Big business faces image problem

Larry Elliott, Guardian News Service, London

If the point of Thatcherism was to make us forget about the state and learn to love capitalism, the revolution was a failure. Rarely has the corporate sector had a bigger image problem, in part because the public perception is that the reforms pushed through by the right made big business more powerful than ever.

The message from Johannesburg has been coming though loud and clear: The conference has been hijacked by corporations which are using their muscle to prevent the international community from eradicating poverty, protecting the ozone layer etc.

Small business tends to be excluded from this anathema, although why this should be is not clear. In the west, small business are far more likely to indulge in anti-social behavior that affects our lives -- running sweat shops, fly-tipping, flouting health and safety regulations, paying low wages -- than big business, which tends to be wary of the hefty legal and even bigger reputational costs. Big business is seen as an omnipotent enemy of progress, able to steamroller the democratic process in pursuit of ever larger profits.

To an extent, this cartoon-character stuff is fair game. The shenanigans at Enron and WorldCom are proof of what can happen when a large enterprise embarks on the sort of pilfering and fraud that normally goes unnoticed when it happens at a firm with only a handful of employees. Nevertheless, there are inherent dangers in this caricature of a handful of plutocrats gleefully grinding the poor into the dirt.

The first is that the development of advanced business capitalism in the west since mid 18th century has led to stupendous increases in living standards. Life in the pre- industrial world was not characterized by small, happy communities in harmony with their natural surroundings; life expectancy was about 30 years, death from preventable disease was common, and work was long and back-breaking.

Much like sub-Saharan Africa today. The effect the development of capitalism has had on living standards is clear: In the eight centuries from 1000 to 1820, per capita incomes in western Europe rose by 0.15 percent a year on average; since then they have increased by 1.5 percent a year on average -- 10 times as fast.

The emphasis on the perfidiousness of big business also makes it look more powerful than it really is. If multinational corporations really are stronger than nation states, we can just sit back and wait for the inevitable social, environmental and economic crisis in the not-too-distant future.

As the UK-based Economic and Social Research Council study out on Monday shows, we are in danger not just of underestimating the good that business can do but of over-estimating just how mighty multinationals have become. Prof. Alan Rugman of Indiana University and Templeton College, Oxford, concludes that the vast majority of multinationals are not pursuing a global strategy, and that only a handful, such as Nestle and Unilever, cut it as genuine global players.

Many are struggling to make decent profits from their foreign operations and there is a trend towards "de-globalization" in which even the world's biggest companies concentrate on their tried and trusted markets at home. About a sixth of the 214 firms looked at lost money in 1998.

Rugman's sample comprised the supposed titans of the global economy, generating total revenues of US$5.5 trillion, equivalent to 19 percent of global GNP. The average return on foreign assets was 6.6 percent in 1998, down from the three-year average of 8.3 percent, while the average foreign operating margin was 7.1 percent, down from the three-year average of 8.6 percent.

Profits from foreign operations tend to be lower and the cost of those operations higher than domestic operations. Part of the poor performance was down to the Asian financial crisis, but in other companies bad management or strategic blunders were the cause.

"Globalization has been widely discussed in the business press", Rugman says. "Much of the discussion assumes or implies that the process is inevitable and that MNEs have control over it. We disagree. The index shows that globalization is not inevitable because good global performance is not inevitable. It also shows that many MNEs have very little control over their own international operations, let alone over globalization."

Linda Weiss of Sydney University has also challenged the myth of the powerless state, arguing that the number of genuine multinationals is small and that measured by all the important criteria -- share of assets, ownership, management, employment, location of R&D -- the importance of a home base remains the rule, not the exception. Far from being rugged and independent, business relies on the legal, institutional and financial support only government can provide. After Sept. 11, we didn't hear much from airline companies about the virtues of rolling back the boundaries of the state; they wanted government subsidies -- and lots of them -- to stave off bankruptcy.

So naturally business will press for concession and push at the boundaries; that's what capitalism does. Yet when governments take a stand, imposing new taxes or cracking down on corporate fraud, big business doesn't close down and move to a new country, it adapts, gets on with life. The ability of capitalism to operate under almost any regime is one of its defining characteristics.

What does this tell us? First, that the term "globalization" needs more definition. Global integration is more advanced in some sectors than others. The financial sector is where the linkages are most complete but where the relationship between business and government is most short-termist. Money can leave a country more rapidly than plant and machinery. Reform efforts are most pressing in this area.

Second, the experience of the export-driven economies of east Asia is that it possible to have a more integrated global economy driven by states which have defined domestic goals in mind.

Finally, the problems of globalization have as much to do with fellow-traveling political leaders as with the rapaciousness of corporations. If global leaders were to agree on a new blueprint for the global economy embracing human rights, the environment, patents and trade, business would whinge like crazy but would have no choice but to comply.

The real issue is whether there is sufficient political will to act. Sadly, that has been a commodity in short supply for 20 years or more.