Critics of MNCs who claim that they now rule the world have a strong case.[302] Many MNCs have revenues that are bigger than entire countries, in fact according to the World Bank in 2011 out of the top 100 economies in the world 13 are MNCs, with 4 MNCs in the top 50.[303]
This gives them colossal financial power. They are strong enough to bully governments using the threat of moving their business elsewhere, which governments fear will cause great damage to employment and economies.
There have been MNCs ever since the days of colonisation, but the major proliferation occurred since restrictions on capital movement were relaxed. Indeed MNCs themselves have lobbied vigorously for reduced barriers to trade and capital flows, being deeply involved in shaping to their liking Europe's Single Market agreement, the North American Free Trade Agreement (NAFTA), the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), and currently the Transatlantic Trade and Investment Partnership (TTIP).[304] For MNCs, the freer their operating environment the less able are governments to restrict their activities and therefore the more able they are to maximise returns.[305] Not only that, MNCs stand above individual countries and are able to pick and choose the countries to which they allocate their various operations so as to minimise overall tax.
A few cases, taken from Chang 2008, serve to illustrate how MNCs use their power in defending and extending their rights for their own benefit against the public interest:
i. HIV drug treatment is very expensive, and African populations are suffering heavily from this disease. As a result many African countries exercised their right (as all countries have) to restrict the intellectual property rights of holders in the public interest. They obtained much cheaper drug copies from India and Thailand at only 2-5% of the price of the originals. In response a group of pharmaceutical corporations decided to make an example of the South African government and took it to court in 2001 to prevent it from importing illegal copies. Fortunately, as a result of international pressure and public outrage they backed down. If they had continued in their action and succeeded, the countries involved wouldn't have been able to buy the drugs in anything like the quantities needed so they wouldn't have made much more money anyway, but very many more people would have died. This shows how much more important defending the principle of money-making intellectual property is to these corporations than saving lives (Chang 2008 p123).
ii. In 1998 Disney successfully lobbied the US government to extend the copyright protection term from the life of the author plus 50 years to 70 years, or from 75 years to 95 years for a work of corporate authorship. This was also applied retrospectively, giving all works, and especially Disney's early Mickey Mouse work, 20 more years of protection. It was no coincidence that Mickey Mouse was approaching his 75th birthday! Copyrights are granted in order to encourage the production of new creative works, but extending the protection of existing works creates no such new work, the only reason is for the financial benefit of the intellectual property rights (IPR) holder (Chang 2008 pp134-135).
iii. Similarly the US pharmaceutical industry successfully lobbied to extend existing drug patent protection for up to a further eight years. In the third quarter of the 19th century the average life of a patent in a sample of 60 countries was around 13 years. Between 1900 and 1975 this was extended to 16 or 17 years. But recently the US 20 year patent protection became standard throughout the world by enshrining it in the World Trade Organisation's TRIPS agreement.[306] It is hard to see any social benefit in extending patent protection in this way, but easy to see the benefit to IPR holders (Chang 2008 p135).
iv. As well as extending existing patent protection the definition of what is patentable is being widened all the time. A notable example occurred in 1995 when two Mississippi University researchers were granted a patent for the wound healing use of turmeric, the wound healing properties of which had been known in India for thousands of years, but after 1995 even use in India became subject to payments to the US university because of the TRIPS agreement. Happily it was successfully revoked after a challenge by India, but a smaller country that could not afford to fund a challenge could find its traditional methods stolen and then sold back to it in exactly the same way (Chang 2008 pp137-138).
v. All this extension of IPR protection costs poor countries dearly. As mentioned earlier the World Bank estimates that following the TRIPS agreement the increase in technology licence payments alone will cost them an extra $45 billion a year, which is nearly half the total foreign aid given by rich countries ($93 billion in 2004/5). Not only that, but each country must set up extensive and expensive policing arrangements to enforce the TRIPS system. The tragedy is that for all this extra expense and trouble poor countries get almost nothing in return because they have little IPR. Yet rich corporations get all the benefits of the additional revenue that is brought in (Chang 2008 p141).
MNCs are also adept at avoiding tax by the use of loopholes in tax laws, one of the most lucrative being transfer pricing - when two parts of the same MNC located in different countries buy and sell things to each other at a price set by the MNC. The pricing of transfers within a company has nothing to do with competitive economics and everything to do with overall benefit to the company. All MNCs have branches in low or zero taxation countries - tax havens, which typically employ very few if any staff[307], where the branches in higher taxation countries buy consultancy or other services from them at exorbitant prices. In this way very little profit appears to be made in the high tax countries - so little or no tax is due - but instead the profit appears to be made in the low tax countries, where again little or no tax is due because the tax rate is low or zero (Murphy 2013 Chapter 5).
