28. THE CORPORATE NEW ORDER
After our examination of how the international banks are shaping the world, it would seem that they are becoming the new rulers. They share power, however, with the major corporations. In fact, the bankers and the heads of corporations sit on each other’s boards of directors. Does the economic globalization they are implementing truly represent progress for everyone?
The apex of the pyramid
As described by Korten, three major forums have served to bring together key individuals from government, business, the media, and academia to create a consensus for economic globalization: the Council on Foreign Relations, the Bilderberg, and the Trilateral Commission. All three groups are secretive in the sense that heads of competing corporations and leaders of competing national political parties gather for closed-door discussions that the public never sees.
The Council on Foreign Relations was formed by a small elite group of foreign policy planners who were among those concerned about avoiding a recurrence of the Great Depression of the 1930s. They rejected any solution involving major reforms of the U.S. economy and strong governmental intervention in the market. They preferred steps to ensure American access to foreign markets and raw materials permitting continuous expansion as needed for full employment without market reforms.
The Bilderberg, named for the hotel where the first meeting was held in 1954, is less known and has no acknowledged membership, although participants include North American and European “heads of state, other leading politicians, key industrialists and financiers, and an assortment of intellectuals, trade unionists, diplomats, and influential representatives of the press with demonstrated sympathy for establishment views.”
The Trilateral Commission was created in 1973, following discussions at Bilderberg meetings, to include Japan as it became an economic power. It was formed by David Rockefeller, chairman of the Chase Manhattan Bank, and Zbigniew Brzezinski, who was the Commission’s director until he became national security advisor to President Jimmy Carter. Its membership of about 325 prominent people from North America, Europe, and Japan “include the heads of four of the world’s five largest nonbanking transnational corporations...top officials of five of the world’s six largest international banks...and heads of the major media organizations....U.S. Presidents Jimmy Carter, George Bush, and Bill Clinton were all members of the Trilateral Commission.”
Korten wrote: “Publications of the Trilateral Commission...all accept without question the ideological premises of corporate libertarianism....In the absence of an elected international parliament, a call to harmonize standards is a call to take decisions...out of the hands of democratically elected national legislative bodies and pass them to the unelected bureaucrats who represent governments in international negotiations....
“The fact that George Bush and Bill Clinton were both members of the Trilateral Commission makes it easy to understand why there was such a seamless transition from the Republican Bush administration to the Democratic Clinton administration with regard to the U.S. commitment to pass the NAFTA and GATT....On this most fundamental of issues, the electoral system gave the voters only the illusion of choice....”248
Domination by corporations
Major players in the structural adjustments mandated by the World Bank and the IMF for nations receiving aid are huge multinational corporations. Do people who decry Communist planned economies realize the control large corporations maintain over their managers, employees, subcontractors, affiliated companies, and the communities in which they operate? They rival the central planners of the late Soviet Union, whose GNP in 1988 was about the same as total sales of the world’s five largest diversified service companies in 1991. The world’s ten largest
corporations had more revenue than the combined GNP of 100 nations. Although the 500 largest industrial corporations employed only one twentieth of a percent of the world’s population, they controlled 25% of the world’s economic output.249
Global corporations, being more powerful than most governments, routinely sidestep governmental restrictions. For example, when economic sanctions were imposed on Libya in 1986, the Houston engineering firm, Brown & Root, Inc., simply shifted a $100 million contract with Libya to its British subsidiary.250
The dominant elements of the world economy are foreign direct investment by multinational corporations and trade within and between firms. Two-thirds of the world trade in goods and services is done by 40,000 multinational parent firms and their nearly 200,000 foreign affiliates, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 1995.251
These global corporations and their allies control the global propaganda machine that tells people the road to happiness is through limitless shopping, that capitalism is another name for democracy, that all problems are caused by government restrictions on business and government social expenditures, and that ever-expanding global corporations are both inevitable and desirable.
Korten described the global new order in a 1996 magazine interview: “The dominant governance system [on the planet] is the financial system....Mutual funds, pensions funds and trust funds have become much more dominant investment vehicles...run by fund managers who are evaluated on the basis of very short-term results....In a globalized system, where corporations are able to free themselves to a large extent from local regulation and any sense of community membership, they are increasingly accountable only to that global financial system....
“As you erase national economic borders...the real competition is far less among firms—which are managing competition among themselves with mergers and acquisitions and strategic alliances. The real competition is among people and communities for a declining pool of jobs, and they compete by
offering the lowest wages, the poorest working conditions and the least environmental restraint....
