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Information for Social Change

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ISC 15. Taking power from the global corporations

by Robert Silver

The theft of the White House by George W. Bush is a defining moment in the globalisation of the world economy. A corporate coup followed the Bush campaign's electoral fraud, placing the White House effectively under the control of giant business interests. While the Clinton administration certainly had close links with companies like Monsanto, which financed the president's re-election campaign, the Bush regime's actual merger with global corporations is direct and transparent.

Robert Reich was a labour secretary under Clinton, until he got fed up with business interests foiling his proposals. Now he says: "There is no longer any countervailing power in Washington. Business is in complete control of the machinery of government. It's payback time, and every industry and trade association is busily cashing in."

Long-planned legal actions against tobacco companies have been abandoned, and a series of measures about safety at work scrapped at the behest of big business. Inside government itself the treasury secretary is from the aluminium giant Alcoa. The head of the White House office of management is a former vice-president of a drugs company.

The most obvious sign of these rapid developments was Bush's decision to abandon the Kyoto treaty which pledged signatories to cut carbon dioxide emissions in order to halt the process of global warming. Bush withdrew from the agreement under orders from the corporations.

The US economy is dependent on imported oil and is the biggest market by far for the transnational oil companies. It is also the world's biggest polluter. Refusal by the US to adopt measures to counter global warming reflects the political power of the oil producing and consuming companies.

General Motors, the world's largest corporation, whose products devour oil is now bigger than Denmark in wealth; Daimler Chrysler is bigger than Poland; Royal Dutch/Shell is bigger than Venezuela. The Bush presidency operates for them and them alone. Four of the top five and one quarter of the top 50 corporations are directly associated with oil and motor cars. By 1999 the sales of each of the top five (General Motors, Wal-Mart, Exxon Mobil, Ford Motor, and Daimler Chrysler) were bigger than the GDPs of 182 countries.

Among the US-registered corporations, seven actually paid less than zero in federal income taxes in 1998. These include: Texaco, Chevron, PepsiCo, Enron, Worldcom, McKesson and the world's biggest corporation - General Motors.

Though many of these companies originated in the US, all are now transnationals pursuing the insane logic of their own interests even to the destruction of life on the planet. The impact of the deepening world economic slump on their profits weighs far more heavily than worldwide campaigns of protest.

The corporate take-over of the White House is the most vivid expression of the crisis of the nation state and national governments throughout the world in the face of tremendous economic and financial forces.

Those who have clung to the illusion that you can reform capitalism through the existing electoral process - either by way of the White House and Congress or Downing Street and Parliament - are undermined by the fact that capitalism has taken control of the political process itself.

What we are seeing, therefore, is the close of the chapter of the evolution of capitalist democracy and the opening up of a direct struggle between the mass of the people and global corporations and their supra-state institutions like the World Trade Organisation and the North American Free Trade Agreement, which drew protests of more than 50,000 at the recent Quebec summit.

Plundering the planet

The process of capitalist development and decline has produced a crisis of historic proportions, deeper and more threatening than that of the 1930s. Immense wealth is transferred from undeveloped to developed capitalist nations to feed the already bloated consumer markets in a hopeless attempt to satisfy the global corporations' insatiable hunger for profit.

Over-production of commodities exhausts the world's supplies of raw materials and spews out waste that poisons the environment, threatening to obliterate life on the planet. These trends are unsustainable.

Global consumption of water is doubling every 20 years, at more than twice the rate of human population growth. More than one billion people, one sixth of the total, already lack access to fresh water. By 2025 the demand for fresh water is expected to be 56% more than is currently available.

Water is traded like any other commodity, with its use determined by market principles. The US Global Water Corporation has already signed an agreement with Sitka, Alaska to export 18 billion gallons per year of glacier water to China. The company will tow the water across the ocean in huge sealed bags and have it bottled by cheap labour in China.

