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Thursday, July 28, 2011

A mere state can't restrain a corporation like Murdoch's | Felicity Lawrence | Comment is free | The Guardian

A mere state can't restrain a corporation like Murdoch's | Felicity Lawrence | Comment is free | The Guardian
murdoch phone hacking
News International chairman James Murdoch: the other board members have said he has their full support. Photograph: Parbul/AFP/Getty Images

The deep corruption of power revealed by the phone-hacking scandal has led many to question how Rupert Murdoch's News Corporation could establish "a state within a state". MPs have trumpeted their determination to make sure it never happens again. They will struggle.

As if to rub the point in, BSkyB's board announced it was back to business as usual on Thursday. Despite parliament's question mark over the integrity of its chairman, James Murdoch, the rest of the board said they fully supported him. A few hours later the Guardian reported a new low in the saga – allegations that Sarah Payne's mother's phone may have been hacked. But the corporation marches on.

The fact is that the modern globalised corporation is not a state within a state so much as a power above and beyond the state. International development experts stopped talking about multinationals years ago, preferring instead the tag of transnational corporations (TNCs), becausethese companies now transcend national authorities.

Developing countries, dealing with corporations whose revenue often exceeds their own GDPs, have long been aware of their own lack of power. They are familiar with the way world trade rules have been written to benefit corporations and limit what any one country can impose on them. They know about the transnationals' tendency to oligopoly; and their ability to penetrate the heart of government with lobbying. For an affluent country like the UK, it has come as more of a shock.

While traditional multinationals identified with a national home, TNCs have no such loyalty. Territorial borders are no longer important. This had been the whole thrust of World Trade Organisation treaties in the past decades. Transnationals can now take advantage of the free movement of capital and the ease of shifting production from country to country to choose the regulatory framework that suits them best. If restrained by legitimate legislative authorities, they can appeal to WTO rules to enforce their rights, as the tobacco company Philip Morris has threatened recently. It says it will sue the Australian government for billions of dollars for violating its intellectual property rights if it goes ahead with its plan to ban branding on cigarette packets.

TNCs can and do locate their profits offshore to thwart any individual country's efforts to take revenue from them. The ability to raise taxes to provide services is a core function of democratic government, yet governments have been reduced to supplicants, cutting their tax rates further and further to woo corporates. Meanwhile, as the Rowntree visionary Geoff Tansey has pointed out, transnationals have used patents and intellectual property rights to create their own system of private taxation.

If labour laws or environmental regulations become too onerous for them, they can move operations to less regulated jurisdictions. So globalised food and garment manufacturers can move to cheaper centres of production when governments introduce minimum wages or unions win workers' rights. If financial rules curb their ability to invent complex, risky new products to sell, they can set up shop elsewhere. The transnational banks have been past masters at playing off one jurisdiction against another and using the threat of relocation to resist government controls. Much of their activity still takes place in a shadow system beyond the states that have bailed them out.

Nearly three years on from the near collapse of the whole system, the structural reform that everyone agreed was needed has not materialised.Lobbying at the heart of governments in Europe and the US has seen off calls for the separation of investment banking from the retail banking that takes ordinary people's deposits.

So the banks remain too big and too interconnected to fail. Vince Cable, the business secretary, who still argued forcefully this week for that separation, is nevertheless reduced to hoping that the ringfencing of functions preferred by the big corporates will work. The German chancellor, Angela Merkel – wanting to make sure private banking corporations would share the pain for the Greek loans they made as that country hovers around default – was threatened with not just relocation but with the whole banking system being brought down again. Not surprisingly, she backed off.

The most effective checks on transnationals are as likely to come from NGOs and consumers as individual governments these days. Campaigners have found new forms of asymmetric engagement that enable them to take on corporations whose resources dwarf their own. Harnessing the same advances in technology and instant globalised communication that TNCs have used to build up their control, activists have brought together shared interest groups across borders to challenge them. So for example, direct action groups such as Greenpeace have been able to connect protesters against transnational soya traders in the Amazon, with activists across European countries in highly effective simultaneous campaigns against the brands that buy from them.

When the Murdochs initially refused to appear before parliament to account for their corporate behaviour, there was much anxious consultation of ancient rules to see if these two foreign citizens could be forced or not. In the end, it was probably the market that got them there, as the damage limitation gurus advised that a dose of humble pie would be the most effective strategy for restoring shareholder confidence. After the Milly Dowler phone-hacking revelation, it was neither our compromised elected representatives nor our law enforcers the police, but activists on Twitter that brought them down. Attacking not just the brands owned by the Murdochs but those owned by their advertisers until they withdrew from the News of the World's pages, they played by the globalised market's rulebook.

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