Yves here. I assume that most readers would regard Richard Murphy’s observation that some companies are as or even more powerful than governments as obvious. But he is correct to point out that economists and policy makers don’t seem to have integrated that development adequately into their thinking. Only now are governments kinda-sorta coming to grips with the fact that international mega businesses are threats to governments. It isn’t just that these companies are very skilled at all sorts of arbitrage. It is also that they often have enough clout domestically to make it difficult to check them, or worse, have managed to get themselves seen as national champions. China still saw fit to go after Jack Ma, but that regime believes in the importance of official authority and has not fallen for the libertarian love of markets. It’s hard to think what Jeff Bezos or Elon Musk would have to do to be on the receiving end of a similar wings-clipping in the US.
And Murphy is thinking only swashbuckling multinationals, like the automakers, Big Pharma, and our course our new tech overlords. The biggest private equity firms also represent concentrated economic power. Eileen Appelbaum and Rosemary Batt have documented how private equity acquisitions of outsources medical practices have allowed them to muscle hospitals and insurers and jack up prices, which has been reflected in the increased number and average cost of “surprise billing” episodes.
And most have no clue as to how much clout these firms have, in part because their operations through their portfolio companies are sprawling. But one indicator: when KKR went public in 2010, it said its total number of employees via its portfolio companies would make it the fifth biggest employer in the US. It is hard to imagine that the relative standing of private equity compared to the rest of the economy has fallen in the last decade-plus
In other words, while articulating the problem of too big to control businesses is nice and necessary, it’s a long way short of solving it. I have some ideas but they presuppose bloody-minded officials, a species well on its way to extinction.
I am reminded of:
In the original stage production, Audrey II eats Seymour and show closes with the plant is on its way to world domination. Movie viewers did not like that conclusion so it was rewritten to have Seymour save the planet by electrocuting Audrey II.
The mass consumer demand for a happy ending exemplifies the tendency to deny how bad things can get.
By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK
I recently suggested to colleagues that I thought that we were looking at accounting in the wrong way. We were still seeing large companies (now commonly called PIEs, which stands for public interest entity) as if they were microeconomic entities.
But what if they were not? What if they were macroeconomic entities? Then what?
The evidence supports this suggestion. Many multinational corporations are much larger than many countries.
By definition a PIE has a macroeconomic impact.
And if that is true the whole ‘theory of the firm’ view of the entity is wrong when applied to it. What the entity actually is, in that case, is a power bloc to rival government, and in the case of the big tech companies and others we do, of course, see that to be the case.
So why are we holding them to account as if they are still just companies? They aren’t. The shareholders (one or two founders apart) have very little control in most cases (and I will note the exception of Exxon in another blog). Those shareholders have no meaningful ownership stake in the firm: they simply own a right to an income stream the company might pay. And the obligation to stakeholders is, in most cases, greater.
So why not treat them for what they are? And why not regulate them as macroeconomic entities, accountable to all, and not just a few shareholders whose identity is, in any case, unknown because of the way in which modern shareholding is registered?
Thoughts are welcome.