Transnational corporations such as Nike, Sony, and Gap spend billions promoting their brands but subcontract production to zones of super-exploitation in South America and Asia where workers labour in barbaric conditions.

In other parts of the world such as Sierra Leone, weapons and armies are channelled to actual or would-be dictators whose loyalty is bought by transnational corporations in exchange for access to sources of oil, diamonds and raw materials.

Much of Africa has been condemned to disease and starvation as the growing breed of non-governmental charitable and missionary organisations come and go. Uncounted millions are left to die as AIDS sweeps the continent whilst the drug companies study their balance sheets.

The military government in Pakistan is giving away the control over food to transnational corporations (TNCs) engaged in agribusiness. Agriculture is the mainstay of Pakistan's economy, contributing 25 per cent of Gross Domestic Product and 60 per cent of total export earning. More than 70 per cent of Pakistan's labour force is engaged in farming and related activities.

With corporate farming based on maximising profits rather than on producing food for survival, millions of small farmers will be driven off the land, and production will focus on cash crops and seed for export. To boost the government's foreign exchange earnings, food will become scarce in a country where already nearly one fifth of the 135 million population is underfed.

Behind the frenzy - a crisis over profits

What lies behind this frenzy of over-production, marketing, advertising, commercialisation of life-forms and human relations, environmental degradation, social disintegration and the drive to war?

Financiers, investment bankers and shareholders supply funds to enterprises which exist to draw profit from the production and sale of commodities in the marketplace. A profitable industry attracts competition from other producers, obliging them all to continuously reduce the costs of production. This can be reduced to a simple formula - fewer workers producing more commodities more cheaply. Driving up productivity is the watchword in every industry at all stages in the history of capitalism.

There are two ways to increase productivity: investment in fixed capital, and forcing employees to work longer hours for less money. The two are intertwined. Capital investment involves the purchase of land and buildings to house the production process and machinery to automate it.

But human labour is the source of all value, and profit is but a part of it. To extract profit, companies employ workers and exploit their ability to create more value than the wages they need to survive. This is known as "surplus value".

The competitive drive for productivity pushes the ratio of labour-to-capital towards capital, and fewer workers are employed in relation to the amount invested in computers, networks and buildings. Thus the potential for generating surplus value, and hence extracting profit, declines.

In the United States, investment in computer and telecommunications technologies to automate production and distribution has forced up productivity. Profits continued to flow as wages were forced down. Hourly pay rates were reduced by half - from $26 an hour in 1973 to $13 in 1999. Millions of low and ultra-low wage jobs were created in the US and elsewhere in the world.

As well as reducing pay, the corporations are obliged to use the new technologies to develop new commodities and new markets because the continued and astonishing rise in productivity means that over-production is the norm. As a result, the profit made from each sale becomes smaller and smaller. The quantity of each commodity produced, meanwhile, easily overwhelms and swamps its market. Sackings by Motorola, Ericsson and other hi-tech companies are the end result of this process.

Speculative hysteria was the herding instinct of the investor desperately seeking new sources of profit which were "immune" from the laws of making profit. The various new business models tried by companies such as 'free' services, search engines funded by advertising, business-to-consumer and business-to-business, are all fruitless attempts to overcome the rapidly declining rate of profit experienced in other sectors. They reduce costs by streamlining ordering and distribution. They promise to all-but eliminate the retailers who stand between producer and consumer. But they can't stop the profit rot. The deeper the corporations commit to e-commerce, the more they become entangled in the crisis.

To manage their increasingly far-flung enterprises, globalising companies soon discovered the need for global communications networks and sophisticated computer-based tools. They seized upon the Internet. Once the new global entrepreneurs noticed its potential, the "new economy" of computing and communications technologies began to develop at breakneck speed. Ever more sophisticated networks developed to meet the needs of companies operating in many countries simultaneously. These are used to design products, manage contracts with subsidiaries, control production, and to collect, consolidate and analyse data on sales in every country.

