Economist magazine warns of revolutionary consequences of unprecedented corporate power
28 September 2016
On September 17, the Economist magazine published a special report by Adrian Wooldridge titled “The Superstar Company.” The article details the sharp growth in the economic and political power of the world’s top corporations.
The editorial accompanying the report, “A giant problem,” warns that today’s economic climate contains “worrying similarities to a much earlier era,” the period leading up to the Russian Revolution.
“The business titans of that age,” the editors write, “reinforced their positions by driving their competitors out of business and cultivating close relations with politicians. The backlash that followed helped to destroy the liberal order in much of Europe.” Today, a century later, what may be taking place is a return to “1917 and all that.”
A hundred years ago, capitalism was in the midst of a breakdown much like today. It led on the one hand to the growth of war pursued by the various capitalist powers, and the outbreak, on the other hand, of socialist revolution pursued by the working class.
Also a hundred years ago, Lenin, writing in the midst of the world war, explained why this was the case in his work Imperialism, written during the first half of 1916.
Lenin described the imperialist epoch as a stage of capitalism in which the titans of industry ferociously consume their smaller opponents to create ever larger monopolies. At the same time, the epoch gives rise to a “new financial aristocracy” characterized by “corruption, bribery on a huge scale and all kinds of fraud.”
Though limited in its scope, the facts and figures detailed in the Economist report convey just how far this process of corporate consolidation and institutionalized political bribery has gone.
In 1994, the top 100 American companies accounted for 33 percent of the country’s gross domestic product. Today, they account for 46 percent of American GDP. In the financial industry, the five largest American banks controlled 25 percent of the country’s banking assets in 2000. Today, they control 45 percent of these assets.
The article argues that the market share of the leading companies is so vast that competition, in any meaningful sense, has been eliminated at the top of the corporate ladder.
Today, ten percent of the world’s companies generate 80 percent of the world’s profits. Firms whose annual revenue exceeds $1 billion account for 60 percent of all global revenue and 65 percent of global market capitalization.
Fueling this has been a surge in mergers and acquisitions, particularly since the financial crash of 2008. In 1990, there were 11,500 mergers and acquisitions, valued at 2 percent of global GDP. Since 2008, there have been an average of 30,000 mergers and acquisitions per year. The total value of these relative to global GDP has increased by about 50 percent and now equals 3 percent of world economic output.
This new wave of corporate monopolization comes amidst stagnation in the global economy. It is only firms with huge pools of capital that are able to compete in times of stagnation and slump. The article notes that the mortality rate for listed American companies over a five-year period is about 36 percent. However, for companies worth more than $1 billion, it is about 18 percent. (Many companies with assets over a billion dollars go bankrupt only to be looted and have their profitable sections incorporated into other companies).
Much has been made of the entry of high-tech companies into the list of top corporations. At the end of 2006, the following companies were the largest listed firms by market capitalization: Exxon Mobil, General Electric, Gazprom, Microsoft, Citigroup, Bank of America, Royal Dutch Shell, BP, Petro China, HSBC. But today that list reads as follows: Apple, Alphabet (the parent company of Google), Microsoft, Berkshire Hathaway, Exxon Mobil, Amazon, Facebook, Johnson & Johnson, General Electric, China Mobile.
The emergence of the so-called ‘information economy’ has redistributed claims on the world’s wealth towards tech companies. However, this has not produced an economy of disruption in which small upstarts challenge the titans. On the contrary, it has led to an intensification of the competitive drive towards monopoly.
The report notes the growth of a “tech aristocracy,” which buys up smaller startups as they grow, weaving them into their ever-expanding web. Speaking about Silicon Valley, the Economist writes: “Today the valley has been thoroughly corporatized: a handful of winner-takes-most companies have taken over the world’s most vibrant innovation center.” It notes that both the “tech aristocracy” and the “traditional” corporate aristocracy employ fewer workers today, even though they are making record profits.