“Corporations are putting enormous amounts of their money into buying politicians and rewriting legislation to serve their particular interests, to weaken environmental regulations, to weaken unions, to avoid any increases in minimum wages and to push through the trade agreements, which are really corporate bills of rights....
“The traditional dynamic of colonialism...was about getting a small group of people in the colonizing countries access to a large pool of wealth to support lifestyles that could not be supported purely on local resources. Globalization, and the ascension of corporate power, is an extension of that colonial process....”252
Consequences ignored in corporate finance
Korten noted increases in cancer, respiratory illnesses, stress, cardiovascular disorders, birth defects, and falling sperm counts, all linked by a growing body of evidence to such industrial by-products as air and water pollution, harmful chemicals in food, high noise levels, and electromagnetic radiation.253 These negative “externalities” are outside the corporate balance sheet and ignored by propagandists for development who argue for government subsidies while fighting against health, safety and pollution controls. When public interest groups urge controls over the harmful results of growth, they are accused of blocking job creation.
Large public subsidies are often provided to corporations to stimulate economic growth, while detrimental effects are ignored. In the United States, for example, mining rights on federal lands are sold at bargain rates while “depletion allowances” give miners special tax breaks. In the Benguet province of the Philippines mining companies have stripped away trees and topsoil and poisoned the streams with cyanide but pay taxes amounting to less than one-half percent of their earnings.
The restructuring favored by the World Bank and the IMF causes people in developing countries to leave their traditional farming villages for work in export industries in the cities. One
result is that child care, health care, food preparation, entertainment, and physical security become increasingly part of the market economy, along with more tax collectors, managers, government regulators, accountants, lawyers, stockbrokers, bankers, middlemen, etc. The statistics of national production count all these expenditures as additions to economic output although they often are less efficient than the previous ways of meeting such needs.254
Can corporations can behave like good citizens?
“Few trends could so thoroughly undermine the very foundations of our society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as possible.”—Milton Friedman, Capitalism and Freedom.255
Friedman’s belief that corporations should single-mindedly seek maximum profits without concern for the effects on society did not lead him to support government efforts for amelioration of the corporations’ harmful social consequences. Such good corporate citizenship as has existed in the past has been almost exterminated by modern pressures of competition in the world marketplace. Because financial institutions compete for short-term investment profits, CEOs are forced to play this game. A corporation head who tries to build the long-term strength of the company with loyal employees is likely to be replaced by an opportunist who can inflate the stock price.
The public is often exhorted by the media to use its buying power to influence corporate behavior. The corporations laugh because individuals seldom know whether fish was caught by destructive trawler nets, or whether meat is from mistreated animals such as “battery chickens” or from cattle fed on infected sheep entrails (as in Britain’s “mad cow” disease), or whether products have been made by children, underpaid workers and political prisoners. In fact, the government even prohibits labeling that would tell us whether the cows that supply our milk have been injected with artificial hormones, an instance in which lobbying by the Monsanto Corporation was more effective than farmers and consumer protection groups.256
It is usually assumed, as in the quotation from Friedman, that each corporation is run for the benefit of its shareholders—presumably all of them. After all, don’t the stockholders control the corporation? That is more theory than fact. Usually the power of the corporation is in the hands of a few large stockholders, including the top executives—the ones who get stock options and golden parachutes when there is a buy-out. The other stockholders are virtually powerless.
On the few matters where a stockholder vote is required, the shares voted by executives and directors are usually joined by those of institutions such as mutual funds, pension plans, etc. The many people whose money is in the funds don’t get to make any decisions. Their shares are voted by the institutions’ managers, who are part of the network of interlocking directorates that rules the world of major corporations. One hand washes another.
This becomes clear when reformers who own some shares try to challenge arrogant management practices at corporate annual meetings. Sometimes they get considerable media attention, but almost invariably are voted down by shares supporting management. That was the fate of dissident shareholders led by the Rev. Christopher Hall of the Ecumenical Council for Corporate Responsibility at the Royal Dutch-Shell annual meeting in London on May 14, 1997, who lost by a margin of about 8 to 1. They called for outside auditors to check on the company’s stated policies regarding environmental and social issues.