This accelerating cyber-revolution produces a vastly expanding output of ever cheaper and more powerful electronic products - hardware, software, information and entertainment. Production of silicon chips and fibre-optic cable requires huge capital investment. But the pressure of competition accelerates scientific advance and revolutionises the techniques of mass production. The information products themselves - news stories and articles, share prices and insurance policies, music tracks, scientific knowledge - are now reproduced for vanishingly small cost.

So the value-added of human labour is limited to the process of producing the "master" copy and profits can be made from that alone. The only way to make money is by enforcing copyright and charging far more than the cost of production for the right to access a copy.

The struggle to overcome the tendency for profit to decline is the self-propelling motor of growth in the capitalist economy. It makes profitable enterprises bankrupt leaving their workers without jobs. New communications technologies have not solved but intensified this process.

The period of growth in the richer parts of the global economy was fuelled by an expansion of credit. New stock markets, such as Nasdaq in the US, and Techmark in the UK, were created to funnel the investment needed to finance the information revolution.

The bubble of overvalued technology companies was dwarfed by the volume of trade on the financial markets. But when over-production leads to bankruptcy, the extent of the fiction of overvalued stock is revealed, markets crash, banks close their networks and their doors.

The emergence of global corporations

The early 1990s brought rapid acceleration in the development of multi- and then transnational corporations (TNCs) seeking new sources of cheap labour. This new drive towards a global economy is quite unlike the imperialism of the 19th and early 20th centuries.

The British Empire, for example, was built on trade, with raw materials plundered at the points of many guns. Armies were stationed to rule continents and countries for a century. Imperialism produced a world economy based on unfair terms of trade. Competition for access to markets among imperial powers - acting in the interests of "their" capitalist companies - resulted in two world wars.

Globalisation, the new form of imperialism, operates through the creation of multinational corporations through investment in foreign countries. Rather then reinvest the surplus value where profit is declining, financial capital is exported for investment in low-wage countries.

By the 1990s, the export of finance capital began to replace trade as the dominant form of the world economy. Through "foreign direct investment", capital moved from one country to another - both by purchase of stock in foreign companies, and by the setting up of new companies abroad from scratch. In 1998, sales by foreign affiliates of TNCs stood at $11 trillion, surpassing the $7 trillion traded value of world exports.

In the mid-90s the major capitalist powers created the World Trade Organisation to eliminate national import barriers. It polices the General Agreement on Trade and Tariffs (GATT) which encourages the export of commodities produced cheaply in one country to others where prices are high.

GATS threat to services

Through other agreements the WTO regulates the use of intellectual products (TRIPs), and now, through the General Agreement on Trade in Services (GATS) has begun to insist that public services such as health, education and social services are opened to commercial exploitation. A complex system of cross-border ownership has developed for water, power and other utilities.

Global companies manufacture parts in one country, they export them to another for assembly, and to yet others for distribution. They balance wage costs against closeness to markets.

Manufacture is moved out of the home country to contractors and subcontractors, preferably in underdeveloped countries where labour is cheap, unions and labour laws are non-existent and long tax holidays are available.

The corporations have discovered that there is now little profit to be made from production itself and many companies now bypass production completely. Instead, they concentrate on developing, promoting and defending "brands". Phil Knight, Chief Executive Officer (CEO) of Nike sums up their rationale: "There is no value in making things any more. The value is added by careful research, by innovation and marketing."

Soaring cost of advertising

As a consequence, advertising expenditure has risen dramatically. US spending in 1998 at $196.5bn was nearly four times that of 1979. Global spending reached $435bn in 1996, up sevenfold since 1950, growing a third faster than the world economy. If all forms of marketing are included, the figure for global spending approaches a staggering $1 trillion. Little wonder that brands are expensive. Philip Morris paid $12.6bn for the multinational Kraft in 1988, six times its paper value, because of the brand name.

