Hollywood's favorite villains

Kenneth Rogoff Project Syndicate

Once upon a time, Cold War enemies, white supremacists, and evil geniuses reigned supreme as Hollywood's favorite bad guys. No more. Today, it is multinational corporations that are increasingly being cast as the |ber-villains of our globalized world. For all their subliminal paid promotions and subtle product placements, corporations are getting drubbed in the main story lines of our popular culture.

This treatment goes far beyond documentaries like Michael Moore's polemical Fahrenheit 9/11 or The Corporation, an earnest if somewhat paranoid portrayal of multinational companies' role in globalization. It extends to mainstream hits like The Constant Gardener, in which the idealistic protagonists do battle with a malicious global pharmaceutical company that is bent on exploiting Africa's misery to test experimental drugs.

To be sure, sociopathic corporations have populated books and films for more than a century. But corporate villains, typically multinational companies, have never been so ubiquitous as today.

Is it unfair? Most corporations, after all, are merely convenient mechanisms for ensuring that scarce global capital is used at maximum efficiency, to the benefit of all. Are famously liberal Hollywood film directors spending too much time going to anti-globalization rallies? Perhaps. But I would submit that Hollywood's misgivings, however untutored, represent only the tip of a growing iceberg of resentment against the perceived injustices of globalization.

The simple truth is that corporations represent capital, and capital -- in the form of factories, equipment, machines, money, and even houses -- has been the single biggest winner in the modern era of globalization. Corporate profits are bursting at the seams of investors' expectations in virtually every corner of the world. Even in moribund economies like Germany and Italy, where employment security is vanishing, corporations are swimming in cash.

This phenomenon comes as no surprise to economists. Add two billion Indian and Chinese workers to the global labor force, and the value of other means of production -- particularly capital and commodities (for example, gold and oil) -- is bound to go up. And so it has, with capitalists everywhere gaining an ever larger share of the economic pie. (In theory, capitalists in labor- abundant China and India could end up as losers, but in practice they, too, have benefited thanks to their governments' success in simultaneously liberalizing and globalizing.)

Many policymakers seem to be under the impression that surging profits are a purely cyclical phenomenon, as economies continue to grow out from the depths of the 2001 recession. Wait a bit, they predict, and wages will fully catch up later in the cycle.

Not likely. Capital's piece of the pie has been getting bigger for more than 20 years, and the trend looks set to continue. Indeed, corporations' growing share of income has been a major driver behind the long, if uneven, bull market in stocks that began in the early 1990s. At the same time, inflation-adjusted wages for rich-country unskilled workers have barely budged over the last two decades.

Some of these trends also have to do with the nature of modern technological change, which seems to favor capital and skilled workers disproportionately. But, regardless of their cause, rapidly growing inequalities are a powerful force for instability everywhere, from wealthy America to rapidly growing China to reform-challenged Europe. "A rising tide lifts all boats," conservatives like to say. Fine, but what happens to people, like the poor of hurricane-struck New Orleans, who don't own boats?

Growing inequality would not be such a problem if governments could simply raise taxes on the rich and strengthen subsidies to the poor. Unfortunately, any country that taxes capital too aggressively will only succeed in chasing it to regions where the tax burden is lighter. In a globalized world, national governments' ability to tax potentially mobile factors of production is sharply circumscribed. The same mechanism that pours profits into the pockets of global corporations also prevents governments from claiming a larger share of the spoils.

Unfortunately, the long-term trend towards ever-lower income shares for unskilled workers is likely to continue over the coming decades, as modern technology permeates the globe, and as emerging markets like China, India, Brazil, and Eastern Europe continue to integrate into global production. This is not to say that unskilled workers are actually being made worse off by globalization in absolute terms; the vast majority are actually breaking even or better. But unskilled workers' incomes are not keeping pace with overall economic growth, and the resulting social strains are a ticking bomb.

If so, then Hollywood's cartoon-like caricatures of evil multinational corporations may some day seize mainstream consciousness, leading to political upheavals that shatter today's social contract. That won't be good for profits, or for the poor. Governments -- and corporations -- must find better ways to provide equal opportunity through improved education, broader financial markets, and other channels. Otherwise, globalization's storyline may not proceed according to the script.

The writer, a former chief economist of the IMF, is Professor of Economics at Harvard University.