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Global Power Project, Part 1: Exposing the Transnational Capitalist Class
By: Andrew Gavin Marshall
An exclusive series for Occupy.com
The Global Power Project, an investigative series produced by Occupy.com, aims to identify and connect the worldwide institutions and individuals who comprise today’s global power oligarchy. By studying the relationships and varying levels of leadership that govern our planet’s most influential institutions — from banks, corporations and financial institutions to think tanks, foundations and universities — this project seeks to expose the complex, highly integrated network of influence wielded by relatively few individuals on a national and transnational basis. This is not a study of wealth, but a study of power.
Many now know the rhetoric of the 1% very well: the imagery of a small elite owning most of the wealth while the 99% take the table scraps. This rhetoric and imagery was made popular by the growth of the Occupy movement, so it seems appropriate that a project of Occupy.com should expand on this understanding and bring the activities of the global elite further to light.
In 2006, a UN report revealed that the world’s richest 1% own 40% of the world’s wealth, with those in the financial and internet sectors comprising the “super rich.” More than a third of the world’s super-rich live in the U.S., with roughly 27% in Japan, 6% in the U.K., and 5% in France. The world’s richest 10% accounted for roughly 85% of the planet’s total assets, while the bottom half of the population – more than 3 billion people – owned less than 1% of the world’s wealth.
Looking specifically at the United States, the top 1% own more than 36% of the national wealth and more than the combined wealth of the bottom 95%. Almost all of the wealth gains over the previous decade went to the top 1%. In the mid-1970s, the top 1% earned 8% of all national income; this number rose to 21% by 2010. At the highest sliver at the top, the 400 wealthiest individuals in America have more wealth than the bottom 150 million.
A 2005 report from Citigroup coined the term “plutonomy” to describe countries “where economic growth is powered by and largely consumed by the wealthy few.” The report specifically identified the U.K., Canada, Australia and the United States as four plutonomies. Published three years before the onset of the financial crisis in 2008, the Citigroup report stated: “Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries.”
“The rich,” said the report, “are in great shape, financially.”
In early 2013, Oxfam reported that the fortunes made by the world’s 100 richest people over the course of 2012 – roughly $240 billion – would be enough to lift the world’s poorest people out of poverty four times over. In the Oxfam report, “The Cost of Inequality: How Wealth and Income Extremes Hurt Us All,” the international charity noted that in the past 20 years, the richest 1% had increased their incomes by 60%. Barbara Stocking, an Oxfam executive, noted that this type of extreme wealth is “economically inefficient, politically corrosive, socially divisive and environmentally destructive…We can no longer pretend that the creation of wealth for a few will inevitably benefit the many – too often the reverse is true.”
The report added: “In the UK, inequality is rapidly returning to levels not seen since the time of Charles Dickens. In China the top 10% now take home nearly 60% of the income. Chinese inequality levels are now similar to those in South Africa, which is now the most unequal country on Earth and significantly more unequal than at the end of apartheid.” In the United States, the share of national income going to the top 1% has doubled from 10 to 20% since 1980, and for the top 0.01% in the United States, “the share of national income is above levels last seen in the 1920s.”
Previously, in July of 2012, James Henry, a former chief economist at McKinsey, a major global consultancy, published a major report on tax havens for the Tax Justice Network which compiled data from the Bank for International Settlements (BIS), the IMF and other private sector entities to reveal that the world’s super-rich have hidden between $21 and $32 trillion offshore to avoid taxation.
Henry stated: “This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries.” John Christensen of the Tax Justice Network further commented that “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people… This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.”
With roughly half of the world’s offshore wealth, or some $10 trillion, belonging to 92,000 of the planet’s richest individuals —representing not the top 1% but the top 0.001% — we see a far more extreme global disparity taking shape than the one invoked by the Occupy movement. Henry commented: “The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy.”
In his 2008 book, “Superclass: The Global Power Elite and the World They Are Making,” David Rothkopf, a man firmly entrenched within the institutions of global power and the elites which run them, compiled a census of roughly 6,000 individuals whom he referred to as the “superclass.” They were defined not simply by their wealth, he said, but by the influence they exercised within the realms of business, finance, politics, military, culture, the arts and beyond.
Rothkopf noted: “Each member is set apart by his ability to regularly influence the lives of millions of people in multiple countries worldwide. Each actively exercises this power and often amplifies it through the development of relationships with other superclass members.”
The global elite are of course not defined by their wealth alone, but through the institutional, ideological and individual connections and networks in which they wield their influence. The most obvious example of these types of institutions are the multinational banks and corporations which dominate the global economy. In the first scientific study of its kind, Swiss researchers analyzed the relationship between 43,000 transnational corporations and “identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.”
