Stiglitz hits multinational corporate power

Corporate Crime Reporter XV, April 5, 2007
If multinational corporations do so much good in the world, then how come people across the globe hate them so much?
That’s the question Nobel Prize winning economist and Columbia University Professor Joseph Stiglitz sought to address last week before the American Society of International Law’s annual convention in Washington, D.C.
And the answer?
Well, for one, corporations take advantage of limited liability.
“Without limited liability, it would be hard to have a modern capitalist economy,” Stiglitz told the gathering. “But corporations take advantage of limited liability. Mining companies take out natural resources and leave behind an enormous environmental mess. When it comes time to clean up the mess, the company says – I’m sorry we are bankrupt. We have nothing. We have already paid out all of the revenues to all of the shareholders. The company goes bankrupt and the community is left to pick up the cost of the cleanup.”
Then there is their massive economic power the corporations use to get favorable legislation by passing around campaign contributions.
“It’s a particular American form of corruption with a very corrosive effect on democratic processes particularly in societies where democratic institutions are just being created,” Stiglitz said.
That would be legalized bribery.
Then there are the illegalities and crimes.
They pay bribes overseas.
In the United States, cigarette companies knew their products were deadly, lied about it, and marketed them anyway.
The oil companies engage in massive cheating in hard to detect ways, Stiglitz said.
“To catch this cheating requires extra-ordinarily sophisticated detection, beyond the capability of most developing countries,” Stiglitz said. “Companies know they are going against very sophisticated institutions in the United States. What must be happening in the developing countries where there are clearly no such institutions?”
They’re getting reamed.
The power of the multinationals is enormous, Stiglitz said.
Revenues of General Motors are more than the GDP of 148 countries.
Wal-Mart’s revenue is larger than the combined GDP of all sub-saharan Africa.
“And they use that power to get special treatment,” he said. “They try sometimes to make sure that environmental and health regulations are not enforced. They sometimes get legislation and preferences over domestic businesses.”
“Sometimes this special treatment is above board. They will say – passage of this legislation is necessary for us to come to your country. And the fact that they threaten to leave if they aren’t given what they want is very powerful. But sometimes it’s based on corruption. And developing countries are particularly susceptible to corruption.”
“The mandate of companies is mostly to maximize profits,” Stiglitz said. “Maximizing profits means, for example, getting the oil at the cheapest price possible. It’s a lot cheaper to bribe somebody whose annual income is $10,000 than to pay full market price. And many of the multinational companies have given in to that temptation.”
Stiglitz pointed out that while much of the world now lives under anti-bribery laws, there is very little enforcement of these provisions.
As for secret bank accounts, the U.S. has been recalcitrant.
There was an OECD initiative to restrict secret bank accounts, and the U.S. vetoed it in August 2001, Stiglitz said.
“Then after September 2001, we recognized that these secret bank accounts were being used to finance terrorists,” he explained. “We have since then have been able to show that we can shut down those secret bank accounts. But we have chosen only to do it for terrorists. Our view is that using it for corruption or other purposes – that’s fine.”
Stiglitz said that bankers in tax havens like the Cayman Islands like to invite him to speak to them.
“For some reason, some bankers in these tax havens like to invite me to give talks,” he said. “ They feel better having me lecture them about how they are sinners. They feel that’s a way of doing penance for their sins. One time, after I gave this lecture about how bad secret bank accounts are, how they facilitate drug dealing, money laundering and corruption, two or three people in the audience came up to me to talk. And they said – you know, you have this wrong. We don’t do that kind of secret bank accounts. We don’t do corruption, money laundering and drugs. We just do tax avoidance.”
“And I asked – how do you know?”
“And they said – we asked, and they told us.”
Stiglitz said that it is “hard to think of a successful American economy with only state laws and no way of dealing with cross border disputes.”
On the international level, this leads to the problem of enforcement of judgments beyond borders.
Think of television scene of the sheriff chasing the bandit. The sheriff comes up to the border and stops. The bandit crosses into another state.
International corporate law is like that in a lot of ways.
“Companies know they can escape across the border,” Stiglitz said.
Case in point – Union Carbide India.
“American executives who were responsible for the 1983 Bhopal disaster knew they could escape to the United States and not face prosecution for crimes which they committed in Bhopal,” he said. “Thousands of people died in Bhopal and yet no one is held accountable for this disaster.”
On the international level, the gap in international law is being filled with investment agreements.
The problem in crafting these agreements is the disproportionate power of the multinationals, Stiglitz said.
As a result, these investment agreements sometimes provide foreign corporations with more rights than domestic investors.
And since there is a non-democratic non-transparent negotiation process for some of these agreements, they get what an open, democratic political process would never have granted.
Stiglitz was at the White House when the North American Free Trade Agreement (NAFTA) was being drafted.
“Chapter 11 of NAFTA was described as a provision that provided investor protection,” he explained. “But there was a lot of controversy about whether or not there was a provision in NAFTA that was a regulatory takings provision that would provide for compensation for changes in regulation that might have an adverse effect on value. This was an issue that the White House felt extremely strongly about. There were proposals from the Congress on this – conservative anti-environmentalists in the Congress wanted a regulatory takings provision for the United States. If you had this, it would make it very difficult, too costly to have strong environmental regulations. And that was why the anti-environmentalists wanted this provision. The White House mounted a strong and vigorous attack against the regulatory takings provision and succeeded. And had anybody thought that there was a provision in NAFTA that opened up the possibility of a regulatory takings provision, it would have been opposed by almost everyone in the White House. It was something that people felt very strongly about. There was a broad consensus about this.”
“Not once did anyone say that there was a provision like this in NAFTA,” Stiglitz explained. “It was never discussed. It was only after it passed that the potential consequences of this agreement became clear. Chapter 11 included a regulatory takings provision that allowed investors to sue states, with damages paid by the national governments. The question was – if U.S. signed on to an agreement without knowing what it was agreeing to, what did this say about other countries?”
Stiglitz called for the reform of the “intolerable” arbitration system set up by these investment agreements.
He called for the creation of an International Court of Commercial Claims and the extension of the Alien Tort Claims Act.
“The current system is unfair to developing countries in the short run,” he concluded. “But it is worse in the long run – because it undermines the rule of law. Right now, the rule of law is not seen to promote efficiency or to protect those who might not be able to fend for themselves. No, right now the rule of law is seen as a game by which one party takes advantage of another.”

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