Whatâs
Wrong Today:
The
Netherlands is emerging as Europeâs Delaware, so says The
Economist:
latest to [move to the Netherlands] is Fiat. Now that the Italian carmaker is
set to gain full control of Chrysler, it is to leave Italy, on paper at least,
after 115 years. Its board recently voted to move the parentâs legal domicile
to the Netherlands, its tax residence to Britain and its main stock market
listing to New York
Thatâs
3 different locations for 3 of the companyâs key functions. The Economist went on to say that âEven
the most industrious executive cannot be in three places at onceâ. Why are
firms doing this? More from The Economist:
(emphasis by the Wrongologist)
corporate laws make the Netherlands very attractive as a legal base. They let companies tweak the balance of
power between management, the board and shareholders to suit their needs…and
meetings are not needed to approve corporate resolutions. There are few
requirements on compensation, or on audit committees. Other attractions include
the widespread use of English and a strong professional-services industry
Having Fiatâs
tax residence in the UK is an immediate benefit since, unlike Italy or the
Netherlands, the UK levies no withholding tax on the distribution of dividends
from foreign operations. Multinationals play down tax as a reason for splitting
their legal residences, but it always
factors into the decision. British tax law looks kindly on firms
using complex ownership structures that involve other low-tax jurisdictions, structures
that allow them to shuffle payments between subsidiaries and thus minimize tax
bills.
The Economist closes with this
observation:
multinationals that had put their global or regional headquarters in
Switzerland over the past decade are now looking to move elsewhere, in part
because of the pressure the EU is putting on [the Swiss] to rewrite its
cantonal tax regimes so they do not favor foreign firms over domestic ones
These
firms are moving from the realm of the âmultinationalâ
to the âtransnationalâ. Their decision-making is driven by accountants and
lawyers as much as by markets.
The trouble with
transnational organizations is that while governments have a moral imperative
to look out for the interests of their citizens both rich and poor, to be good
stewards of infrastructure, human capital and natural resources, transnational
firms have no such imperative.
Only
their shareholders can call them to account and then it’s usually about profit.
While some firms show occasional moral awareness, it’s not a requirement, and
is often ridiculed by some of the global elites.
We are witnessing
the morphing of capitalism into a singular global system.
This shift in capitalism has created a transnational
capitalist class.
Capital is more mobile than people. Mobility between economic classes in a given countryâs
population is less and less dependent on that particular nationâs big businesses.
It has become more dependent upon smaller, service-oriented firms that cannot
deliver their services from abroad, and do not offer the same middle class job
opportunities.
Transnational
capitalists have become a ruling class that operates the controls of a powerful
transnational superstructure, managing assets and production of both commodities
and goods. Members of this new class (and their companies) have deeper connections
to each other than to their home nations, since their business and financial interests
are globally linked, rather than exclusively local or national in origin.
The world
is still organized into discrete national economies, but the transnational
capitalists, and their lawyers and accountants, have constructed a
superstructure that overlays their interests on a world of markets and nations.
Like Fiat, their business interests may or may not coincide with those of their
country of origin or of its citizens. Yet, at the same time, this worldwide decentralization and
fragmentation of the production process has taken place alongside a centralization
of command and control of the global economy by these transnationals.
This has cemented
the world into a single production system. One outcome of transnational capitalism
is that a large gap between the global rich and the rest of us has developed,
one which exists not simply on a national level.
Forbes reported
that corporate wealth is becoming more concentrated. In fact, the top 147
transnational corporations control
roughly 40% of the entire economic value of the worldâs transnational
corporations. And it is worse than that:
147 firmsâŚown interlocking stakes of one another and together they control 40%
of the wealth in the network. A total of 737 control 80% of it all
That is
out of a total of 43,000 transnational corporations analyzed by the Swiss Federal Institute of Technology in Zurich. They built a
model of who owns what and what their revenues are, and thus mapped the entire
edifice of economic power.
It
is not clear how this concentration of wealth which has no loyalty to country will
play out in the 21st Century. In America so far, it has meant that the
rich employing the near-rich to tell the middle class that everything is the fault
of the poor.
We
have accepted the fantasy of a free market, the acceptability of 6% unemployment
as the best we can do, of the uselessness of unions; that equality is unnecessary,
and that privatization is sacred.
And
above all, that it is absolutely necessary for private industry to
self-regulate.
Unchecked,
the transnational firm will be the triumph of fascism.
The value of the corporation structure lies in its removing liability from shareholders. Thus shareholders can only lose the value of their shares, not have additional assets attached. Governments originally allowed corporations only when an advantage accrued to the society at large (such as when charters were granted to trading entities the engaged in risky foreign trade). somehow we seem to have forgotten this and over time imagined that corporations (like patents – legal monopolies) were inevitable, even right.
So when Enron used its power to rape Californians in an energy trading scam, no one was personally liable (or jailed) for what, if it were the act of 2 individual traders trading on their own account, would have been treated as immediately criminal.
In any case the corporations, like the machines in an imagined science fiction work, have become self aware. The rest is just the playing out of a story.
Terry, at least 3 in senior management of Enron were convicted of various crimes. Ken Lay Chairman, died before sentencing, Jeffery Skilling, CEO, is still doing time, I think. andrew Fastow, CFO, served 6 years. Many were outraged that while Enron execs could be tried, few banksters were punished in the great credit default scam that raped America.
I realize that, but the act of bringing them to trial is complex. Much different with closely held businesses. Also different would be the ability to sue all shareholders en masse.
Years ago working at one large corporation, we did something (simple and innocently) that was “againsts the law” – we taped a telephone conversation (something we did as a matter of course) but the analyst forgot to give the message about taping.
The matter ended up before our attorneys, but the bottom line was – no one could do anything to us, since there were no individuals who could he held personally responsible.
My bottom line is that the corporation remains an excellent, though imperfect insulator.