Shell, which is one of the 25 largest multinational corporations in the world, had been under attack for trying to dump an old 400-foot oil platform into the ocean west of Scotland in 1995 and for disregard of human rights in Nigeria.257 The company was cited as one of 1995’s ten worst corporations in a Multinational Monitor article for profiting off 500,000 Ogoni people and polluting their homeland, having spilled an estimated 1.6 million gallons in 27 incidents from 1982 to 1992 in its Nigerian operations, according to critics who were hanged by Nigeria’s military dictatorship.
The article stated: “After soldiers opened fire on a peaceful demonstration against a contractor laying Shell pipes on
Ogoni farm land in April 1993—killing one person and wounding 10—the general manager of Shell’s Nigeria subsidiary wrote the Governor of Rivers State...asking for more pipeline security.” The nine dissidents hanged in November 1995 for opposing Shell and its government allies included playwright and environmentalist Ken Saro-Wiwa.258
Stockholders often have no more success when they are merely trying to protect their own financial interests than they do when they challenge the company’s environmental and human rights policies. An example was reported on Feb. 23, 1996, in the High Point Enterprise at the major furniture center of High Point, North Carolina. A large showroom building, the International Home Furnishings Center, is owned by six majority stockholders owning 95% of the shares and 23 others whose 5% helped finance the start of the project. As it happens, the Enterprise and its publisher are two of the six majority shareholders, but the paper printed a balanced account of the dispute.
The minority investors disputed the price of $225 per share offered by the majority to buy them out. Although the shareholders paid for a study by the New York investment bankers, Dillon, Read & Co., on which the $225 price was based, minority shareholders had been unable to look at it. The president and CEO, Bruce Miller, arrogantly declared: “Everything that the minority shareholders were supposed to get, they got. They have everything they need to evaluate whether the offer is fair or not.”
This reminds me of situation involving a small company of which I have personal knowledge. The president had been drawing salary and expenses, but there had been no dividends for several years to either the preferred or the common stock. The time was approaching when the preferred shareholders would take over the company because their promised dividends were in default beyond the specified time.
To forestall this, a meeting was called to approve a mandatory exchange of preferred stock for common stock (which had dubious value in a company with negative earnings). During the meeting a holder of preferred stock put several questions to the company lawyer, who was sitting next to the president and CEO,
about the effect on preferred stockholders who might not want to accept the worthless common stock.
When this attorney, hired with the stockholders’ money, refused to answer questions and declared he was supposed to serve only the officers and directors, the weak position of any stockholders not possessing a majority of the voting shares was clearly demonstrated. Of course, they could have gone to court, but it would have been at their own expense while management was using attorneys paid by corporate funds. Not enough money was at stake to make this worth pursuing, so their interests that were supposedly protected by the terms of the preferred stock were just wiped out.
Although management and its interlocking directorates have long been able to ignore most complaints from ordinary stockholders and employees, they occasionally were hauled into court for improper and fraudulent actions. To protect them, as well as their accountants and other consultants, industry successfully lobbied for the Private Securities Litigation Reform Act of 1995 (yet another misuse of the word “reform”), which Congress passed over President Clinton’s veto. Now it has become even more difficult to sue corporate management in federal courts for defrauding investors.
29. A LEGAL FICTION THAT HURTS
You might think that the Constitutional protection of freedom of speech refers to human beings—after all, who else (except perhaps talking parrots and chimps using sign language) is capable of speech? If you are a judge you may hold otherwise, however, because the courts observe the “legal fiction” that a corporation is a person. As a result the rights of corporations are stronger than the rights of individuals. Corporations now have the basic rights given to individuals by the Constitution, including freedom of speech, in addition to their special rights of limited liability and perpetual life. Although corporations lack the vote, they are effective in “buying” votes. The officials individuals elect listen to them much less than they listen to the corporations and lobbyists who supply funds and favors.
We all learned in school that the corporation is a useful form of business organization, and that is true. Bank loans and outside investments are more available to a perpetual entity than to proprietors whose mortality poses a risk, and investors will more readily accept some risk when their liability is limited. We may not have learned in school how this institution was invented. It was devised to overcome a barrier to commerce. In the 16th century, not only were there debtors’ prisons but also debt was inherited. Beyond the perils of the sea, a venturer to the new world risked ruin of his family for generations.
Corporate charters were issued by the monarchy, contained specific rights and obligations, and could be withdrawn anytime. As instruments of the crown many corporations were granted monopoly powers, as in the case of the East India Company and Hudson’s Bay Company, as well as many American colonies themselves.