Marketing, advertising, and buying up brands, however, produces little value - a point Mr Knight cannot grasp. They are paid for out of the "value added" by the factory workers who actually produce the products. That is why companies can no longer accept a traditional mark-up of 100% between the cost of factory production and the retail price.

They scour the world for factories where costs are so low that the mark-up is closer to 400% or greater, with the wages of the factory workers constituting an ever-shrinking slice of corporate budgets. Branding is hogging all the "value added" together with the obscene salaries of the corporate executives, the spiralling costs of their marketing personnel and the profits distributed to shareholders.

A great part of production for most multinational corporations is handled by contractors in Export Processing Zones (EPZs) in Asia and South America. There are around 1,000 EPZs in the world employing some 27 million workers. The largest zone economy is China with some 18m people working in 124 EPZs. These zones impose barbaric conditions on the workers, most of them young women.

At the same time that the corporations are producing in underdeveloped countries, they are also reorganising their operations and cutting down their costs in their major markets in the richer countries. To do this they employ a fluid reserve of part-timers, temps and freelancers or contract out the work to job agencies to keep their overheads down and respond quickly to upturns and downturns in the market. Wal-Mart, Starbucks, McDonalds, KMart and Gap are among those which have been lowering workplace standards to fuel their marketing budgets and expansion.

The case for social ownership

The potential exists to harness the technological revolution and global productive forces to satisfy the needs of every person on the planet in a sustainable way. But this is impossible while society is organised solely to extract profit.

The mapping of the human genome offers unprecedented possibilities to predict, prevent and cure disease. This is a collective endeavour involving scientists in many laboratories around the world vastly accelerated by the use of arrays of computers. But rights to use and to profit from this new knowledge are falling into the hands of the new breed of biotechnology corporations. Because private ownership stands in the way of free access to knowledge, the NHS will have to pay the corporations royalties whenever hospitals use the new predictive tests for diseases such as breast cancer.

International patent laws are stretched beyond their limits. Private ownership now extends to a mushrooming catalogue of naturally occurring living matter - from the plants of the rain forest to strains of rice and human tissue. Farmers are losing the right to collect and use the seed from the crops they grow and individuals have no rights over their body parts.

In the arts, internet-based technologies such as those used by Napster and Gnutella provide a direct means of exchange between producers and consumers, bypassing the commercial information service providers. But a small group of entertainment conglomerates invest heavily in technologies which prevent access, and spend millions on court cases to outlaw sharing. More and more people are asking:

  • What is the purpose of all these scientific advances and their technological applications if only a few benefit?

  • If transnational corporations admit that they only exist to buy products cheaply and make huge profits by creating and promoting brand images, what purpose do they serve?

  • If the things that we need can be produced cheaply and in vast quantities but don't generate profit, why not just produce what we need and exchange on the basis of fair trade, eliminating the transnationals altogether?

  • If employers exist only to force down the costs of production on behalf of the multinational corporations to whom they subcontract, why shouldn't the employees own and control the companies they work in?

  • If all that stands in the way of satisfying the needs of the whole of the world's population is the system of private ownership and production for profit, why not move to a system of social ownership and production for need?

  • How to set social ownership in motion

    Elected committees of producers and consumers can take control of production. These would operate at whatever level is appropriate - local, regional, national, continental or global.

    They will set priorities for investment, develop and implement plans for production and organise distribution. Their vision will be the satisfaction of human need, sharing knowledge and deploying technologies to reduce the working week. The employer-employee division will disappear, as workers become owners.

    Sustainable, planned production for need will predominate over the anarchy of the competitive market. Social ownership will end the wasteful surplus of products that are obsolete even before they reach the market.

    The competitive need to build brands, distinguishing products on the basis of a logo-based image will disappear. Wasteful expenditure on advertising will end, so the cost of production will fall sharply.

    Banks, building societies, pension funds and other financial institutions can become socially-owned fund managers, working on a not-for-profit basis, providing low-interest loans financed from individual savings. People who save with them will also own them.

