Stuart Holland on global capitalism and British socialism

Anyone who saw The Mattel Affair this summer might well be forgiven for thinking the film exaggerated. Its reportage thesis included the claim that the founder and head of Italy's National Oil Company, ENI, had been killed on the nod from the big oil companies who resented a challenge to their world cartel from a new price competitive public enterprise. And anyone who had read Anthony Sampson's previous book The Sovereign State of ITT,with its revelation of conspiracy by that company to overthrow the Allende regime, could be more open-minded about the otherwise Mafia-esque character of The Mattel Affair. If they now read Sampson's The Seven Sisters they will find that Mattei's rise and literal fall rate but a few lines from the author in a breathtaking exposé of global power and conspiracy.* • The seven sisters are the giant oil companies which have dominated world oil for fifty years — Exxon (Esso), Gulf, Texaco, Mobil and Socal (Chevron), plus Shell and BP. For some time the oil companies were exceptional enterprises — multinational in operation virtually from the start. Today, however, as admirably shown by Barnet and Muller in their important and penetrative study, the rest of modern industry has caught up with the oil companies.** N c big The Seven Sisters: The Great Oil Companies and the World They Made Anthony Sampson (Hodder and Stoughton £4.95).

** Global Reach — The Power of the Multinational Corporations Richard J. Barnet and Ronald E. Willer (Jonathan Cape £6.00) firm in manufacturing now can afford to stay bound by the frontiers of a nation state and trade with the rest of the world. International trade between different firms in different countries has increasingly given way to multinational trade between the same firms in different countries, undermining key features of national economic sovereignty and the power of governments to fulfil the expectations of either the working population or the general electorate.

Both these books are written with journalists' panache, and they are all the better for that. Rightly, in my view, they cross the frontiers of academic disciplines as easily as multinationals cross national frontiers. They journey, in Barnet and Milller's own words,

"into politics, sociology and psychology as well as economics.But in so doing they illustrate

the reality of global political economy, for both books are concerned essentially with power,' whether that power is muscle over governments and nation states or the classic joint monopoly power to raise prices.

In oil, competition between the big league firms has been the exception rather than the rule. In part, this was sheer conspiracy against the public interest. Thus Anthony Sampson shows that Rockefeller and his minions employed their own espionage network. They established deals with companies secretly bought by Standard Oil, maintaining the illusion in the public's eye that competition reigned while, in fact, monopoly ruled.

When Standard Oil was broken up into `regional' companies (including Esso-Exxon) in 1911, the managers of the previous company simply went `underground' and rigged prices clandestinely, with the not unsurprising result that the anti-trust action which appeared successful in `dissolving' Standard Oil was actually followed by a rise in the price of oil. But such conspiracy was not to he laid at the door of only one giant company. Sampson records the now long public but widely under-estimated Achnacarry Agreement of 1928, named after the Scottish estate on which the then 'big three' companies — Exxon, Shell and BP — established a global price cartel which survived unrevealed until a congressional hearing in 1952. As Sampson comments on the Achnacarry Agreement, "in democratic terms, it was intolerable: hence the secrecy. For it abdicated to a handful of businessmen the right to allocate the world oil trade and to fix prices."

Of course the companies denied the existence of any such agreement (which established the Gulf plus pricing system). In short, as Sampson does not hesitate to state, they lied, lied and lied again to governments, politicians, the press and to the wider public. They plausibly maintained

the myth of competition through graciously accepting new 'sisters' to the cartel when through their own oversight or a freak find some smaller firm — frequently backed by big financial interests or a particular government, as in Venezuela — could not easily be 'eliminated' through concerted cartel power.

Barnet and Milller show that such deception was no prerogative of the oil firms. In one of the most readable and graphic analyses of the multinational problem to date, they show how, firms use fictitious prices in transactions between subsidiaries to under-state real profits in particular countries, either by artificially raising costs through inflated imports, or under-stating profits through deflating exports; such as Litton industries, of recent Imperial typewriter unrenown.

Barnet and Muller both point the finger and name names. They cite Leonard Spacek, former chairman of Arthur Anderson and Co to the effect that "generally accepted accounting principles" in company statements are "a fiction"; also David Norr, of the American Institute of Certified Public Accountants: "accounting today permits a shaping of results to a desired end — accounting as a mirror of activity is dead"; further, the head of an un-named major drug company, who admitted that "one good accountant is worth a thousand salesmen."

Such evidence corroborates Anthony Sampson's evidence that the oil companies jointly use the same accountants in their joint operations to iron out discrepancies in stated returns — something revealed only twenty years after the Achnacarry cartel was started and continued elsewhere in different forms. Barnet and M011er stress that such fictitious accounting has to be complex to evade the taxman in particular countries and cite the case revealed by Robbins and Stobaugh of the oil company that at one stage started believing its own fictitious losses. But as they comment, "usually the victims of multinational obfuscation are the government and the public,"

Two of the main themes in both these works are important for government policy. First, that in large scale, modern technology business, it is increasingly difficult for firms to afford price competition. To survive, they have to suspend it lest price competition of the textbook model leaves them all in difficulties in financing the major, long term projects necessary for survival. Second, without effective government policies for revealing real costs, no one multinational can afford to declare true profits if others are transfer pricing hand over fist, since this would leave it with a reduced global cash flow relative to competitors. Barnet and Willer cite Warren Avis, head of the other car firm which tried harder, who stated plaintively that in today's 'business world "it is unprofitable to be honest.

