It is time for the politicians to stand up against the power of the corporations

Opinion: Public services are in decline because of huge companies’ ability to avoid tax

Thu, Sep 5, 2013, 19:11

Vodafone’s sale of its US business – one of the biggest corporate deals in history – tells how modern capitalism works. Instead of investing the £84 billion proceeds in innovation and jobs, the company’s bosses are giving the money to its shareholders. It also plans to avoid up to £35 billion in
UK tax on the deal. This potential tax avoidance, through a Dutch subsidiary, has rightly annoyed Margaret Hodge, chairwoman of Westminster’s public accounts committee.

Should we be worried about the rising power of corporations? The growing awareness of how little in tax is paid by large profitable multinationals anywhere; the incredible detail on every aspect of our lives held by Google and other firms throughout the world; the growing size and economic reach of multinationals ; their ability to dominate elected governments; and the substantial decline in the share of national income going to workers and the self-employed, as the share going to corporations and the very wealthy rises inexorably in all countries, all indicate that we should be worried.


Monopoly-busting political parties
The main countervailing forces to the rise of corporate power in the 20th century were: nation states; an independent media; vigorous monopoly-busting; left-wing political parties; trade unions; some professions and independent academics in universities.

But with globalisation, the power of nation states has apparently diminished greatly and too much of the media is now controlled by corporations or wealthy egos, and public broadcasting is in trouble. Many of the social democratic parties that, with conservative parties, had built the welfare state in the West fell for the neo-liberal agenda of ultra-free markets, low taxes and deregulation. They almost became small “c” conservatives, while the communist parties that kept them on a progressive track disappeared as “actually existing socialism” in central Europe and China rapidly morphed into the crudest and harshest of capitalisms.

Trade unions, which challenged the actions of management within companies but most importantly ensured a fair distribution of national income through rising wages and salaries, are in secular decline, due to laws that sought to favour business by making unionisation difficult. Simultaneously, there were increased employee legal rights, ironically won by unions, which also worked against them.

The ability of academics to lead the challenge has been progressively undermined not just by “bought” corporate chairs, but by the pressingneed of universities to do the bidding of corporations to fund themselves.

Professional groups such as accountants, economists, lawyers, doctors and pharmacists too have been strongly influenced by large companies, with
some professional bodies becoming very effective mouthpieces of corporate interests. In particular, the independence of accountants’ bodies is gravely eroded as they acquiesce to the bidding of their large corporate paymasters in lobbying against taxation, the evisceration of collective employee rights and regulation. There has been a decline in real financial information as companies hide it in plain sight in meaningless global accounts.

Thus it does seem as if corporate power is on a relentless rise in all countries and nothing can stop it, particularly as those institutions that did traditionally curb it have been weakened. Politicians of all parties appear to represent corporations, which promise to create jobs if the “conditions are right”, to a lesser degree than the citizens who elected them.

While we must be worried, there are still some countervailing forces. The boards of many leading companies are not led by predators and strive to be good corporate citizens. They know that the best way to make profits is to treat the customer well, give value for money and try to be ethical. This is achieved by actually paying taxes to pay for public services and knowing that if profits are excessive, if wages are poor and if no taxes are paid, they undermine their own consumers’ spending power and thus demand for their products and services.


Powerlessness of nation states
The powerlessness of nation states was seen to be greatly exaggerated when even tiny states such as Ireland were able (at some great cost) to take over and rescue its top three banks, the biggest private firm in Ireland and the debts of all the property speculators, overnight. States are putting regulation back and in the near future even the European Commission is likely to split up monopolistic firms such as Apple, Google, and Microsoft, just like the US did with Standard Oil in 1911.

The massive decline in the share of national income going to workers and self-employed has be reversed soon, or economies will weaken further as demand continues to decline, because too much income is going to corporations and the new wealthy elite. These two groups have increased their share of national incomes from 25 per cent to 40 per cent in 30 years. They are investing less and less in wealth creation compared with companies in the past, but are increasingly buying back their own shares and returning more in profits to shareholders (to themselves – corporations and the wealthy). They are paying far less in taxes and so public services are in decline.

The actions required to restore balance between corporate power and functioning economic democracies are to increase corporate and income taxation and to reverse the decline in the collective bargaining power of trade unions.
Additionally, we need to enhance the European social model and have robust environmental and labour regulation.

But for this to happen, more coherent and determined political leadership is required. The widespread cynicism of politicians has arisen partly because they have too often failed to stand up for citizens against the wealthy elites.

It takes a level of political commitment to stand up against immensely powerful, big-investing, tax-evading, tax-avoiding corporations, some of which are spying on our every move, some of which are perverting research by buying /“endowing” university chairs, and importantly, control much of the media. It falls to the State, led by courageous politicians, with long term vision, to reverse these trends.


Paul Sweeney is an economist

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