In their report, “The Network of Global Corporate Control, researchers noted that this network – which they defined as “ownership” by a person or firm over another firm, whether partially or entirely – “is much more unequally distributed than wealth” and that “the top ranked actors hold a control ten times bigger than what could be expected based on their wealth.” The “core” of this network – which consists of the world’s top 737 corporations – control 80% of all transnational corporations (TNCs).
Even more extreme, the top 147 transnational corporations control roughly 40% of the entire economic value of the world’s TNCs, forming their own network known as the “super-entity.” The super-entity conglomerates all control each other, and thus control a significant portion of the rest of the world’s corporations with the “core” of the global corporate network consisting primarily of financial corporations and intermediaries.
In December of 2011, the former deputy secretary of the Treasury in the Clinton administration, Roger Altman, wrote an article for the Financial Times in which he described financial markets as “a global supra-government” which can “oust entrenched regimes… force austerity, banking bail-outs and other major policy changes.” Altman said bluntly that the influence of this entity “dwarfs multilateral institutions such as the International Monetary Fund” as “they have become the most powerful force on earth.”
With the formation of this “super-entity” – a veritable global supra-government – made up of the world’s largest banks and corporations exerting immense influence over all other corporations, a new global class structure has evolved. It is this rarefied group of individuals and firms, and the relations they hold with one another, that we wish to further understand.
According to the 2012 report, “Corporate Clout Distributed: The Influence of the World’s Largest 100 Economic Entities,” of the world’s 100 largest economic entities in 2010, 42% were corporations while the rest were governments. Among the largest 150 economic entities, 58% were corporations. Wal-Mart was the largest corporation in 2010 and the 25th largest economic entity on earth, with greater revenue than the GDPs of no less than 171 countries.
According to the Fortune Global 500 list of corporations for 2011, Royal Dutch Shell next became the largest conglomerate on earth, followed by Exxon, Wal-Mart, and BP. The Global 500 made record revenue in 2011 totaling some $29.5 trillion — more than a 13% increase from 2010.
With such massive wealth and power held by these institutions and “networks” of corporations, those individuals who sit on the boards, executive committees and advisory groups to the largest corporations and banks wield significant influence on their own. But their influence does not stand in isolation from other elites, nor do the institutions of banks and corporations function in isolation from other entities such as state, educational, cultural or media institutions.
Largely facilitated by the cross-membership that exists between boards of corporations, think tanks, foundations, educational institutions and advisory groups — not to mention the continual “revolving door” between the state and corporate sectors — these elites become a highly integrated, organized and evolved social group. This is as true for the formation of national elites as it is for transnational, or global, elites.
The rise of corporations and banks to a truly global scale – what is popularly referred to as the process of “globalization” – was facilitated by the growth of other transnational networks and institutions such as think tanks and foundations, which sought to facilitate these ideological and institutional structures of globalization. A wealth of research and analysis has been undertaken in academic literature over the past couple of decades to understand the development of this phenomenon, examining the emergence of what is often referred to as the “Transnational Capitalist Class” (TCC). In various political science and sociology journals, researchers and academics reject a conspiratorial thesis and instead advance a social analysis of what is viewed as a powerful social system and group.
As Val Burris and Clifford L. Staples argued in an article for the International Journal of Comparative Sociology (Vol. 53, No. 4, 2012), “as transnational corporations become increasingly global in their operations, the elites who own and control those corporations will also cease to be organized or divided along national lines.” They added: “We are witnessing the formation of a ‘transnational capitalist class’ (TCC) whose social networks, affiliations, and identities will no longer be embedded primarily in the roles they occupy as citizens of specific nations.” To properly understand this TCC, it is necessary to study what the authors call “interlocking directorates,” defined as “the structure of interpersonal or interorganizational relations that is created whenever a director of one corporation sits on the governing board of another corporation.”
The growth of “interlocking directorates” is primarily confined to European and North American conglomerates, whereas those in Asia, Latin America and the Middle East largely remain “isolated from the global interlock network.” Thus, the “transnationalization” of corporate directorates and, ultimately, of global class structures “is more a manifestation of the process of European integration – or, perhaps, of the emergence of a North Atlantic ruling class.”
The conclusion of these researchers was that the ruling class is not “global” as such, but rather “a supra-national capitalist class that has gone a considerable way toward transcending national divisions,” notably in the industrialized countries of Western Europe and North America; in their words, “the regional locus of transnational class formation is more accurately described as the North Atlantic region.” However, with the rise of the “East” – notably the economic might of Japan, China, India, and other East Asian nations – the interlocks and interconnections among elites are likely to expand as various other networks of institutions seek to integrate these regions.
The influence wielded by banks and corporations is not simply through their direct wealth or operations, but through the affiliations, interactions and integration by those who run the institutions with political and social elites, both nationally and globally. While we can identify a global elite as a wealth percentage (the top 1% or, more accurately, the top 0.001%), this does not account for the more indirect and institutionalized influence that corporate and financial leaders exert over politics and society as a whole.