Colonists could import goods and export certain products only through England, being restricted in the ships and crews they could use, and were forbidden to produce certain clothing and iron goods. Adam Smith condemned such practices in The Wealth of Nations in 1776: “It is to prevent reduction of price...by restraining
free competition...that all corporations, and the greater part of corporation laws, have been established.”
After the American Revolution, which was fought against these abuses as well as others, the states were careful about issuing corporate charters, limiting them to specific purposes and to a fixed number of years unless renewed, with interlocking directorates outlawed, and charters subject to withdrawal by state legislatures if they failed to serve the public interest.
Since the 19th century U.S. corporations have been using the courts to change the rules to suit their interests. President Abraham Lincoln observed just before his death: “Corporations have been enthroned....An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people...until wealth is aggregated in a few hands...and the Republic is destroyed.”259
Even President Rutherford B. Hayes, declared: “This...is a government of corporations, by corporations, and for corporations.”260 As state legislatures, especially in Delaware, courted corporations by limiting the liability of corporate owners and managers and issuing charters in perpetuity, corporations managed to avoid the limits originally imposed by states.261
Finally, in an 1886 case involving the Southern Pacific Railroad, the U.S. Supreme Court gave corporations virtual carte blanche, ruling that a private corporation is a natural person entitled to free speech and other constitutional protections extended to individuals under the U. S. Constitution.262
Although the Constitution makes no mention of corporations, they thus obtained the rights enjoyed by individual citizens without many of the responsibilities and liabilities of citizenship. They claim the same right as any individual to influence the government in their own interest—making a rather uneven contest. Because of secrecy, we know only in part what corporate money is going into supposedly grassroots organizations and controlling them.263
How the corporations get their way
Although corporations can’t vote, they do influence elections, and one would have to be quite naive to doubt that their
support gets rewarded. For example, during the 1994 campaign candidate Newt Gingrich and Senator Robert Dole, along with Republican party chairman Barbour, toured the country raising extra funds from wealthy executives in a way that smacks of extortion, implying dire consequences in a Republican congress for those who didn’t ante up. They took large donations as “soft money” to exploit a loophole in the campaign finance laws.
Amway Corporation gave $2,500,000 and received favors from Senator Dole involving telecommunications industry deregulation. Its opposition to food and drug regulation also got support from Gingrich’s tax-exempt foundation which called for abolition of the FDA. Senate investigators found that millions of dollars were given during the 1996 congressional elections to nonprofit groups that aired television ads supporting conservative candidates. Since they aren’t required to disclose their donors, it is not clear how much corporate money was involved.264
Constantly reminding politicians of favors and seeking favorable action, companies, associations, and other special interests maintained 14,484 lobbyists in Washington and spent $1.17 billion in 1997, according to a computerized study of lobbying disclosure reports by the Associated Press and the Center for Responsive Politics.265 The top spender was the American Medical Association, $17,100,000; second, Philip Morris, $15,800,000 (the tobacco industry total was $31,650,000); third, Bell Atlantic, $14,300,000 (the telecommunications industry total was $63,960,000); fourth, the U.S. Chamber of Commerce, $14,200,000 (the business groups total was $24,600,000); and fifth, Pfizer, $10,000,000 (the pharmaceutical industry total was $59,700,000).
Among other industries were oil and gas $51,700,000, defense $40,000,000, automotive $34,600,000, and computers $12,000,000. The Commonwealth of the Northern Mariana Islands, which exports clothing as “Made in USA” from factories that hire foreign garment workers at less than the federal minimum wage, spent $2,000,000, using a former cabinet member, two former senate majority leaders, and two former governors as lobbyists.
It should be noted that these expenditures do not include political contributions to the candidates, to their parties, and to propaganda organizations that aid one candidate or party against another. The top spenders would undoubtedly include some other interests during different time periods. For example, the tobacco industry spent more than $58 million on lobbying in two years (1996 and 1997), while also contributing over $14 million since 1995 to candidates and political parties at the national level. Philip Morris alone spent over $12 million to lobby the federal government in the first six months of 1996.
Tobacco settlement to bail out industry
In response to civil suits by attorneys-general of numerous states for damages, the tobacco companies negotiated settlements dependent upon Congressional action. The states claimed huge amounts for medical expense for treating smokers because the companies marketed cigarettes after allegedly knowing that tobacco was addictive and caused cancer. At the trial of the Minnesota lawsuit against the tobacco industry early in 1998 the state introduced some of the millions of documents it had collected. They contradicted the many denials by company executives that tobacco is addictive, some made under oath by CEOs of the major firms in Congressional testimony: