Wednesday, April 14, 2010

Corporate Versus State Power

FLG found this article in Le Monde interesting because it raises a question about power:
Osons le parallèle : le sympathique refus de Google de continuer à complaire au gouvernement chinois sur la question de la censure est de même nature que l'insolent refus des banques de modérer les bonus des traders et les rémunérations extravagantes des dirigeants. Dans les deux cas, il s'agit d'un rapport de force engagé entre une multinationale et un Etat ; entre une puissance économique et une puissance politique. Sommes-nous entrés dans une nouvelle ère où les entreprises privées trouvent légitime d'aller à l'affrontement avec les Etats les plus puissants de la planète ? Il est bien sûr trop tôt pour se prononcer, mais la fronde des banques et de Google mérite l'examen.

Rough translation:
Let us dare to make a parallel: the sympathetic refusal of Google to continue to go along with the Chinese government on the question of the censorship is of comparable nature to the insolent refusal of the banks to moderate traders' bonuses and extravagant executive renumeration. In both cases, it's a question power struggle between a multinational corporation and a State; between an economic power and a political power. Have we entered a new era when private companies find it legitimate to confront the most powerful States on the planet? It is of course too early to decide, but the sling of the banks and Google deserves examination.

Actually, FLG is not quite sure why he finds all this discussion fascinating. In his view this is much ado about nothing. States still retain sovereignty over their territory, which is to say that they have the guns and can kick any corporation out at anytime. Is China really losing sleep over Google? Or more specifically does Google pose any real threat to the government of China? Absolutely not.

People point to the role of multinational corporations (MNCs) in developing countries. MNCs are more powerful than the states and often get preferential deals. So, the argument goes, MNCs are more powerful than some states, and in particular the poor, weak states are preyed upon.

FLG thinks this is largely poppycock. Developing countries usually want MNCs to come in and help with development. Sure, they'd ideally like to have a stronger hand to play against the corporations, but that would mean that the country would already have to be developed. The same applies to workers in developing countries as well. FLG should probably explain this a bit more.

Take some developing country. Let's call it Developolis. Developolis is poor and lacks much infrastructure. They need to get MNCs to come in and build factories and infrastructure. But because of the lack of infrastructure, physical, and human capital there really isn't any reason for a MNC to build a factory in Developolis. So, they must be enticed with a preferential deal and also by low labor costs.

Here in the Developed World many people look at the deal and say it's bad. That the nation and the workers are being exploited. To some extent they are correct. Lax environmental standards and poor working conditions do feel like exploitation. But those are also things that the citizens and workers of that country will demand as they develop, which is to say they are luxury goods. Let me put it this way -- when you are worried about keeping warm and where your next meal is coming from concerns like greenhouse gases and whether your fishing nets catch dolphins seem far less important. To which do-gooders often recommend forcing them to care through treaties, but if we raise labor costs and impose environmental costs, then the entire reason for the MNCs being in Developolis no longer applies.

This was a long-winded way of getting to this point -- ultimately, in the fight between corporations and governments the state will always win because it has the guns and can kick out the corporation. The current en vogue villain in Hollywood movies -- evil, greedy corporations with mercenary armies -- is fiction. It's far too costly and risky to raise an army and the only corporations that FLG is aware did anything even close were the various imperial trading companies, which were really extensions of national power anyway. There are more subtle ways in which corporations can wield power, but face-to-face confrontations with states isn't a winning strategy.

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