The growth in power of multinational corporations over the past century, and particularly since the publication of Populorum Progressio, is probably the most important feature of current economic life. Joshua Karliner in his book, The Corporate Planet: Ecology and Politics in the Age of Globalization tells us that, in 1970, there were around 7,000 multinationals globally. By 1995, that number had grown to 40,000.
These corporations are huge economic entities. At the end of World War II, over ninety out of one hundred of the richest economic entities on the planet were countries, not corporations. However, by 1995, over fifty-one of the largest economies in the world were corporations. The combined sales of the top Japanese corporations, Mitsubishi, Mitsui, ITOCHU, Sumitomo, Marubeni and Isssho Iwai were almost equivalent to the combined Gross Domestic Product (GDP) of all South America. In the mid-1990s the combined revenues of the richest 500 corporations in the United States equaled about 60% of the U.S. GDP.
Multinational corporations dominate whole sectors of the global economy. They own 90% of the patents on new technologies and products. They also control 70% of world trade and of that 30% is between units of the same corporation. In terms of products or services, their reach into the global economy is extensive. They are responsible for most of the world’s mining operations. They extract, refine and distribute most of the oil, petrol, diesel or jet fuel used around the world. They are also involved in coal mining, and in running hydroelectric and nuclear power plants. They have control of the banks and financial institutions and also of the print and electronic media. The news that most people hear, see or read is mediated through the lenses of corporations. They dominate the seed-production, processing and distribution of much of the world’s food. Yet they are almost invisible in Caritas in Veritate.
A HISTORICAL POINT OF VIEW
A brief history of their emergence and contemporary power might help the reader understand why I think the encyclical should have examined their role in the globalized economy. While multinational corporations are a relatively recent phenomenon, they have their roots in both Church and State. Their ecclesiastical origins go back to Medieval Europe. In the secular world of feudal Europe, males passed on their property to their children or relatives. However, because the leadership of the Church – especially in the monastic communities – was composed of celibate men and women, their property was held collectively by the institutions. This gave rise to the idea that an institution could own property and be considered a ‘moral’ person.
In the secular world, the history of corporations goes back to the state-sponsored corporations set up by European colonial powers from the sixteenth century onwards. One of the most prominent was the East India Company which was established under royal charter by Queen Elizabeth I of England, to trade in spices and other exotic goods from the Orient. Its initial capital was £70,000. From its foundations until its dissolution in 1858, it grew into a powerful trading, political and military entity. During the eighteenth and nineteenth centuries, the Company promoted British interest throughout Asia. In the nineteenth century, the directors of the Company made massive profits from illegally importing opium from India into China. Corrupt Chinese officials were bribed to turn a blind eye to the trade which resulted in millions of Chinese becoming drug addicts. The British authorities promoted the trade as it paid for Britain’s imports from China, porcelain, silk, and, especially, tea.
The Company supplied the raw material for the industrial revolution which was gathering pace in Britain. India also became the dumping ground for cheap clothes and industrial goods that were being mass-produced in England. Local industries were wiped out as prohibitive duties were levied on indigenous goods, leading to poverty and hardship for millions of Indians. The cruel management policies of the Company caused a mutiny of indigenous soldiers in 1857. This led to a parliamentary enquiry into the activities of the Company. As a result, the Company was dissolved and the assets were taken over by the British government.
The growth in multinational corporations took place in the U.S. after the Civil War. The resources of the world – oil, coal, gas, minerals, timber and food plants – were there to be exploited and transported to any part of the world where they could be used to make a profit. After the 1880s, with the advent of the new petrochemical, electrical, transport, communication and chemical technologies, corporations used scientific research to develop a variety of products for industry and households. Some of the industries which were founded at that time – Standard Oil Company of Ohio (1870), General Electric (1882), Dow Chemical (1897), Johnson & Johnson (1887), Carnegie Steel (1873) and Ford Motors (1903) – are still household names.
One of the crucial factors, guaranteeing the success of corporations, was a corporate-friendly legal framework which had been put in place in the United States by the middle of the nineteenth century. Morton Horowitz, chair of the History of Law at Harvard University, won the Bancroft Prize for his book, The Transformation of American Law: 1780-1860. He wrote that “by the middle of the nineteenth century, the legal system had been reshaped to the advantage of the men of commerce and industry at the expense of farmers, workers, consumers and other less powerful groups within society.” This allowed the emerging corporations to mobilize capital on an unprecedented scale, opening wide the floodgates for horizontal and vertical integration of corporate structures, paving the way for their control of almost every aspect of the U.S. economy. Their tentacles also reach into the heart of the political system where they spend billions of dollars lobbying politicians to promote their interests, often at the expense of other groups in society. The national importance of corporations in the U.S. economic and political arena was summed up by the 1950s’ slogan: “What is good for General Motors is good for America.”
