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Global Corporations and States

Students of international affairs, familiar with the Westphalian system, have been taught to see states as the paramount and only significant actors in the world, this is, however, not the case. Corporations, who operate globally, and with few restrictions, are also major players, in many cases wealthier and more influential than many states. Large corporations have ceased to be primarily national entities (excepting small and medium companies). It is interesting to see the confusion involved in governments supporting “national” companies at trade exhibitions, which are actually parts of larger foreign-owned groups. For example, the UK Department of Trade and Industry regularly supports the business of Thales (French-owned), and Selex (Italian-owned). The growing important of the global supply chain, which has created dense networks of suppliers and integrators, has eroded national control over production, even of strategically important military systems.

Corporations have also learnt that lobbying of national assemblies, particularly the US Congress, is a cost effective way of enhancing their profitability. As corporations are motivated by the need to maximize profits, it is on their interests to reduce or remove regulations, particularly those which seek to impose the full environmental costs of manufacturing on the producer, by making them pay in full for clearing up pollution, compensating those affected by their operations and products, including employees affected by poor working conditions and a lack of safety protection.

The development of Internet-centric businesses, such as Amazon, Apple and Google, which use multiple business centres, have allowed these businesses to avoid most of their tax liabilities. There have been moves to boycott Amazon in the UK, after it was revealed that the company paid just £4.2m in UK tax in 2013, despite selling goods worth £4.3bn, it’s tax bill only amounted to 0.1% of Amazon’s UK revenues.[1]

Offshore “tax-free” zones and “tax breaks” offered by countries like Ireland and Luxembourg have allowed business like Amazon, and Apple to avoid virtually all European taxation. Complex intra-group transfers have enabled profits to be transferred with the minimum of tax loss.

Certain countries have also permitted generous tax arrangements. As Forbes noted, “if an Irish subsidiary is controlled by managers outside of the company like one in a tax-haven such as Bermuda or the Isle of Man, certain kinds of income can escape tax altogether – so long as it remains out of arm’s length of taxing authorities. Ireland’s tax laws make this easy and Irish disclosure laws make those assets tricky to track down.” Irish law has now changed and new arrangements of this type will not be permitted, as Forbes also noted, “However, the loss of the ‘Double Irish’ means that the 2% tax rate paid by Apple may become a thing of the past – at least in Ireland.”[2] A 2013 U.S. Senate report said of Apple’s tax arrangements, “the company operates in numerous countries around the world, but it does not transfer intellectual property rights to each region or country where it conducts business. Instead, the transfer of economic rights is confined to Ireland alone, where the company enjoys an extremely low tax rate.”[3]

Although corporations are treated as individuals, they are not moral creatures, their overriding imperative, and legal obligation, is to maximize returns to their shareholders. Bakan goes so far as to claim that, “The corporation, like the psychopathic personality it resembles, is programmed to exploit others for profit.  That is its only legitimate mandate.”[4] Corporate advertising attempts to create a different impression, Kodak ran a campaign with the concept “Because We Care”, and Johnson & Johnson claimed that their products were “for all you love.” Volkswagen’s advertisements for “clean diesel” vehicles were all removed after their emissions test cheating software became public knowledge; of course there is truth and then there is advertising. It is interesting is to observe the unethical behaviour of companies like Volkswagen, Enron and virtually all the Wall Street banks. Enron is particularly interesting; Bakan says that, “Stripped down to its essentials, Enron’s is the story of a corporation that used political influence to remove government restrictions on its operations and then exploited its resulting freedom to engage in dubious, and highly profitable, practices.”[5] Breaking laws and regulations can be highly profitable and some companies continue to engage in illegal criminal and civil activity even after they have paid large fines. This has been a particular problem in the pharmaceutical industry, as an article in the British Medical Journal (“BMJ”) by Sidney M Wolfe made clear, he wrote about “the recent, sharp escalation in the frequency with which many giant multinational drug companies repeatedly engage in illegal criminal and civil activity after previously paying enormous fines and despite monitoring under CIAs. It seems that for some companies, commission of such criminal and civil violations has become part of their business models.”[6] In the United States in the three and a half years, 2009 to mid-2012, criminal and civil penalties imposed on pharmaceutical companies in the United States totalled $18bn, Wolfe notes that, “GlaxoSmithKline (GSK) topped the list of repeat offenders with total criminal and civil penalties of $7.56bn since 1991, comprised six different federal settlements and an additional number with states. Pfizer was the second highest with $2.96bn.” For example, in July 2012 the U.S. Justice Department announced that GlaxoSmithKline LLC (GSK) had agreed to plead guilty and to pay $3 billion to resolve its criminal and civil liability arising from the company’s unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices.[7] The Justice Department Press Release said that in addition to other offences, “The United States contends that GSK paid millions of dollars to doctors to speak at and attend meetings, sometimes at lavish resorts, at which the off-label uses of Wellbutrin were routinely promoted and also used sales representatives, sham advisory boards, and supposedly independent Continuing Medical Education (CME) programs to promote Wllbutrin for these unapproved uses.”[8]

© Andrew Palmer, 2016, not to be reproduced

[1] Juliette Garside – Amazon UK boycott urged after retailer pays just £4.2m in tax, The Guardian, 9 May 2014, http://www.theguardian.com/business/2014/may/09/margaret-hodge-urges-boycott-amazon-uk-tax-starbucks

[2] Erb, Kelly Phillips – “Ireland Declares ‘Double Irish’ Tax Scheme Dead”, Forbes, 15 October 2014, http://www.forbes.com/sites/kellyphillipserb/2014/10/15/ireland-declares-double-irish-tax-scheme-dead/ accessed 3 October 2015

[3] OFFSHORE PROFIT SHIFTING AND THE U.S TAX CODE—PART 2 (APPLE INC.), PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS, UNITED STATES SENATE, 21 May 2013, quoted by Alanna Petroff – “EU Slams Apple’s Irish Tax deal”, CNN Money, 30 September 2014, http://money.cnn.com/2014/09/30/news/companies/apple-europe-tax/ accessed 3 October 2015

[4] Joel Bakan – The Corporation, The Pathological Pursuit of Profit and Power, Free Press, New York, 2004, p. 69

[5] Joel Bakan – The Corporation, The Pathological Pursuit of Profit and Power, Free Press, New York, 2004, p. 99

[6] Wolfe, Sidney W – “Escalating criminal and civil violations: pharma has corporate integrity? Not really”, BMJ 2013; 347 doi: http://dx.doi.org/10.1136/bmj.f7507 (Published 18 December 2013)

[7] Department of Justice, Office of Public Affairs, Monday, July 2, 2012, GlaxoSmithKline to Plead Guilty and Pay $3 Billion to Resolve Fraud Allegations and Failure to Report Safety Data http://www.justice.gov/opa/gsk-docs.html

[8] ibid

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