Seeking a just, inclusive, and sustainable world that works for all.
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FOR THE LOVE OF MONEY
|At Kidder Peabody, a major U.S. investment house, a lone trader reported $1.7 trillion in phony trades over a period of 2½ years before his superiors noticed anything amiss. During this period he claimed he had earned the firm $350 million in profits, for which he was rewarded with an $11 million bonus. Only later was it found that he had in fact lost the company $85 million on the few trades he had actually made.|
|In one month a 28 year old trader at Barings bank lost $1.3 billion on bad derivatives bets and forced a venerated 233 year old bank into bankruptcy.|
The global financial system is wildly out of control and no one is tending the store.
SOCIALIZING COSTS AND PRIVATIZING GAINS
In a deregulated global market economy global corporations are accountable to only one master, a rogue global financial system with one incessant demand--keep your stock price as high as possible by maximizing short-term returns. One way to do that is to shift as much of the cost of the corporation's operations as possible onto the community. The pressures involved make it almost impossible to manage a corporation in the larger community interest. Indeed, any publicly traded corporation that attempts to manage its assets responsibly will almost certainly be bought out by a corporate raider.
Take the case of Pacific Lumber Company. It pioneered the development of sustainable logging practices on its substantial holdings of ancient redwood timber stands, provided generous benefits to its employees, fully funded its pension fund, and maintained a no lay-offs policy during downturns in the timber market. This made it a good citizen in the local community. It also made it a prime takeover target.
Corporate raider Charles Hurwitz gained control in a hostile takeover. He immediately doubled the cutting rate of the company's holding of thousand-year-old trees, reaming a mile and a half corridor into the middle of the forest that he jeeringly named "Our wildlife-biologist study trail." He then drained $55 million from the company's $93 million pension fund and invested the remaining $38 million in annuities of the Executive Life Insurance Company, which had financed the junk bonds used to make the purchase--and subsequently failed. Turning reality on its head, corporate raiders refer to this process of pirating a firm's assets as "adding value."
Once upon a time local communities looked to corporations not only as sources of jobs, but as well of tax revenues to help cover the costs of essential local infrastructure and public services. For example, in 1957, corporations in the United States provided 45 percent of local property tax revenues. By 1987 their share had dropped to about 16 percent.
Indeed, local governments are now forced by the dynamics of global competition not only to give most large corporations tax breaks, but as well to directly subsidize their operations with public funds.
The state of South Carolina in the United States has been warmly praised by the business press for its successful competitive bid for a new BMW auto plant. The company was attracted in part by cheap, nonunion labor and tax concessions. In addition, when BMW said it favored a 1,000 acre tract on which a large number of middle class homes were already located, the state spent $36.6 million to buy the 140 properties and leased the site back to the company at a $1 a year. The state also picked up the costs of recruiting, screening, and training workers for the new plant, and raised an additional $2.8 million from private sources to send newly hired engineers for training in Germany. The total cost to the South Carolina taxpayers for these and other subsidies to attract BMW will amount to $130 million over thirty years.
This is what global competition is really about--local communities and workers competing against one another to absorb ever more of the production costs of the world's most powerful and profitable corporations.
Another tactic for externalizing costs is through "downsizing"--a process by which the U.S. Fortune 500 companies reduced their total employment by 4.4 million jobs between 1980 and 1993--a period during which their sales increased by 1.4 times, assets increased by 2.3 times, and CEO compensation increased by 6.1 times. Some observers claim that downsizing means the largest corporations are losing out to smaller, more agile and competitive enterprises. The claim has as much substance as the claim by tobacco company executives that cigarettes are not addictive.
While the giants are shedding people, they are not shedding control over money, markets, or technology. The world's 200 largest industrial corporations, which employ only one third of one percent of the world's population, control 25 percent of the world's economic output. The top 300 transnationals, excluding financial institutions, own some 25 percent of the world's productive assets. Of the world's 100 largest economies, 51 are now corporations--not including banking and financial institutions. The combined assets of the world's 50 largest commercial banks and diversified financial companies amount to nearly 60 percent of The Economist's estimate of a $20 trillion global stock of productive capital.
Concentration of control over markets is proceeding apace. The Economist reports that in the consumer durables, automotive, airline, aerospace, electronic components, electrical and electronics, and steel industries the top five firms control more than 50 percent of the global market, placing them clearly in the category of monopolistic industries. In the oil, personal computers and media industries the top five firms control more than 40 percent of sales, which indicates strong monopolistic tendencies.
Downsizing is really about consolidating the firm's monopoly control of markets, technology, and money in a small, well-paid headquarters staff. Everything else is contracted out to smaller firms that are forced into intensive competition for the firm's business. The contractors--commonly located in low wage countries--compete by hiring workers at substandard wages under often appalling working conditions.
For example, the popular Nike athletic shoes that sell for US$73 to $135 around the world are produced by 75,000 workers employed by independent contractors in low income countries. A substantial portion of these workers are in Indonesia--mostly women and girls housed in company barracks, paid as little as 15 cents an hour, and required to work mandatory overtime. Unions are forbidden and strikes are broken up by the military. In 1992, Michael Jordan reportedly received $20 million from the Nike corporation to promote the sale of its shoes, more than the total compensation paid to the Indonesian women who made them.
An unregulated global market is shifting the financial rewards away from those who do productive work to those who control money and are successful at convincing people to buy what they do not need and often cannot afford. This goes to the heart of growing income disparities around the world.
The world's most powerful corporations are also active in shaping public policy in ways that virtually forces us into a pattern of overconsumption that yields large profits to themselves at the expense of our quality of living. Evidence is mounting that to make our societies sustainable we will have to restructure our systems of production and consumption to largely eliminate:
|Dependence on personal automobiles;|
|Long distance movement of goods and people;|
|The use of chemicals in agriculture; and|
|The generation of garbage that we cannot immediately recycle.|
In each instance, we have an opportunity to substantially increase the quality of our living while reducing our burden on the environment. Why aren't we doing it? Who wants to give over their living spaces to automobiles, take long business trips, eat contaminated foods, or live in a garbage dump?
One important reason we live this way is because it is profitable for politically powerful corporations. For example, the steel, automobile, construction, and oil companies have a major stake in policies that make survival without an automobile nearly impossible in most of our towns and cities. Chemical and agribusiness companies have had a similar stake in maintaining chemical and energy intensive agriculture systems that provide us with foods of dubious nutritional value laced with toxic poisons. Other industries benefit from encouraging our use of excessively packaged low durability products. So long as these corporate interests are allowed to dominate public policy processes, change is unlikely. Global civil society is mobilizing to reclaim the power that these interests have co-opted.