SOCIALIZING RISK
One crucial element in this legal landscape which helped multinationals in a very significant way was the notion of ‘limited liability.’ This meant that a shareholder in a business could not be held liable for an amount greater than his or her investment in the company. The purpose of this legislation was to encourage entrepreneurs to take risks. Many commentators at the time were opposed to the notion of limited liability. These people argued that limited liability would encourage business people to take excessive risks, leading to what is known as ‘moral hazard.’ This means that someone would probably not take a commercial risk if they had to carry all financial consequences of their action. Adam Smith held such a view. According to the economist Ha-Joon Chang, “limited liability provides one of the most powerful mechanisms to ‘socialize risk’ which has made possible investment on an unprecedented scale.”
1886 was another important year in the evolution of the modern corporation. In that year, the U.S. Supreme Court heard the case of Santa Clara County vs The Pacific Railroad Company. Contrary to what is often claimed, the court did not rule that corporations were juristic persons and thus protected by the Fourteenth Amendment to the Constitution. However, before oral argument took place, Chief Justice Morrison R. Waite announced that, “The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution [which] forbids a State to deny to any person, within its jurisdiction, the equal protection of the laws, applies to these corporations. We are all of the opinion that it does.”
Many have argued that rights assume corresponding responsibilities and obligations with regard to the well-being of people, human communities and the natural world. They didn’t: working conditions were appalling in mines, construction sites and factory floors. In the first half of the twentieth century, multinational companies were seldom held responsible for polluting the air, the water and the soils of the world. In fact, many of the corporations believed that the State had no role in monitoring their behavior as long as they did not break the criminal law. The role of the State was merely to guarantee their freedom to do business and make profits, with as little hindrance as possible.
A NON-DEMOCRATIC POWER
Though less visible, corporations are also very powerful in Europe. George Monbiot, The Guardian columnist revealed that a corporation lobby group known as the European Round Table of Industrialists (ERT) had been the principal architect of European integration for the past few decades. The ERT promoted the Single European Act long before it was completed in 1992.
On the global stage, multinational corporations were responsible for promoting the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in the 1980s. The previous seven rounds of GATT concentrated on reducing tariffs and non-tariffs such as quotas and import restrictions. The Uruguay Round was launched at the insistence of the U.S. government in response to massive lobbying by U.S.-based multinational corporations. In the previous decades, U.S. corporations had witnessed the movement of steel, car and electronic companies to countries on the Pacific Rim, principally Japan, Korea, Taiwan, Hong Kong and Singapore.
In response, the U.S. wished to protect its position of economic dominance through promoting a trading system which would serve its interests in sophisticated computer technology, biotechnology, financial services, telecommunications and the media. The best way to achieve this was to extend the scope of GATT to such areas as agriculture, services, foreign investment and intellectual properties. The business plan for most multinational corporations is to promote low commodity prices and wages, minimum government interference with market forces and unencumbered access to world markets, pursued under the mantra of ‘free trade.’ The Uruguay Round of GATT, which was completed in December 1993, provided the freedom and autonomy to pursue these goals right across the world and, thereby, generate even greater profits for their shareholders. The policies enshrined in GATT did not suit poor countries which were being told by rich countries and institutions such as the World Bank and the International Monetary Fund that the pathway to economic growth was through export-oriented enterprises and low wages. What these countries really needed were policies to achieve poverty reduction, good health and education systems, distribution of income and sustainable development.
On the very practical side, in relation to the GATT negotiations, most Majority World countries did not have the technical expertise or the continuity of personnel to monitor the negotiations and effectively challenge the hegemony of Minority World countries.
One of the most negative outcomes for Majority World countries was enshrined in the provisions of the Trade-related Intellectual Property Rights (TRIPs) of the GATT. This is especially true in the area of agriculture where TRIPs constitute a threat to farmers’ rights to harvest and reuse their seeds. Once the seeds are patented by corporations, farmers have to pay royalties to the companies for the use of the seeds since the reproductive capacity of the seeds remains the property of the patent owner.
In most democratic countries, if the people do not like the policies of politicians, they can vote them out of office at the next election. Unfortunately, the chief executive officers (CEOs) of most multinational companies are not subject to any democratic mandate. In fact, most corporate managers prefer to adopt a low profile approach and do little to draw attention to themselves or their companies, apart from philanthropic initiatives. Danny Schechter in his article, “Mourning With The Kennedys; A Teachable Moment?” which appeared in Zspace on August 30, 2009, stated that, while many present and former U. S. politicians were present at Edward Kennedy’s funeral Mass and heard about his efforts to promote the concerns of the poor during his 47 years in the Senate of the United States of America, the corporate bosses were absent. Schechter points out “the real power elite is not just made up of politicos. It is controlled by our corporate rulers. They were not in that church. They are in their country clubs and boardrooms, counting their lucre and happy to see battles fought on the left or on the right as long as they are left alone to amass their billions. They are behind the attempt to scuttle health care reform.” During the past two decades, corporate America, especially those involved in petrochemicals, steel and car manufacturing, used the media to undermine the scientific consensus that was emerging about climate change, and its devastating consequences for the poor, to the world and future generations. The encyclical Caritas in Veritate is silent about this hugely negative aspect of corporate life.