    The economic and technical changes driven by globalisation have had dramatic effects on the structure of power based on the nation state, making it unstable, crisis ridden and ripe for overthrow.

    The role of national governments has qualitatively changed. Formerly they were defenders of national capital. Their function now is to create social, political and economic conditions attractive to the global corporations, or they move their centres of production and distribution elsewhere.

    As global companies move operations from country to country in search of favourable conditions and manipulate balance sheets, so governments suffer loss of tax revenues and therefore loss of power. National governments like Blair's New Labour are reduced to paid promoters of global capital.

    They strive to end the role of the state in social welfare, forcing people to make private provision for pensions and health, reducing public services to the point where people have to go private, or handing over utilities and transport systems to global companies to run them for profit regardless of safety.

    In Europe, the national legislative process and the judiciary are subordinated to the European Commission and the European courts. Internationally, the World Trade Organisation makes judgements which transcend the decisions of national governments.

    The revolutionary road to Global governance

    The gap between rich and poor countries has become a vast abyss. The ratio between the incomes of the richest and poorest country was about 3 to 1 in 1820, 35 to 1 in 1950, 44 to 1 in 1973 and 72 to 1 in 1992.

    Inequality among households has risen sharply. Gaps between rich and poor are widening rapidly in many countries - most notably in the Russian Federation, the United Kingdom and the United States. The gap is very high in much of Latin America.

    Liberal critics of capitalism argue that new global institutions could minimise the system's instability, curb the worst excesses of the TNCs so that they operate in a more "social" way. This is a utopian pipe dream based on the assumption that capitalism is a system capable of rational behaviour.

    The vast economic and financial forces that have sprung up over two centuries have a life of their own which are not capable of regulation and control while they remain in private hands and run solely for profit. Capitalism gave birth to the very political institutions it now undermines through globalisation. They no longer serve a useful purpose for global capitalism and that is why they are undermined.

    For workers whose living standards are under attack, for the unemployed, for independent farmers whose livelihood is stolen by biotechnology corporations and for landless peasants the need is for local, regional and world-level organisations representing their interests in a society which produces for to meet people's needs.

    The democratic ideal of multi-party elections with universal adult suffrage became the dominant political form of the nation-state in 20th century. In 1900 no country had achieved this. A century later most have. In the last 25 years of the century 113 countries introduced multi-party elections.

    But the universal advance of parliamentary democracy has become a universal fraud. Declining turnout in elections demonstrates the extent of the rejection of the current political system by all sections of society.

    Opposition to the effects of global capital is growing as the mass of the people come face to face with those who dominate the planet.

    The conditions are emerging for the overthrow of the discredited and crisis-ridden state in each country and the seizure of power by the majority organised with revolutionary leadership. This is the way to get control of the corporations and introduce production and consumption for need.

    Making the transition requires that:

    • Ownership, control and management of enterprises and infrastructure is transferred to those who work in and operate them
    • Elected groups of producers and consumers in every region consult and negotiate to make plans for production and distribution, using the latest technology to measure and satisfy need and demand throughout the world
    • Workers and consumers together plan what goods are produced, and control production using safe and sustainable methods
    • Banks, building societies, pension funds and other financial institutions are placed under social control and management
    • Cheap forms of credit are made available to those who need them, to finance both micro- and macro- levels of development
    • Financial speculation, private ownership and private profit are abolished
    • A global system of democratic representation is created.

    This article first appeared in the Spring 2001 issue of Socialist Future magazine, which is published by the Movement for a Socialist Future.

    The Movement for a Socialist Future unites all those who oppose the rule of the global corporations and "Third Way" governments like New Labour. It supports all those fighting injustice, people struggling everywhere for cultural independence, self-determination and diversity and in defence of the environment. It campaigns for a new, not-for-profit society based on co-operation not competition, with mass democratic control of the economy and the state.

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