WHO'S AFRAID OF MULTINATIONALS?
Geoffrey Owen says that globalism is helping
Third World countries to make progress towards democracy and personal freedom
IF there is one belief that unites the antiglobalisatiori protesters and their sympathisers, it is that multinational companies have become more powerful than governments. More and more industries, according to this view, are falling into the hands of greedy monopolists whose global reach puts them beyond the control of national authorities. Mergers and acquisitions are part of this process — the latest example is Rupert Murdoch's proposed takeover of the largest satellite broadcaster in the US, DirecTV. If the deal comes off, Murdoch will be the first media mogul to combine entertainment content (through his Fox subsidiary) with digital distribution on a worldwide basis.
These are the trends that prompt Naomi Klein, author of No Logo, to describe big corporations as the most powerful political forces of our time. She and other writers in this genre (such as Noreena Hertz, author of The Silent Takeover) make much of the fact that the annual sales of companies such as General Motors and IBM exceed the gross national product of many countries. But what does this comparison mean? General Motors is indeed the world's largest manufacturer of cars, but it is also one of the least profitable; it has been losing ground to Asian and European rivals for the past 30 years. IBM nearly went under in the early 1990s, mainly because it was too slow to respond to younger and smaller competitors. There is no connection between size and power.
As for mergers and acquisitions, it is true that some spectacular deals have taken place in the last few years — in the media industry and elsewhere. 'What is much less clear is whether the resulting behemoths wield the political power that their critics attribute to them. Many of these transactions spring from weakness rather than strength, and the arguments used to justify them — economies of scale, synergies and all that are often falsified by events.
In pharmaceuticals, for example, GlaxoWellcome and SmithKline Beecham have just consummated one of the largest marriages in the history of the industry. But whether it will lead to a more productive and efficient business is very much an open question — and there is no reason to suppose
that the merged group will have more political influence in the countries where it operates than the two predecessor companies. Even in the media industry, where the link to domestic politics is closer, it has yet to be proved that combined ownership of books, newspapers, movies and television brings lasting political or commercial advantages.
Opponents of globalisation vastly underestimate the impact of competition. One of the striking features of today's corporate scene is that dominant companies stay at the top for a much shorter period than in the past. According to one estimate, the annual turnover among the 500 largest companies in the US is running at nearly 10 per cent, implying an average stay within that group of no more than ten years. The days when a company could dominate its market for 50 years, as General Motors did in the US from the 1920s to the 1970s, are over.
There are still some special situations in which companies can secure a temporary monopoly, as Microsoft did, through a mixture of good luck and good judgment, in operating systems for personal computers. But even if Microsoft escapes dismemberment by the US Justice Department, other software firms are already eroding its hegemony.
One of the reasons why the rate of 'creative destruction' is accelerating is that more countries have become part of the market economy. This process, in turn, has been helped along by the multinationals. In transferring capital and technology to developing countries, they are not acting out of altruism but trying to make money for their shareholders. (This is one point which the Klein/Hertz school has got right.) But their investments can provide the starting-point — for those countries that choose to take advantage of the opportunity — for upgrading indigenous industries. This was how Taiwanese and Korean firms got started in electronics, and they are now formidable challengers in world markets.
Far from enhancing the power of the established multinationals, globalisation tends to reduce it. In most major industries the level of concentration — the share of world output accounted for by the largest companies — is appreciably lower than it was 50 years ago.
Of course, multinational companies are not perfect (no more or less so than onecountry firms), but to blame them as a whole for undermining democracy and human rights is absurd. As the economist Professor David Henderson has remarked, multinationals are entirely without influence in countries such as Afghanistan, Cuba, Libya, Iran, Iraq and North Korea, and these are the countries where intolerance, repression and authoritarian rule are most evident. By contrast the countries that have made most progress towards greater democracy and wider personal freedom, notably in Latin America and Eastern Europe, are the ones which have embraced privatisation and foreign investment.
Multinationals also make mistakes, as BMW did when it bought Rover. But would jobs at Longbridge and Cowley have been more secure if Rover had stayed in British ownership? There are no grounds for believing that nationally owned companies are more reliable employers than foreign ones. Not all foreign takeovers of British firms have worked out well, but the UK economy as a whole has benefited enormously from its openness to foreign investment.
Governments have a choice: whether to accept foreign companies in their countries, and, if they do, how to treat them when they have arrived. It is entirely possible for countries to keep them out, as India did under Nehru, but, in view of that country's poor economic performance in the years following independence, it is hard to argue that protectionist policies were good for the people of India.
For countries that adopt a more welcoming stance, this does not imply an abdication of control over their domestic economy or, for that matter, carte blanche for the multinationals to do what they want. Governments have plenty of instruments with which to control them, competition policy being one of the most important. This particular weapon is especially relevant in the media industry, where diversity of ownership is desirable for political as well as economic reasons; no doubt the Murdoch/DirecTV deal, if it happens, will be subject to intense scrutiny by the antitrust authorities. More generally, the priorities must be to clamp down on anti-competitive practices, to check any incipient tendency towards monopoly, and to make it as easy as possible for new firms to join in the game. If some of the newcomers grow into multinationals, so much the better.
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