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By Philippe Legrain 2 COMMENTS

Dear Philippe

Do corporations rule the world? No doubt about that.

Who prevented the US from signing the Kyoto Accord despite massive evidence that global warming is a fact? The US corporate lobby, of course.

Whose interests are served by the World Trade Organization (WTO), the most powerful multilateral organisation ever created? Transnational corporations (TNCs).

Financial crises have become more and more frequent since the 1980s, prompting calls for an effective global financial architecture with strong capital controls to prevent the destabilizing herd like moves of speculative capital.

Any move in this direction, however, has been squelched by the corporate lobby: the tiniest speed-bumps to the destabilising, lightning-speed movements of finance capital are non-existent, even as prominent Wall Streeter Robert Rubin, a partisan of non-regulation, predicts that "future financial crises are almost surely inevitable and could be even more severe."

Indeed, all efforts to regulate the operations of TNCs have failed, the most notorious instance being the way the United Nations Center for Transnational Corporations (UNTC), a body set up to monitor and regulate corporate abuse, was dismantled under TNC pressure and converted instead into an office to promote foreign investment.

The spectacular scandals involving Enron, Arthur Andersen, WorldCom, and many others could only take place in the atmosphere of feverish deregulation and extremely lax government controls that eroded the firewalls between management and board, auditor and audited, stock analyst and stock broker, commercial banking and investment banking.

While some heads have rolled, this is a case of ritual punishment since many TNCs continue to be marked by the same corrupt, non-transparent practices, with reform stymied by a powerful corporate lobby to which both the Democratic and Republican parties are beholden.

With the Bush administration, corporate rule is at its peak. This is an administration that has aggressively sought to reverse 35 years of environmental legislation and open up protected areas to exploitation by Big Oil and Big Energy.

This is an administration that, owing to the opposition expressed by US banks, killed a modest move to create a Chapter 11-type mechanism to allow developing countries undergoing financial crisis to declare bankruptcy and reorganise their affairs.

This is an administration that brazenly went to war partly to benefit its cronies in Big Oil and unashamedly awarded other corporate cronies like Halliburton with massively profitable war contracts.

This is an administration that is undertaking the most radical experiment in privatisation in occupied Iraq – the creation of a free-market legal order that would render that country completely permeable to foreign investors.

Perhaps the arrogance and corruption of unfettered power is best exemplified by Big Pharma. It is one of the biggest beneficiaries of the draconian global patent law, the Trade Related Intellectual Property Rights Agreement (TRIPs). TRIPS legalises the TNC’s monopoly over key advanced technologies and allows them to privatize knowledge developed in a cooperative fashion by human communities over the centuries

Big Pharma has spent the last decade trying to suppress attempts by developing country governments to loosen patent rights and thus deliver affordable antiretroviral drugs to millions of HIV-AIDS afflicted patients.

Big Pharma is tremendously flush. It makes a 20 per cent return on investment, making it the most profitable industry in the US. And it can do this by making not only anti-retrovirals expensive on the market but other drugs too, including many of vital interest to sick people in developed countries like the United States. The World Health Organization (WHO) estimates that most patented medicines retail at 20 to 100 times their cost of manufacture!

But Big Pharma says, hey, we need monopoly profits to support research and development (R&D). Really? Big Pharma is no longer that interested in doing R&D in diseases that afflict many of the world’s peoples.

Even though tropical diseases were the main killers of the world’s peoples, only 13 of 1233 new drugs that reached the market between 1975 and 1997 were approved specifically for tropical diseases. Poor people have little market power, which explains why so much of the resources of Big Pharma is currently devoted to producing and improving chemical toys like Viagra, for which there is immense demand from the rich and the middle classes.

Dear Walden

Big companies are rich and powerful – no doubt about that – but do they run the world? Certainly not.

The biggest constraint on corporate power comes from competition. A huge company like Vodafone is only successful because consumers choose to buy its products: if you don’t like their service, you can switch to Orange or another mobile-phone company.

If Vodafone fails to keep its customers happy, it will eventually go bust or get bought up. That’s what happened to Midland Bank, once the world’s largest, and now owned by HSBC; or British Leyland, once the world’s third-biggest carmaker, which eventually became the now-defunct Rover Group.

Of course, competition is not a cure-all. Some companies gain an unhealthy monopoly. Others are able to fix prices. Companies may exploit their workers or pollute too much, and so on. So governments often need to regulate companies – and they do.

Undeniably, corporate lobbying sometimes has an undue influence on government regulation: the TRIPS agreement that you have singled out for criticism is a good example. But despite all their flaws, it is simply not true that governments always, or mostly, do the bidding of big businesses.

Companies are just one of many powerful lobbies: farmers, trade unions and pressure groups also have a big say. They all compete to influence government decisions and secure support from voters for their positions.

Take Kyoto. Yes, corporate lobbying played a part in the US’ refusal to sign it – but so did the widespread belief among American voters that it was against US interests. If companies rule supreme, how come European governments signed up to Kyoto?

