Opinion

Power of business

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

October 9, 2016 | 12:00am

There has been a lot of discussion on the rise of superpowers, increasing terrorist threats and geopolitics as the main ingredients shaping global politics and international policies. Even economic topics have become daily topics as there are more media discussions on money laundering, tax evasion, poverty reduction, oil prices and slowing economic growth.

The missing ingredient in all these discussions is the growth of the political power of business especially a small group of corporations that have become dominant in the global economy. There have been attempts by some governing bodies, like the European Union ( EU) to reassert more control. Recently, the EU fined Apple the sum of $14.5 billion in back taxes for exploiting certain tax breaks in Ireland.

A recent report by McKinsey Global Institute estimated that 10 percent of the world’s public companies generates 80 percent of all profits. Business firms with more than $1 billion in annual revenues account for nearly 60 percent of total revenues. The report also calculated that these billion dollar revenue companies make up 65 percent of total global market capitalization.

Several authors, including Professor Stephen Wilkes of the University of Exeter, have already begun writing on how the large business corporation has become a governing institution in national and global politics. The fall of Marxist ideology and uncontested rise of capitalist economies have made the large business corporations increasingly effective political power centers; and, made them partners with government in the design of public policies. Increasingly, all over the world, the delivery of public services has become more and more placed in the hands of large corporations.

There have been multinational giants even in the last century. There was General Motors, Pan American, AT&T, Unilever, and Kodak a generation ago. Today’s global companies are very different. They are not only bigger in size but most of them “intrude” into our daily lives much more than the past giant corporations.

Here is a list of ten largest global corporations, as of August 24, 2016, in terms of market capitalization, as published by the Economist magazine (ranked in terms of amount): Apple; Alphabet: Microsoft; Berkshire Hathaway; Exxon Mobil; Amazon; Facebook; Johnson & Johnson; General Electric; China Mobile.

The drivers for the new corporate giants have been technology, globalization and deregulation to allow free market economies to flourish. While this new business environment has given rise to economic growth, there has been consequences that are now summed up as the rising “income inequality” in the world. The much often quoted statistic is the fact that the top one percent of the world’s population have more wealth than the bottom 50 percent. This has now led to belief that, expressed by Pope Francis, that “trickle- down theory does not work.”

The Economist magazine recently wrote: “The long pro-business era...is giving way to a much more anti-business mood.” Even in the United States, the Pew Research Center said that the share of Americans who hold “very” or “mostly” favorable opinions of corporations has fallen from 73 percent in 1999 to 40 percent today. The Economist also reported that there is a growing hostility even in the developed world.

“Britain’s decision in June to leave the European Union was driven in part by popular discontent with big business which had lobbied heavily to remain. Many continental Europeans are becoming more vocal in expressing their long standing doubts about Anglo Saxon capitalism.

This backlash against big business is already having an impact on policy makers...The European Union has launched a succession of tough measures against Silicon Valley’s tech giants, such as asking Apple to stump up billions of euros in allegedly underpaid taxes in Europe...Britain’s new prime minister, Theresa May, has said that she may cap CEO pay and put workers on boards. Governments worldwide have started co-operating to curb the use of tax havens.”

Decline of entrepreneurship

There is also a report that the rate of small business creation is at its lowest level since the 1970s even in the richest countries like the United States and Europe. A global wave of corporate acquisitions show that big companies have not only become bigger; but, intend to stay very big by buying up patents, acquiring start up companies and consolidating businesses.

This is not only in the field of technology. For example, retail chains are now so dominant in developed and developing countries “ mom and pop” stores are becoming obsolete.

Need for a balanced approach

It may be true that growth of giant multinationals may create political problems because concentration of power in the hands of a few – whether in business, politics or military – is always dangerous. However, again I agree with the observations that this increasing anti-business sentiment can also lead to misguided economic policies.

I sympathize with attempts by governments to close tax havens, eliminate money laundering, lift bank secrecy and impose social responsibility as part of doing business. However, there are several factors that need to be kept in mind in the midst of this increasing anti-business sentiment.

Business is still at the forefront of technological progress. It has been pointed out that “...big companies can solve economic and social problems that are too big for small companies and too complicated for governments.” Policies curbing monopolies should not lead to protectionism and discouraging long term investment.

Policy makers need to understand that excessive government power can be as problematic as excessive corporate power. There must be a balanced approach between encouraging innovation and competition without allowing corporations to continue avoiding taxes and business practices that lead to monopolies.