The Corporation: State of Power 2020

By Transnational Institute (TNI)

On November 5, 2015 a failure at the Germano iron ore mine’s tailings dam in Mariana, Minas Gerai state, Brazil caused hundreds of tons of toxic mud to sweep downstream, killing 19 people and contaminating the Doce River for many hundreds of kilometers. In the wake of the disaster, Vale adopted “Mariana never again,” as its motto. Yet, in 2019, it did happen again. This time in Brumadinho. And it was even worse; killing 270 people. Investigations showed that mining executives consistently ignored warnings, failed to invest in preventative technologies and lobbied for reduced regulations and controls even after they knew the potential catastrophic consequences.

The story of Brazilian mining firm Vale’s corporate greed leading to devastating social and environmental consequences and then being able to use their power to escape accountability is far from unique. It is the story of Monsanto and its cancer-causing Roundup, Chevron and the contamination of Ecuador’s rainforest, Apple and sweatshops in China, JPMorgan Chase and the financial crash. Corporations shape our lives like never before and are more powerful than ever. A 2017 study2 showed that of the top 100 largest economies, 78 are now corporations and only 22 are countries. Walmart’s revenues are larger than the GDP of countries like Australia, Spain or the Netherlands. Tim Cook, CEO of Apple has easier access to the leaders of US, China, Netherlands and India than the foreign ministers of developing countries. He also has tracking devices in nearly all of our pockets.

Yet for such a powerful entity, we still know very little about corporations; from how certain critical decisions are made to how they are structured. That was certainly Brazilian activist Tchenna Maso’s experience as she and her colleagues started to investigate Vale and seek justice for those affected by the Mariana and Brumadinho disasters. “Vale is supposedly a Brazilian firm, but no-one outside the firm knows who all the investors are, how the corporation is structured through all their intermediaries, or all the work they are involved in. It’s not just communities who don’t know — the government doesn’t know and neither do the investors...Corporations have become financialized and increasingly impermeable to pressure. It is a corporation without a clear public face.”

The modern corporation has become an immense vehicle of power and impunity, hidden behind a veil of secrecy and complexity, geared to a single purpose: profit.

This book explores the machinery of the corporation, examining their origins, their evolution, their mechanisms of power and influence, the way they have reshaped international law, the impact of financialisation, digitization and Chinese capital, and the efforts of activists and social movements to challenge and constrain corporate power. It also looks at possible alternatives to the corporate form.

Featuring leading scholars and activists from across the globe including Joel Bakan, Myriam vander Stichele, Anita Gurumurthy, Nandini Chami, Lee Jones, Alain Deneault, Tchenna Maso, Marjorie Kelly, Adoración Guamán, Brid Brennan and Gonzalo Berron, this is an indispensable guide to one of the world's powerful institutions that shapes all our lives.

• Language: English
• Publisher: Transnational Institute (TNI)
• Release date: Aug 4, 2020
• ISBN: 9789070563738

Transnational Institute (TNI)

The Transnational Institute (TNI) carries out cutting-edge analysis on critical global issues, builds alliances with grassroots social movements, develops proposals for a more sustainable and just world.

Book preview

The Corporation

State of Power 2020: The Corporation

TNI

Transnational Institute

AUTHORS: Joel Bakan, Anita Gurumurthy, Nandini Chami, Lee Jones, Adoración Guamán, Alain Deneault, Myriam Vander Stichele, Brid Brennan, Gonzalo Berrón, Marjorie Kelly, Tchenna Maso, Nomi Prins, Barnaby Francis, Anastasya Eliseeva

EDITOR: Nick Buxton

COPYEDITOR: Deborah Eade

DESIGN: Evan Clayburg

PRINTER: Jubels

ILLUSTRATIONS: All artwork by Anastasya Eliseeva (anastasya.co.za) unless otherwise noted.

Published by:

Transnational Institute – www.TNI.org

January 2020

Contents of the report may be quoted or reproduced for non-commercial purposes, provided that the source is properly cited. TNI would appreciate receiving a copy of or link to the text in which it is used or cited. Please note that the copyright for the images remains with the photographers.

http://www.tni.org/copyright

Contents

Introduction - Nick Buxton

Charming psychopaths - The modern corporation - An interview with Joel Bakan

The intelligent corporation - Data and the digital economy - Anita Gurumurthy and Nandini Chami

Beyond ‘China, Inc.’ - Understanding Chinese companies - Lee Jones

The corporate architecture of impunity - -Lex Mercatoria, market authoritarianism and popular resistance - Adoración Guamán

Corporations as private sovereign powers- -The case of Total - Alain Deneault

The financialised firm - How finance fuels and transforms today’s corporation - Myriam Vander Stichele

Touching a nerve - A peoples’ campaign at the United Nations challenges corporate rule - Brid Brennan and Gonzalo Berrón

The end of the corporation? - Marjorie Kelly

Rethinking the corporation - Conversation with Tchenna - Maso, Nomi Prins and Barnaby Francis

Illustrating the corporation State of Power illustrator - Anastasya Eliseeva

Back Cover

Notes

Introduction: Putting a face onto the corporation

Nick Buxton

On November 5, 2015 a failure at the Germano iron ore mine’s tailings dam in Mariana, Minas Gerai state, Brazil caused hundreds of tons of toxic mud to sweep downstream, killing 19 people and contaminating the Doce River for many hundreds of kilometers.

