Hello again. In the last video, we saw how cities have become the locus for economic prosperity and advance on the planet. They're also the space where economic activities happen, and their leaders are also attracting increased legitimacy. All of this has spurred Benjamin Barber to contemplate handing world leadership over to them rather than leaving it in intergovernmental hands. Our cities may be the place where business is located, but where is it controlled? How does big business relate to national government or to international regulation? Now, these are questions that we're going to consider in this video. So let's start with multinational corporations. These basically can be defined as enterprises with assets, presumably productive assets, in more than one country. This means basically that they have to coordinate their activities in several countries within a single business structural organization. I've already met multinationals in this course briefly, and we were talking about poverty. We saw how their proponents argued that they brought scarce capital into a country, and with that capital came technology, employment, and income. We even saw that they could help foster good governance and responsible governance. So how come they obtained such a fierce-some reputation? Well, let’s start by going back to the definition. They coordinate activities in different countries inside a single business structure. This means that their business strategy is determined centrally at headquarters, regardless of the needs of individual countries or the consequences of decisions in those countries. Now, the opening of a new branch is usually welcomed, but the closure of a branch in the context of a global reorganization is often seen as callous and capricious. Also, by using the prices that they charge themselves for goods and services transferred within the organization, they can manipulate where profits appear. And therefore, where they pay taxes. But multinationals are also big, very big. You may have read, for example, that Walmart, the largest multinational in terms of turnover, is as big as Belgium. Which by the way isn't true, since it's spurious to compare the total revenues of Walmart with the value added within Belgium, but you get the idea. The fact that they command considerable resources and that they have a range a plausible alternative location places them in a strong position when dealing with governments. This allows them to extract a range of concession from governments in the form of tax exemptions and waivers in legal requirements. In addition, they regularly use their funds and expertise to influence government legislation and regulation through lobbying. And they also use campaign financing to assist the election of favorable governments. And if officials and elites are corrupt, guess who it is who are paying the bribes? And finally, they have a rather unhappy history of assisting the overthrow of governments they don't particularly like. So multinational companies are big and powerful. They also control a sizable part of the international economy. For the year 2010, UNCTAD suggested that there are over 100,000 parent firms. 70% of them concentrate in a richer economy. Together, they control almost 900,000 foreign affiliates, almost 60% of those concentrated in less developed countries. UNCTAD has estimated that together, they control about 60% of world trade. Half of that representing trade within the multinationals themselves. The total revenues of the top 200 approach the equivalent of 30% of GDP. Now, you could reduce this by a fifth, but it's still pretty big. So multinational corporations are big, powerful, and important, and these factors have to be considered when looking at the balance of power in any dealings with governments, international organizations, or NGOs. But are we justified in seeing them as a common force? Beyond, of course, the Marxist categorization of the moralist capitalist. Or is this just a fantasy of conspiracy theorists? Now, this juncture, I want to introduce you to an interesting piece of research conducted by the Swiss Federal Institute of Technology. Not a body normally associated with this kind of work. The research is a complex system theorists experienced in using advanced mathematics to model natural phenomena. And to be honest, their methods are way beyond the scope of my expertise. So in defense of what I'm going to show you, their results have been endorsed by the influential new scientists. Now, what they did was to plunder a database of 37 million worldwide companies and investors. Yep, these things do exist, and it's called the orbis database. And from this, they extracted information from 43,000 multi-national corporations. They then looked at the patterns of ownership among them and covered over one million ownership ties. They then linked this to size in terms of operating revenue and calculated a network of control. Control, as we've seen, over a sizeable chunk of gold trade and production. They managed to isolate a core group of 737 companies that controled 80% of the revenues of the network. Within that group, they located a core of 147 corporations that controlled 40% of the network, and it was almost entirely exclusively controlled and owned within itself. This degree of concentration far exceeds the concentrations in income and wealth that have captured the headline in the debate on Thomas Piketty's capital in the 21st Century. We can be even more specific about the composition of this elite. Within the top 50, only five did not come from the banking and financial sectors. Given the explosive nature of these revelations, it's surprising that they've not been more widely debated in academic and policy circles. The world is characterized by an enormous concentration of control over it's wealth and activities, in the hands of a super elite of institutions, where the control is one of ownership. Question is how far, and how often is it used? Well, ownership of shares conveys voting rights. But financial institutions don't usually attempt to influence strategic directions of companies in which they've invested. There's no evidence that they operate in concert. But with the domination of financial institutions among them, we may expect a preponderance of shareholder value rather than long-term viability in their thinking and dealings. And of a certain uniformity in the message of dealing with governments. And finally, we saw the nature of connectivity in the financial meltdown of 2008-2009. Well, here it is laid out before us. If things go wrong with this court, the impact will indeed be truly global. Let's sum up now. We still have multinational corporations, and there are over 100,000 of them dominate international trade and how their ability to operated in more than one country pose problems for national regulation. We saw that in analysis of share ownership. We build up 80% of the revenues with controls to share ownership by a mere 737 companies. And that 147 super entities control 40%. We then raise the question whether we should view them as a single phenomenon with similar aims and ambitions. We don't know if this power is used or how it is used. But we suggested that such a preponderance of control without any countervailing power has potentially destabilizing impacts for the whole world economy. In the next lecture, we'll examine the role of civic society in the form of non-governmental advocacy groups.
