Companies think countries are stupid

And most countries don’t give them reason to think otherwise.

For a time, companies that operated in multiple countries did so as entirely distinct and separate entities. For instance, Company X in America and Company X in Germany were two completely different companies with their own structures, management, suppliers, and requirements. They shared some things — logo (sometimes), products (sometimes) — but the only real connection in every instance was that they paid dividends to the same shareholder, namely Company X HQ.

These companies were true multi-nationals in that they had national companies in multiple nations.

Then, globalization created what academics call “transnationals”, a term that has not spread as well among regular people. These companies, which now predominate among global firms, don’t (or rarely) operate their national “subsidiaries” as actual subsidiaries. Instead, they report into global structures that are managed in different parts of the world.

National “subsidiaries” are the fictions that companies maintain to appease governments. If they had it their way, they would have every employee everywhere be employed by one central office with one set of criteria.

In this context, “transnationals” view countries and their rules as burdens — hoops that must be jumped through. They write laws that can have a direct impact on the company, but, because these are not standardized with other laws in other countries (or sometimes even within the same country), even good laws can produce inefficiency and uncertainty for business.

To off-set these costs, transnationals (and even local companies) belly-ache over the “costs of regulations”, strong-arming countries and localities into transferring wealth from the government back to the company.

Sometimes this takes the form of lobbying and contributing to political campaigns, as in the United States. Sometimes it takes the form of outright corruption.

Transnational companies largely view countries as idiots with guns. They must be placated (because they often have a monopoly on violence) but they are relatively easy to manipulate.

Tell them that you won’t do business at all in their territory unless they play by company rules. Or tell them that another country — their sworn enemy, let’s say — will give them a better deal so they might move there. Or tell them that their people will really be “better off” with the “economic growth” supplied by giving the company massive subsidies (subsidies that could have been used to help their people more directly and effectively).

The government gets the money from somewhere and either gives it to the company or refuses to take in money it is owed by the company, either (or both) in exchange for the company setting up operations in the government’s territory.

It is important to call these tactics by their names. They are bullying and manipulative. They are extortion and bribery. Whether they are legally those things is irrelevant; companies are doing a morally bad thing when they treat governments in this way.

Why is it immoral? Because governments are the representatives of a society — even when they are not.

Companies attempt to dodge this problem by conducting “stakeholder analysis” before entering into a new country. This is a fancy, business-speak way of saying “we don’t trust the government to represent its people and we think we can do a better job of figuring out what they REALLY want.”

This is hubris.

Political leaders (fed by this line by companies) will claim some version of the following story: that the companies generate more wealth than the wealth of the government they consume (via tax-breaks or other handouts).

That’s true, but who gets that extra wealth? Not the public. The company and its owners get it.

Why are so many governments so gullible?

They are largely focused on local problems and politics while transnationals are playing a global game. Checkers vs. chess as it were.

Governments bring guns, companies bring checkbooks. The checkbooks almost always win.

What can governments do to prevent getting taken advantage of by large transnational companies?

One (relatively) simple solution is to make local reinvestment part of any deal and require that the amount of local investment will be determined by the amount of profit sent back to headquarters. Tax payments are great (and should be a part of any deal), but investing in the local community is almost as important given that the local population is more likely to bear the burdens of any negative company activities such as pollution or security violations. Creating a local investment requirement can help alleviate at least some of those problems.

Another simple solution is to have full transparency from the company about its operations, payments, policies, and subcontractors. Part of this is to ensure trust by governments and local communities. Part of making the process transparent is also ensuring that the documents are translated into the local language (if different from the company documents) and accessible to anyone who wants them.

Professor. Lawyer. Researcher. Writer. I help people learn to run better, more sustainable businesses and be better humans. Opinions my own.

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