, Those disciples of the conventional wisdom who claim that there is no evidence for transfer pricing, other than anecdote, should take account of further powerful evidence from the US cited in Global Reach. On the basis of a Business International study, Barnet and Milner make what they call a conservative estimate that at least 50 per cent of US exports are 'by-passing' the market through multinational trade, and therefore subject to the kind of profit fictionalready described. They also cite a recent Rand Corporation study which concluded that US Department of Commerce statistics on foreign trade and foreign earned income are "totally unreliable."

Barnet and Milner also extensively analyse the job loss problem from multinational versus Multi-regional companies, with firms pulling out of the Deep South for location in union, tax and pollution 'havens' in the Third World. Their evidence on such 'runaway' industries and 'the obsolescence of American labour' strikingly parallels recent British analysis of the same problems. Not least, 'they spell out how multinationals now frustrate or circumvent conventional Keynesian fiscal, monetary and exchange rate policies through such transfer Pricing techniques and runaway location of investment jobs and trade.

In short, the global power of the multinationals has grown, is growing and is bound to grow further unless countervailed by governments, international institutions and organised labour on a similarly global scale. But what, in fact, can be done to reverse this crazed imbalance between private and public power?

Anthony Sampson shows clearly that state enterpiise mixing it with the private big league will not do the job if governments allow companies such as BP to run for the most part like private enterprise. He illustrates the rage of Ted Heath that BP was shifting oil to the Netherlands in the early stages of embargo by the Middle East producers. But Heath fell short of bringing BP to heel despite his power to issue Written directives. Churchill's para-state creation had become his successors' Frankenstein.

The OPEC story now is a largely open book. It shows what can be done by decisive international action of the 'counter-cartel' kind. But for various reasons OPEC is exceptional and provides no simple model for multinational countervailance through other international institutions such as the EEC. Most important, oil is not just a commodity, but is exceptional both for its relative homogeneity and its universal impact on industry through the world. The same is not true for other commodities such as copper, bauxite, coffee or tea, where a producing countries' cartel could cause massive inconvenience through a sustained embargo or major price increase, but Would not directly hit all world industry on °PEC lines. Nor is it true for the highly differentiated manufacturing industries which give such scope to multinational transfer Pricing through the main range of industry.

Second, OPEC, not only took more than half a century to form after the first major international oil finds but took more than another decade, plus two local wars before the Middle East producers agreed to use oil as both a diplomatic and economic weapon. Such a catalyst for international action is, fortunately, Missing in contemporary Western Europe, but it makes effective international countervailance of manufacturing multinationals much more difficult.

Third, OPEC is by no means guaranteed long-term success. The effectiveness of its initial action has contributed to a world inflation which depreciates its earnings by particular successive agreements. To this extent, as witnessed by Sheik Yamani's recent Withdrawal from Vienna on the grounds that the increases then demanded were too high, the seven sisters have the six sheiks and the shah in a Catch 22 dilemma.

What OPEC needs is a recovery of industrial output and investment in the leading capitalist countries. Ironically, and not least because of our interest in a high international oil price following North Sea discoveries, Britain could lead the way in such a recovery if it borrowed long-term from OPEC surplus countries on a 10 or 15 year indexed bond, to invest in the regeneration of British industry on the lines of Labour's Programme and the 1974 manifestoes.

For instance, though some oil countries such as Algeria, Ecuador and Indonesia are currently in deficit, and others such as Libya either in deficit or only near beakeven (depending on whose claim and whose denial you accept), the US Treasury estimates that Iran, Kuwait and Saudi Arabia between them should have a surplus of nearly $40 billions this year.

The El billion a year investment funds for the National Enterprise 'Board recommended to this week's Labour Party conference by the Party National Executive would be but a fraction of such a three-country surplus, and an even smaller share of a joint OPEC bond loan to Britain. The very character of a bond, rather than short-term sterling holdings, should prove attractive to the lenders since it would be guaranteed for the 10 or 15 years, with the indexing related to depreciation rates and other currencies. It should be attractive to the'British Treasury for the simple reason that the money could not be 'taken out', with resultant pressure on sterling, in the manner of shortterm or hot money.

The difference between borrowing to finance current consumption with stagnant investment, and borrowing for a planned expansion of investment is crucial. It means laying down industrial orders now for new plant and equipment, pulling industrial expansion ahead in such a way that we can meet any future recovery of world trade with more modern, better quality export products. In such a way, while we might make some industrial mistakes and end with spare capacity in some product lines, the mistakes at least would be made in the right direction, rather than no direction for industry at all. Similarly, we would have the base to repay the bond borrowing, plus the annual interest, through better exports' of manufactures. Thus we could use our forthcoming North Sea oil as collateral on a loan repaid substantially in non-oil exports.

However, a voluntary NEB would not be able to make effective use of such major investment funds. It would be approached either by firms which need money to bale them out of past problems, or find its bids for holdings accepted by companies which are not in the British multinational league. Such an NEB would be a mere fig-leaf for government indecision in industry.

Similarly, despite the fact that the Labour Party designed Planning Agreements precisely to provide a means of cracking the transfer pricing problem through wide-ranging information on comparative cost and profit structures, open to scrutiny by the unions, such a system will be no more than an alibi for what big companies choose to do in the first place unless it is based on obligatory revelation of information by at least the 75 firms which now account for half our visible trade. Voluntary agreements, as the Labour NEC knew from the start, will get us slowly nowhere.

These are the kinds of reasons why this week's Labour Party conference should strongly back the National Executive's recom mendations for a big spending NEB, with real powers, and for obligatory Planning Agree ments as part of an integrated National Plan.

Those responsible for casting the trades union block votes should by now be aware that nothing less will prevent the fictitious accounting, stagnant investment and job exports which grip Britain as viciously as the United States, and which constitute the primary reasons for our economic crisis.