The article continues: “The most successful tech companies have achieved massive scale in just a couple of decades. Google processes 4 billion searches a day. The number of people who go on Facebook every month is much larger than the population of China. These companies have translated vast scale into market domination and soaring revenues. The infrastructure of the information economy is increasingly controlled by a handful of companies: Amazon has almost one-third of the market for cloud computing, and its cloud-services division has grown by more than half over the past year.”
According to the report, 90 percent of successful startups “exit” by selling themselves to other companies. And, at the same time, the number of new startups is actually lower than at any time since the late 1970s. More companies tend to die each year than are born.
Hand in hand with the growth of these monopolies comes their capacity to manipulate and control the regulatory system.
The report points out that the growth of regulatory agencies and laws, far from limiting the power of the corporate giants, is aiding their domination. “Regulation inevitably imposes a disproportionate burden on smaller companies because compliance has a high fixed cost,” the article notes. For a business with less than 19 employees, the cost of federal regulatory compliance is $10,585; for businesses with over 19 employees, it is $7,755.
The actual texts of major new laws are so long that only a few people in the world are rumored to have read them in their entirety. The Dodd-Frank Act, for example, is 2,319 pages long. The tax code is about 3.4 million words long. These are laws and codes written by and for armies of corporate lawyers and they are riddled with loopholes.
The report also notes: “Multinationals routinely use foreign direct investment (FDI) in order to reduce the amount of tax they have to pay.” In 2012, despite being a miniscule island nation, the British Virgin Islands was the fifth largest recipient of FDI in the world, receiving $72 billion. By comparison, “Britain, with an economy 3,000 times larger, had an inflow of only $46 billion.”
Only the largest companies can afford to create an elaborate array of offshore holding companies to maximize returns on capital by avoiding regulations and tax. The top 100 most globalized companies have an average of 20 holding companies each. However, each one of those holding companies has, in turn, its own holding companies. The report notes that the “convoluted” governance structure of modern corporate giants is even more so in high tech.
The report cites the recent case of Apple, which used Ireland to avoid EU taxes. Google also largely avoids tax outside the US. It had an effective tax rate of 2.4 percent on its non-American profits between 2007 and 2009 due to its use of Bermuda, Ireland and the Netherlands as a complicated tax haven network.
At the same time, these companies are spending unprecedented amounts of money on lobbyists. There are 37,700 lobbying groups in Washington, D.C. and 70 percent of them are companies. The average spending per lobbyist nearly doubled between 1998 and 2012.
The report cites a finding from Brown University showing that the pharmaceutical industry spent $130 million, a record amount, in getting a 2003 revision of Medicare passed. The revision netted the pharmaceutical corporations $242 billion.
In the EU, lobbying has also ballooned. Brussels is estimated to be home to at least 30,000 lobbyist groups.
In this regard, the report mentions the infamous revolving door. It is no secret that those who staff government offices, particularly regulatory boards, routinely move to top positions in corporate law firms and businesses. The report, for example, mentions Jose Manuel Barroso, former president of the European Commission, now a banker at Goldman Sachs.
The report concludes with a boilerplate call to regulate the excess of these monopolies and reign in the worst parts of their practice. The author notes with worry that “over 70 percent of America’s population believes that the economy is rigged in favor of vested interests.”
The reality is that this phenomenon is intrinsic to capitalism. The profit system drives towards monopoly and financialization. As Lenin explained 100 years ago, the growing power of just a handful of capitalists creates an ever more intimate bond between bourgeois politicians and big business.
The advent of new, revolutionary technologies only intensifies the drive to corporate profit as companies must operate at even larger scales to be profitable. From the standpoint of capital, war and economic nationalism abroad and repression at home become the only means of preserving and expanding profit.
But this same process also creates its opposite. Today, the world economy is more socialized than at any point in history. Today’s economy is global, technologically advanced, and based on the social cooperation of millions of people. The means of production are tied to a dying social order subordinated to the profiteering of a tiny elite. The working class is being driven into revolutionary struggle against this system. It needs a revolutionary leadership to imbue this struggle with an understanding of the social forces it confronts and a worked out internationalist and socialist program.