New face of business: Economic oligarchy

Globalization is changing the face of business, creating a few powerful conglomerates, and shunting aside smaller companies, writes Rene Armand Dreifuss in this Inter Press Service commentary.

RIO DE JANEIRO: God may have made the world, but the computer chip is remaking it -- with some help from the angels of the market place and the spirit of trans-national capital.

This image may appear somewhat irreverent but it conveys the extraordinary velocity and profundity of the process of transformation, undergone by the global economy in the last quarter-of-a-century, since the emergence of the computer chip.

This, the last phase of the industrial revolution was made possible right at the beginning of the 1970s through the rise of a new class of business: the strategic corporation.

Structured in order to maintain its capacity for innovation, the strategic corporation does not depend on a given set of technology but rather a vast matrix of knowledge that allows it to participate in a number of different fields. The power of these corporations does not lie in the production of given products -- since all products have a limited life span -- but from their capacity, in principle unlimited, to create new products.

The most crucial element of these businesses is a core of strategists and investigators who are able to translate scientific concepts into production capability and to generate new ideas.

The strategic corporation converts its discoveries into production processes and final products of a large number of systems that are controlled by other producers. It may not have raw materials, yet it may know the best way to utilize them; it may have no factories but possess the knowledge to make them operate better.

This is the reason that a constellation of economic agents -- businesses, enterprises -- has formed around the arena of technological competition defined by each of the strategic corporations.

The case of Microsoft and Intel make this clear: without their products, the activities of millions of independent companies would be inconceivable. Indeed these products are essential to practically all the operations that make the world work, from agriculture to the aerospace industry.

One of the areas being rapidly changed by the strategic conglomerates is finance. The securities sector is being integrated more and more into the traditional banking system. In addition, pension and investment funds are emerging as major, highly capitalized actors, swelled by the considerable savings of developed countries. Money is channeled into high risk investments, which are fundamental for businesses vying for leadership in the world market.

This influx of capital in turn accelerates the ability of business to translate scientific knowledge into technological knowledge, innovative capability, and the globalization of production processes that make use of the new electronic media.

At the same time another ancient process is accelerating: the concentration of capital. In nearly every major sector today there is an economic oligarchy on an international scale. Three, four, or five conglomerates control 50 to 60 percent of the world market.

This concentration leads to a new division of labor on a global scale, according to knowledge and location.

Certain regions offer conditions that attract highly qualified people and connect them to institutions that allow them to further develop their knowledge. In these regions there is a concentration of public and private universities, laboratories and businesses dedicated to invention.

In the industrialized nations the state plays a relevant role, stimulating and supplying resources to strategic corporations located on their country. Whether Japan, China, South Korea, Germany, or the United States, each of these countries knows what it wants and are able to maximize their victories.

There are thus two main protagonists in the process of globalization: strategic corporations and nation states.

Of the first group there are about 38,000 businesses that comprise the core of a major network of roughly 250,000 businesses. In contrast, the governments involved in this process number a mere 35. Their instruments vary, from economic and military force, cultural influence, or political ability.

These two protagonists proceed in tandem: strategic corporations are born and grow in nations whose governments sustain these complex networks. This environment gives rise to new production processes and new forms of consumption, however, the impact of this new economic configuration on employment is devastating.

For many years the goal of most countries was to reach full employment. Today no one even mentions it.

The trend towards exclusion is frightening and continues to grow. The network of strategic corporations controls about 90 percent of direct foreign investment and at least two thirds of international trade. However, the nucleus of this network provides only 73 million industry jobs in the whole world, plus about 150 million in connected activities.

Therefore, an immense quantity of people are left out of the labor market, including a large proportion of those aged between 30 and 40 who can't find work. Their training is no longer of any use, and their specializations no longer exist.

Employment is a megaproblem around the globe and, arguably is the most negative aspect of the world now being created by new technologies and strategic corporations.

-- IPS

Window: The most crucial element of these businesses is a core of strategists and investigators who are able to translate scientific concepts into production capability and to generate new ideas.