The WTO is a good example of governments seeking to overcome corporate power. Even though the benefits of free trade far outweigh the costs, governments often find it hard to lower trade barriers. Companies that fear foreign competitors tend to lobby governments harder than the disparate millions of consumers who benefit from cheaper imports.

The WTO helps to break this deadlock. Governments offer to open domestic markets in exchange for greater access to foreign ones. This galvanises exporters’ support for liberalisation, which helps to overcome the opposition of import-competing industries. The economy as a whole benefits as a result.

There are plenty of examples of governments acting to curb, rather than advance, corporate interests. In 2001 the European Commission stopped the world’s biggest company, General Electric, from buying Honeywell. It has also fined Microsoft for abusing its monopoly on computer operating systems.

Governments regulate companies’ behaviour in all sorts of ways. Companies have to pay their employees a minimum wage, provide a healthy and safe work environment, and not discriminate against women or minorities.

They generally have to recognise unions and give some notice and compensation to workers they want to fire. They have to comply with environmental standards on everything from how much they can pollute to how much they must recycle.

Food and drugs have to be shown to be safe. Consumer-protection law sets out standards for advertising as well as customers’ right to refunds. Product-liability laws make companies accountable for any harm their products may cause. A whole of host of industries, such as water, electricity, telecoms, banking and broadcasting, are even more tightly regulated.

Since the Labour Party came to power in 1997, the British Government has raised taxes on business and imposed many new regulations such as the minimum wage. If companies ran the world, surely they would have prevented this happening?

And where governments fear to tread, lawyers do not. In America, Big Tobacco has paid out over $150bn after successive class-action suits and a court has just ordered the giant pharmaceutical company Merck to pay $253m in compensation to a woman for the harm that its Vioxx drug did to her. So much for Big Pharma’s "unfettered power".

Dear Philippe

The successful class action suits against Big Tobacco or the Vioxx settlement that you mention do not contradict the fact that corporations are the most powerful institutions of our time.

At the very least, governments are expected to protect the life and limb of citizens. Merck and the cigarette companies endangered public health and safety in brazenly criminal ways. The state would itself have lost legitimacy had it not acted.

But, in fact, rather than serve as a demonstration of corporate weakness, the two cases illustrate corporate power. Given the inescapable link between cancer, heart disease, and other ailments and cigarette smoking, cigarettes should have been a severely controlled hazardous substance by now. Instead, cigarette promotion continues unabated, bringing continued profits to King Tobacco.

And let’s face it: the Vioxx settlement of $253 million is a slap on the wrist of an immensely profitable corporation, considering that a report by the US Food and Drug Administration concluded that the arthritic painkiller might have contributed to an estimated 27,785 heart attacks or deaths since it hit the market in 1999.

If these figures ultimately prove true, Merck’s officers should be criminally prosecuted and jailed for wilful negligence, criminal misrepresentation, conspiracy, and multiple manslaughter.

The fact of the matter is that the regulatory framework in the US that was constructed between 1930 and 1970 to provide some protection for workers, consumers, the environment, and small businesses has been drastically eroded by corporate pressure over the past two-and-a-half decades.

The Glass Steagall Act preventing commercial banks from engaging in the sale of securities was first subverted by the Federal Reserve Bank, which allowed commercial banks to set up investment houses, then repealed in 1999 amid great joy on Wall Street.

Owing to anti-competitive practices, a district court judge ordered Microsoft broken in two in 1999, but this was reversed by the Bush Department of Justice in 2002, which allowed Microsoft to walk away with not even a fine and with what amounted to just a warning that government would be looking over its shoulder.

With such reluctance to enforce anti-trust laws on the part of Washington, is it any wonder that collusive and monopolistic practices would proliferate over the past two decades, involving not only hustlers like Enron and WorldCom but scores of blue chip titans, such as Citigroup, Times Warner, and Merrill Lynch?

As for the rights of workers, two-and-a-half decades of union-busting by government, a spew of right-to-work laws, runaway shops, and uncontrolled outsourcing has reduced the size of organised labour in the US from 25% in the early seventies to at most 13% today.

And today’s labour movement in Britain is a ghost of what it was before Margaret Thatcher’s union-busting, pro-corporate regime. Now if we talk about the erosion of corporate regulation in the North, in the developing world we are talking about no effective regulation at all.

Governments dare not enforce environmental and occupational safety laws nor press for decent wages and safeguard union rights for fear that foreign investors will simply pack up and leave for corporate nirvana: China.

You say that the biggest constraint on corporations is the market. Tell that to millions of Americans who have been made so desperate by sky-high prices for essential drugs set in classic oligopolistic fashion by Big Pharma that they have resorted to crossing the Canadian border to get the same products at a fraction of the price.

Tell that to motor vehicle buyers around the world whose choice has been whittled down to the same range of obsolete fossil-fuel contraptions churned out by about 14 conglomerates in 2004, down from about 30 significant independent producers two decades ago.