In general governments claim to be indignant about this abuse but don't do anything except make a few complaints, and in the UK's case persuade a few MNCs to pay a fraction of their real profits in tax so they can claim to have brought them to heel. In reality this is little more than window dressing. Governments don't insist on MNCs paying tax because the more they pay the less inclined the governments believe they are to operate in the country concerned. They are big employers and their employees pay tax, and most governments are willing to settle for that. Governments raise the taxes they want from the people and businesses that can't avoid paying, or don't try because they are honest. If a government really wanted to make MNCs pay their fair share of tax they could legislate to force full account disclosure and outlaw inflated transfer pricing. In fact the OECD guidelines on transfer pricing require this, but they are only voluntary, so MNCs don't volunteer to comply.[308] Governments believe they must create a 'business friendly' environment, to encourage MNCs and other big businesses to set up and expand their operations thereby creating more jobs and increasing national prosperity. This sounds reasonable but is another example of trickle-down thinking. Allowing big business to keep a larger share of its profits for itself by reducing society's share doesn't mean that the money saved will be used to create jobs, it will be used as its other excess money is used: to buy its own shares to boost share prices (see chapter 61); to invest in existing assets; to boost director and manager salaries and bonuses; to distribute as dividends to shareholders; and so on. It will only expand production if demand justifies it, and even then it will only create jobs if there is no alternative - see chapter 20 section 20.2 and chapter 100 section 100.2. Governments argue that business-friendly policies persuade big businesses to move their operations to their countries from other countries, which to the extent that it happens does create jobs, but all it achieves is to force other governments to follow suit in a 'race to the bottom' where all societies lose out, and is a manifestation of the transfer of power from governments to big business, a transfer where societies become ever poorer and private interests ever richer.[309]
Ideally international agreements on proper account disclosure and taxation would counter this power transfer. It makes no sense for countries to compete for MNC business by giving away bigger and bigger shares of potential tax revenue - making their own societies poorer by doing so. MNCs have to carry out their business somewhere; they certainly won't voluntarily liquidate themselves just because they are forced to pay a fair share of tax, and the sooner that they are forced to do that the better for everyone - except the owners and senior managers of MNCs of course (Murphy 2015 pp133-136).
Smaller domestic businesses also create jobs and their employees pay tax, but they are unable to benefit from transfer pricing and can't use tax havens unless they are unusually cash rich. This gives MNCs a major competitive advantage over smaller businesses. In effect they enjoy an economy of scale in the form of avoided tax. This destroys one of the basic advantages of ideal free markets - that competitors are free to enter and leave the market easily. Neoliberalism doesn't complain about this, in fact it is a strong supporter of MNCs.[310] The laissez-faire aspect of neoliberalism is probably its most fundamental aspect, and in this case laissez-faire means letting the strong (MNCs) bully the weak (governments and smaller businesses).
Perhaps the greatest advantage that an MNC is able to take is that of poor country exploitation. They pay low wages; have no obligation to pay for pensions, health insurance or other benefits; pay little tax; suffer few if any regulations that stop them extracting as much wealth as possible; are subject to low health, safety and environmental standards; and leave behind whatever pollution and damage their operations make (Monbiot 2004 p223). In effect MNCs are able to bypass safeguards that have evolved in developed countries over many years to protect people and the environment. In these circumstances poor countries are unable to improve their standards because other poor countries will undercut them and get the MNC jobs. They find themselves locked into a situation that is harmful to them and their people - imposed by the stranglehold that MNCs have over them. At the same time workers in the home country are priced out of their jobs. This is another consequence of laissez-faire, and neoliberals still persist in believing that it is a policy that benefits everyone. The ability of people to believe what they want to believe knows no bounds. Apart from all that, as was pointed out above and in the Preamble - chapter 62 - MNCs extract vast wealth from poor countries by tax avoidance measures, saving for their own benefit the tax that those countries so desperately need to keep their populations alive and well.
MNCs behave like bullies[311], and the way to deal with that behaviour is to resist it. Giving in to their demands merely increases those demands. In fact although MNCs can move their headquarters to other countries they can't move their actual business - customer transactions - elsewhere because they already do business everywhere they can. The customers they sell to can't be moved - they live where they live and stay there. All an MNC can do is abandon its business in a given country, and few are likely to do that just out of pique, especially when having to pay tax changes the business from being very very profitable to being merely very profitable. Even if the managers were prepared to do that the shareholders would hopefully prevent it. Perhaps one or two might consider it in the hope of making an example of the country in question, but it seems doubtful because they know full well that the gap they left would very soon be filled by others who would be very happy to mop up a very profitable business. It would be a case of sell to the country in question and make a bit less profit than they did, or cut their noses off to spite their faces and make no profit at all. It might not need to come to a confrontation however. MNCs exercise their power and influence in secret. They can only work against the public interest by keeping their activities under cover. What is needed is to expose to public scrutiny all their meetings and dealings with government and state bodies - all meetings should be recorded and transcripts made publicly available. George Monbiot has provided a list of recommendations, including the need for public scrutiny, in a Guardian column[312], and I can't improve on that. In summary they include:
· All lobbying to be transparent - as discussed above.
· Any company supplying public services would be subject to freedom of information laws and gagging contracts would be illegal, in the private as well as the public sector.
· Ministers and top officials should be forbidden from taking jobs in the sectors they were charged with regulating.
· Plus other measures designed to discourage antisocial activities and to democratise international organisations and treaties.
See also Monbiot's more detailed prescription summarised in the next chapter in section 76.3.
However when all's been said in criticism of multinationals - and there's a lot to criticise - we have to remember that they are in fierce competition with each other, and regardless of any scruples the managers and directors might have, they are forced to operate to rules set by the most unscrupulous. The freedom conflict, discussed in the Introduction, applies to all businesses including multinationals.