Economy

If Corporations Are People, They Can Be Jerks

The problem isn't globalization, but how companies treat the countries where they operate.

Companies have shifted profits around to seek lower taxes.

Photographer: Timothy A. Clary/AFP/Getty Images

Critics of globalization have named their enemies: those citizens of the world who, in British Prime Minister Theresa May’s scornful phrase, are really “citizens of nowhere.” Populist leaders are championing policies to combat such cosmopolitanism -- restricting migration, rethinking regional trade deals, pressuring companies to create jobs at home.

Yet while it contains some truths, the populists' diagnosis is incomplete. And that means their remedies are wrong, too.

The problem isn’t globalization per se, but the rise of what Henry James called a “hotel civilization.” Today's multinationals lack a deep connection with the countries in which they operate. They're as transient as hotel guests.

Thus, they seek short-term gains and ignore long-term costs. Many exploit natural resources and labor, taking advantage of low wages, favorable tax or regulatory regimes and weak environmental and labor protections. They shift around profits in order to minimize taxes or other payments due to their host countries. Few are concerned about the collateral damage of their operations or display any interest in a lasting legacy.

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Google Inc., Amazon.com Inc., Apple Inc. and Microsoft Corp. have all found themselves under investigation or in court on charges of evading taxes in countries where they have operations. Several U.S. companies are holding trillions of dollars offshore in part to avoid paying tax on repatriated profits. Globe-spanning resource giants have scarred the environments of many emerging nations.

A new superclass of entrepreneurs and executives -- as well as their supporting cast of financiers, consultants, lawyers and others -- flit between locations and employers with little allegiance to individual firms or local cultures. They’re often substantially removed from the communities in which they live -- sometimes physically, in special economic zones or gated compounds. They avoid responsibility by making use of complex legal structures, hiding behind the corporate veil of limited liability or legal treaties.

It’s little surprise that companies have gotten away with this for so long. Consumers in advanced countries are willfully ignorant of or untroubled by how their cheap products and services are generated. Governments compete fiercely to attract investment and commerce; they can’t afford to be too stringent in their oversight. Ireland, Singapore and others tempt companies with low taxes. Great Britain famously used its light-touch regulation to underpin the position of the City of London as a global financial center.

The answer isn’t to reverse globalization, however, raising barriers so that companies hire and produce at home only. There are better, more targeted ways to enforce greater corporate responsibility.

The OECD’s “base erosion and profit shifting” initiative, for instance, combats efforts to move profits to low- or no-tax jurisdictions. The Trans-Pacific Partnership, if implemented, would raise environmental and labor standards in member countries. Allowing cross-border regulation and enforcement of claims against businesses would deter the worst corporate excesses. Global agreement on climate change, use of scarce resources such as water and geopolitical tensions would encourage companies to play by clear rules.  

Ironically, all these measures require more cooperation and harmonization of policies, not less. Railing against elites and encouraging mistrust between winners and losers only distracts from this work and, indeed, makes finding consensus even more difficult. The disunity on display at the recent G7 meeting is, in this light, deeply worrying.

Reviving faith in globalization, which has contributed significantly to higher living standards around the world, requires radical and brave changes. Countries and corporations need to address issues of equity between different groups -- both within and between nation-states. The critics aren't wrong to sound the alarm. They should only be careful that their "solutions" don't do more harm than good.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Satyajit Das at sdassydney@gmail.com

    To contact the editor responsible for this story:
    Nisid Hajari at nhajari@bloomberg.net

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