For Tchenna Maso, a young lawyer and activist with the Movement of People Affected by the Dams (MAB), it was a wake up call to the dangers of mining in Brazil and the start of an ongoing battle against two of the most powerful mining corporations in the world: Vale and BHP Billinton, the joint owners of Samarco, the company that owned the dam. I remember people covered in mud searching for families and having no home to go to. I got involved straight away and soon learned not just about the problems of mining but also the size of Vale’s role in Brazil and elsewhere, Tchenna says

In the wake of the disaster, Vale adopted Mariana never again, as its motto. Yet, in 2019, it did happen again. This time in Brumadinho. And it was even worse; killing 270 people. Investigations showed that mining executives consistently ignored warnings, failed to invest in preventative technologies and lobbied for reduced regulations and controls even after they knew the potential catastrophic consequences.¹

The story of Brazilian mining firm Vale’s corporate greed leading to devastating social and environmental consequences and then being able to use their power to escape accountability is far from unique. It is the story of Monsanto and its cancer-causing Roundup, Chevron and the contamination of Ecuador’s rainforest, Apple and sweatshops in China, JPMorgan Chase and the financial crash. Corporations shape our lives like never before and are more powerful than ever. A 2017 study² showed that of the top 100 largest economies, 78 are now corporations and only 22 are countries. Walmart’s revenues are larger than the GDP of countries like Australia, Spain or the Netherlands. Tim Cook, CEO of Apple has easier access to the leaders of US, China, Netherlands and India than the foreign ministers of developing countries. He also has tracking devices in nearly all of our pockets.

Yet for such a powerful entity, we still know very little about corporations; from how certain critical decisions are made to how they are structured. That was certainly Tchenna’s experience as she and her colleagues started to investigate Vale and seek justice for those affected by the Mariana and Brumadinho disasters. Vale is supposedly a Brazilian firm, but no-one outside the firm knows who all the investors are, how the corporation is structured through all their intermediaries, or all the work they are involved in. It’s not just communities who don’t know — the government doesn’t know and neither do the investors…Corporations have become financialized and increasingly impermeable to pressure. It is a corporation without a clear public face.

The modern corporation has become an immense vehicle of power and impunity, hidden behind a veil of secrecy and complexity, geared to a single purpose: profit. This is part of the corporation’s very DNA. Corporations, as Joel Bakan argues in an interview here on ROAR, were created with the specific purpose of separating ownership from operations and where liability is constantly limited. This created an early version of crowdfunding, which allowed rich individuals to pool resources and then make extraordinary profits. It proved highly successful for financing colonial ventures, most famously in the English East India Company, the forerunner of today’s multinational corporation. Yet it has also concentrated wealth and power without accountability to a dangerous degree. In 2003, Bakan controversially claimed that corporations have the pyschological profile of a psychopath. This claim has never been seriously questioned to date.

Part of understanding the corporation involves a better knowledge of its origins. Political philosopher Mathias Hein Jessen says it is critical we understand the role of the state. Corporations were initially set up in medieval Europe as a legal way to to govern central aspects of social life, and to ensure public welfare through the establishment of schools, hospitals, alms houses and so on. Although corporate power is no longer constrained by state charters and most have little social purpose — despite the propaganda to the contrary — the state continues to deliberately privilege the corporation as a political entity.

According to neoliberal dogma, the corporation is seen as the primary engine of wealth and economic growth and therefore worthy of privileges and exemptions from regulations, laws and taxes. Indeed corporations have been given so many privileges that they now can take states to court for regulations that affect their profits. Tchenna says that in Brazil, this process of privileging corporations has led firms like Vale to not just control government but also our public space, our thinking, our emotions, our social networks. So an entity created and actively supported by the state, now has captured and reshaped the state to serve its purposes of profit maximization.

But it is also critical to understand how corporations have evolved in recent decades. Apple in 2019 is a very different firm to Ford in the 1920s or indeed Apple in the early 1990s. The essays in this year’s State of Power report reveal, among others, three processes in particular that have reshaped the corporation: deterritorialization, financialization and digitalization.

Perhaps the most significant for the future and still the least understood has been the impact of digitization. Anita Gurumurthy and Nandini Chami of ITForChange in India unpack the scope of the change unleashed by corporations as they have used their power over consumers or participants in their network with algorithmic intelligence that allows them to out-learn everyone else. The result, they warn, is that corporate power is on the cusp of achieving quantum supremacy.

In the process of platformization, the likes of Google, Amazon or Uber are turning traditional understandings of corporations upside down. Whereas before corporations tried to dominate the market, now they are trying to become the market. Whereas before they sought cheap labor, now they seek to eliminate labor all together. There is even a shift in terms of what they are trying to accumulate and commodify, moving from taking resources regardless of social and environmental costs — accumulation by dispossession — towards taking control of people’s feelings, interactions and our social fabric, or accumulation of data as capital.

