National Post-Sovereignty – Domination of Multinational Corporations

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Characteristics of the Present-day State

The reduced sovereignty of the national state world-wide, including even the most powerful, is considered one of the main characteristics of globalisation in political-economical terms. From the end of the 18th century onward, the conventional sovereign territorial state, or ‘national state’ was practically the universal framework for development and progress. The distension of the State proceeded rapidly over the 20th century to reach its apex in the 1980s, when the ‘welfare state’, or ‘social state’ effected its influence to encompass more than one half of the national product in some countries (dominating wholly in the ‘real socialist’ countries). The influence of the state has been subsiding since then, it has began to lose its monopoly over legislation and coercion: it has to take heed now of global institutions or integrating blocs, such as the EU, NAFTA, etc.

Further influences debilitating the economic powers of territorial state governments originate from a rise in the economic powers of multinational corporations, which operate ‘across’ territories and continents. The term ‘post-sovereign state’, however, assumes original sovereignty: it should be acknowledged here that numerous smaller countries (including ours) only enjoyed ‘limited sovereignty’ in the past (the term was even part of the doctrine in the Brezhnevian SSSR). Some other countries on different continents did not even manage to establish their own sovereignty in the post-colonial era.

Today’s world is composed of over 200 countries large and small: only 25 out of them have populations of more than 50 million, representing a full 3/4 of the world’s population. More than 70 countries, on the other hand, have populations under 2.5 million, and almost twenty out of these have fewer than 100,000 people. Conversely, the annual proceeds of 200 of the biggest multinational corporations – ‘private companies’ exceed the state budget of the Czech Republic.

Multinational Corporations

The term ‘multinational corporations’ calls for an accurate definition. The UNCTAD defines a ‘multinational enterprise’ very broadly: it is enough for such a corporation to have one subsidiary abroad. The number of such ‘multinationals’ is estimated around 60,000, and the number of their subsidiaries world-wide around half a million. Not each of the multinational corporations so defined, however, has the power to influence national states. Not even all of the enterprises quoted on global stock markets (over 50,000) have an influence that would weaken the sovereignty of national governments. (Moreover, stock market quoting is subject to at least a certain degree of regulation by a ‘commercial paper committee’ of national states, and is thus not so entirely beyond public control.)

The real ‘winners’ on global markets are the big multinationals (recently also ‘transnational corporations’). The once colonial, raw-material oriented multinationals have expanded in their consequent evolution into conglomerates, and the ongoing process of mergers and mega-mergers and ‘hostile takeovers’ has shifted the borders of ‘vertical integration’ to a previously unseen level. The concentration of economic power in these ‘giants’ (the term ‘very big enterprises / VBE’ has been coined) and their influence on the state, economic as well as political and even military (hiring of ‘private armies’ to stabilise the situation in countries where the governments have failed to control the situation in ethnic and tribal wars) has grown significantly.

The State versus the Multinational – Working Conditions

P. Dembinski has quantified that 800 of the biggest multinational corporations make up 11% of the gross world product with their value added. Their annual turnover (including purchase inputs) represents a full third of the gross world product. A similar estimation says that approx. 1/3 of the global production is developed, manufactured and offered for global markets from the very start: aircraft (and air transport), computers (and their software), cars, Coca Cola, wines, etc. Most of these ‘giants’ have built their own distribution networks to sell their own products and services to end users, thus exerting a lever-type influence on markets beyond what goes through their accounting (e.g. leasing, consumer crediting).

The pressure of competition and the temptation to achieve minimal taxation drive the multinational corporation to ‘tax optimisation.’ Profit margins are then reported according to the level of the corporation’s profit taxation in various countries. The existence of systemic overestimations or underestimations is difficult for tax authorities to prove inside the intricate intra-corporate relationships. The other side of the coin is the converse ‘tax competition’ among national governments, which pushes reduction of the tax burden in an attempt to attract foreign investors. Along with investment incentives and the allocation of ‘tax holidays’ or ‘tax amnesties,’ such competition may lead to tax dumping, which, in the long run, deprives the economically weak countries of a fair share on the tax revenues, resulting in underfunding of certain chapters of public expenditures (culture, education, environment, etc.). This argument is not directed against multinational corporations as such, but against the abusing of economic power and collection of private profits at the expense of host countries’ fair shares on the tax revenues. Of course the definition of a fair share of taxes must also take into consideration the behaviour and economic performance of the respective governments, and their contributions to the ‘common good’ of a civil state (enforceability of law, internal security and protection of investment and property rights, ‘public goods’ infrastructure, etc.).