Governments dare not enforce environmental and occupational safety laws nor press for decent wages and safeguard union rights.

And while we’re on the subject of climate change, was the signing of the Kyoto Protocol by the European Union a sign of corporate weakness, as you imply? Hardly.

As we all know, the targets for emission reduction are dangerously low given the scale of the problem. European corporations knew they could hit the targets with minimal impact on their profits, and this slight cost was more than offset by the gain in public relations.

Their contrasting responses to Kyoto show that European corporations are probably smarter than the Americans, but not that they are any less powerful.

Corporate power is out of control. It needs to be tamed. And that will have to be done, not by the market but by the combined action of governments and global civil society.

Dear Walden

Governments, not companies, are the most powerful institutions of our time.

Even the biggest companies have to compete to attract capital and workers that are free to move elsewhere: they have to persuade potential shareholders and lenders to give them funding and convince people to come work for them and stay working for them.

They also have to continue persuading customers to buy enough of what they produce at a high enough price to earn sufficient profits to pay shareholders and workers an acceptable return. If they fail to do so, they will go bust or get taken over.

Governments, on the other hand, can impose taxes and regulations on people and companies. General Motors, America’s biggest carmaker, has to abide by local fuel-efficiency and product-safety standards wherever it wants to sell cars.

Exxon, America’s biggest oil company, pays taxes even in tiny Luxembourg. If Exxon developed an oil field in Algeria, the Algerian government could tax it, or even nationalise it. Even tin pot states can arrest or conscript their citizens and fight wars.

All of Wall Street’s combined financial clout could do nothing to avenge the destruction of the World Trade Centre; but the American government could. A handful of states can blow up the earth. And unfortunately, even states that fail to deliver the basics for their citizens – like food and security, let alone prosperity and freedom – rarely disappear.

The only "companies" that have powers remotely comparable to those of states are the drug cartels. Colombia’s earn billions of dollars a year, control parts of the country, have private armies and operate outside the law.

You argue that tobacco and pharmaceutical companies are not tightly regulated. But this is nonsense. Tobacco companies must comply with ever-more stringent regulations such as ever-bigger health warnings and an advertising ban in Europe, while smokers are increasingly banned from lighting up in public places.

As for the Vioxx settlement, the $253m payout is doubtless only the first of many claims that Merck will face.

In fact, many would argue that governments regulate too much, not too little. Smokers complain about the punitively high price of cigarettes and the restrictions on where they can indulge their habit.

Patients awaiting new life-saving drugs grumble at the long and costly delays that onerous government safety tests impose; the overwhelming majority of Vioxx users who have benefited from the drug without harmful side-effects bemoan its withdrawal from use.

More broadly, many blame high unemployment in France and Germany on the red tape that ties up companies in knots. And the high price that Americans pay for medicines is in large part due to government-granted patents that give companies the exclusive right to sell the drugs they develop for 20 years.

Whether you think that governments regulate too much or too little, there is no doubt that they are capable of regulating companies – and thus that companies do not enjoy the unfettered power that you claim.

You conclude that: "Corporate power needs to be tamed. And that will have to be done, not by the market but by the combined action of governments and global civil society." If, by your own admission, governments can still tame companies, then companies are clearly not the most powerful beasts in the jungle.

Walden Bello is professor of sociology at the University of the Philippines. He is the author of 15 books, including the recently published Dilemmas of Domination: the Unmaking of the American Empire (New York: Henry Holt, and Co., 2005). He was the recipient of the Right Livelihood Award (also known as the Alternative Nobel Prize) in 2003 for his work on globalisation.

Philippe Legrain writes about globalisation and European issues. He was previously special adviser to the then Director-General of the World Trade Organisation, Mike Moore. Before that, he was trade and economics correspondent for The Economist.

Posted 23 Sep 2005 in Published articles
  1. Vincent says:

    When I read Walden Bello’s statements, and then discovered who he is at the end of the article, I couldn’t believe he was a scholar academic. His arguments are so superficial…
    Yes, bad human behaviors in the frame of TNC’s work might be harmful. But bad states have done much more harm through times. We have to wonder if competition between enterprises through markets is a better or a worse way to prevent and regulate human failures than state action. And my opinion is made for long. I prefer the so called “power of companies”, under state efficient property right protection, than “extra power of state over companies and other private fractions of mankind”
    Mr. Bello forgets all the good things TNC’s and smaller economic agents have brought to mankind. Merck has -perhaps- failed with Vioxx. But when issuing charges against Merck, Mr. Bello shouldn’t voluntarily forget the positive side of “big-pharma” giants action since a very long time ago: how many drugs -by Merk and others- actually save lives, and how worse our lives would be without theses drugs ? When he criticizes the failures, why doesn’t he put in the other plate of the balance all the positive contributions that big enterprises bring to most human’s well being ?
    Thank you Philippe for your work through this blog.

  2. cabal says:

    I want you to write something about the
    surveillance-industrial complex

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