower-like logo and recent PR campaign is an excellent example. As a result, BP has successfully managed to shift public focus away from the fact that is one of the world's foremost polluters of the environment and considered by many as one of the top 10 corporate criminals.
 

Further resources

Organisations

Campaigns

Reports

Articles

Books

Further resources

Filed under: 
Corporate power