Artist and digital hacker Barnaby Francis argues in Rethinking the Corporation that Google’s mission goal now is to get to absolute certainty in relation to our behaviors and the exchange for their clients — the advertisers. In other words, ending all ideas or autonomy, privacy or sovereignty all together. Francis concludes that It is an Orwellian proposition, but it makes 1984 seem like chicken shit.

Adoracion Guaman in her essay The Architecture of Impunity explores the issue of deterritorialization, the way that corporations have structured themselves in a globalization era in the form of supply and value chains so complex that data scientists have to analyze their structures. The objective of transnational corporations is to contract and subcontract suppliers and firms for goods, inputs and services as well as establish shell versions of their companies to avoid taxes, take advantage of cheaper labor costs and minimize social and environmental regulations. The process has the advantage for the corporation of making their activities — and hence responsibility and accountability — even more opaque. A recent UNCTAD report³ reveals that on average, the world’s top 100 multi-national corporations each have more than 500 affiliates based across over 50 countries. Guman concludes that deterritorialization has been very successful in displacing costs, risks and obligations downwards while profits and benefits move upwards.

The financialization of the firm is explored by Myriam Vander Stichele. She notes two core trends — firstly a concentration of financial investing power in a smaller number firms. The rise of giant investment funds such as BlackRock — with $7 trillion in assets under management — and Vanguard are typical of this trend. One study showed that BlackRock and Vanguard, together with State Street, are the largest single shareholder in almost 90 percent of the top 500 firms worldwide.⁴

But this financial concentration of power and ownership is also changing the nature of the corporation. Financial firms in a bid to expand their business actively encourage corporate mergers and acquisitions, providing both the analysis and financing. They also encourage corporations to incorporate financialized instruments into their operations, from the secreting away of wealth to offshore tax havens to the use of derivatives, such as those sold as an insurance against raising interest rates. Myriam’s conclusion is that the financial industry has become more a master than a servant, extracting value from corporations at any price and that stopping corporations’ abuse and power will have to involve taking on the financial sector.

The implications of this concentrating and changing corporate power requires activists and social movements to reconsider and debate how we can best challenge corporate power. Brid Brennan and Gonzalo Berron share how a movement of affected communities and social movements has successfully changed the debate within the UN Human Rights Council from support for ineffectual corporate self-regulation to a much more widely recognized need for binding mechanisms to hold corporations accountable for human rights abuses.

Grietje Baars, however, argues that law can not be expected to have any emancipatory potential because capitalism can readily recover from and incorporate or co-opt (legal) claims in a way that both makes it stronger and also disables resistance… [and] because the law and legal systems exist to facilitate capitalism, not to restrain it. Marjorie Kelly looks to the construction of alternatives as the best way forward, saying we will need to both change the legal framework within which corporations exist as well as support the construction of new and old alternative models of ownership, such as cooperatives, employee-owned firms and benefit corporations.

One thing is sure: it will involve resistance and struggle. In January 2020, state prosecutors in Brazil’s Minas Gerais filed murder charges against the former CEO of Brazilian miner Vale SA and 15 others including employees of the German auditing firm, Tüv Süd for the Brumadinho dam collapse. The charges are far from a conviction, but Tchenna Maso says it is the result of huge pressure by MAB and the families affected in the face of such barbarism committed by Vale. In their struggle, they have finally put a face onto the corporation.

Charming psychopaths – the modern corporation

An interview with Joel Bakan

In 2004, a powerful documentary film, ‘The Corporation’, caught the political imagination when it was released at the peak of the alternative globalisation struggles that emerged following the protests at the World Trade Organization (WTO) in Seattle. Based on a book of the same name, and using a witty and stylish mix of news clips, music and perceptive analysis, the film boldly challenged capitalism’s single most important player, the corporation. The documentary won 26 awards, with even conservative commentators such as The Economist calling it ‘[a] surprisingly rational and coherent attack on capitalism's most important institution’. To launch our collection examining ‘The Corporation’, the Transnational Institute went back to the film and books’ writer, Joel Bakan, a law professor at the University of British Columbia, to find out how he views the corporation today.

What is the corporation?

The corporation is a legal construct, indeed a legal fiction. It is not something created by God or by Nature, but rather a legally created and enforced set of relations designed to raise capital for industrialism’s large projects. Its main function is to separate the owners of an enterprise from the enterprise itself. The latter is alchemically transformed into a ‘person’ that can bear legal rights and obligations, and therefore operate in the economy. The owners – shareholders – thus disappear as legally relevant, with the corporate ‘person’ itself (and sometimes its managers and directors) holding legal rights, and being liable when things go wrong.

It follows that shareholders’ only risk is to lose money if their share value declines. They can’t be sued for anything the corporation does. Moreover, to further sweeten the pot for their investing, the law imposes obligations on managers and directors to act only in shareholders’ best – that is, financial – interests.

The genius of it all is that this highly pro-shareholder construction provided strong incentives for many people, particularly from the emerging middle class, to invest in capitalist enterprise. That was the