To further understand this, we must identify and explore the dominant institutions which facilitate the integration of these elites from an array of corporations, banks, academia, the media, military, intelligence, political and cultural spheres. This will be the subject of the second installment in the series, appearing next week.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada. He is Project Manager of The People’s Book Project, head of the Geopolitics Division of the Hampton Institute, Research Director for Occupy.com’s Global Power Project and hosts a weekly podcast show at BoilingFrogsPost.
Cash Hoarding, Tax Evasion, and the Corporate Coup
By: Andrew Gavin Marshall
The following is Part 3 of my three-part exclusive series for Occupy.com
Corporate profits are good, right? Low taxes on corporations are also good, right? With high profits and low taxes, corporations have large amounts of money to “invest” in new businesses and jobs, meaning everyone else benefits. This is what we are told by politicians, it is what the majority of economists are taught to think, and it’s what corporate executives and their spokespeople say constantly so therefore it must be true…right?
Let’s get a reality check.
With record-breaking profits and record-low taxes, the truth is that corporations around the world have been hoarding record-high amounts of cash while finding legal loopholes to pay less, or none, of their taxes.
Holding trillions of dollars in cash would, in theory, allow corporations to invest in new businesses and create jobs: the old promise of trickle down economics. Instead, corporations have decided to firmly hold on to their cash, perhaps in preparation for the next financial crisis (which their refusal to invest in new opportunities and jobs is helping to create).
Or perhaps the executives are only waiting for our standards of living to decline far enough that austerity and “adjustment” policies produce desirable “investment environments” like those in existence across the “Third World,” where unhindered corporate plundering and exploitation is the norm.
In 2010, Apple recorded roughly $13 billion in foreign profits but paid a negligible $130 million in taxes, par for the course for giant corporations. The result of Apple and other multinationals getting away with tax loopholes means disastrous consequences for governments. Google, for example, is able to move its billions in profits out of Europe, paying almost no taxes there as it deposits the revenues into the company’s administrative headquarters in Bermuda, where there is no corporate income tax.
Tax havens and loopholes allow corporations to move around globally, creating a problem for national governments that seek to tax corporations at higher rates by establishing a “race to the bottom” in competition for reduced corporate taxes. Belgium, for example, with one of the highest corporate tax rates in the world, at roughly 34%, collects far less from companies due to its own tax loopholes.
The average tax rate for the 50 most profitable companies in Belgium – which totaled some 27 billion euros in profits in 2010 – was a mere 1.04%. Thus, as the government considers establishing a “minimum tax rate” of 12.5% to ensure revenue for the debt-ridden country, others fear that establishing such a rule would simply lead to corporations leaving the country and migrating to other tax havens across Europe.
As reported in Der Spiegel, “[a]n international treaty could prevent corporations from outsmarting countries,” however, “so far not even the European Union has been able to harmonize the rules of its member states.” Obviously, such an endeavor is not high on the priority list for European and international decision makers, which is hardly surprising since their main interest is in serving global corporations and banks.
At the same time that reports emerged last fall about major European and international corporations avoiding taxes, the Wall Street Journal wrote in November of 2012 that the continent’s biggest banks were “continuing to stash more money at central banks” rather than investing it, hoarding a combined total of $1.43 trillion in cash on reserve at several central banks.
Since 2010, the major banks have increased their cash hoarding by 84%. French bank Société Générale reportedly held 81 billion euros ($103 billion) at central banks in the third quarter of 2012.
This hoarding frenzy is happening even as banks across Europe continue to receive national and international bailouts, while demanding that countries further impoverish their populations through austerity measures so as to pay back their bad debts. This is a year after the European Central Bank provided 1 trillion euros to the continent’s banks in short-term cheap loans, supposedly “to jump-start lending to the businesses, individuals and other financial institutions.”
As the Wall Street Journal stated bluntly: “Across Europe, corporations are sitting on a mountain of cash.” Despite their massive reserves of cash, major corporations aren’t spending, and thus “one possible way out of Europe’s economic crisis – a big boost in business investment – is closed off.” According to the Institute of International Finance, the principle international banking lobby, this is common practice across most “mature and emerging economies.” Collectively, corporations in the United States, the Eurozone, the U.K. and Japan held roughly $7.75 trillion in cash, “an unprecedented sum.”
The Centre for European Reform, a think tank in London, reported that the ratio of investment to gross domestic product is at a 60-year low as corporations hoard more cash than ever before — money which, in theory, could facilitate investment. In the Eurozone, corporate cash hoarding reached roughly 2 trillion euros (or $2.64 trillion). Meanwhile, austerity policies in European countries has led to a predictable retraction of growth, which in turn has led to more corporate hoarding.
Moving over to the U.S., it was reported in 2011 that corporations there had been hoarding cash to a larger degree than at any time in nearly half a century, with non-financial companies holding more than $2 trillion by the end of June 2011. This figure only acknowledged domestic cash hoarding by U.S. corporations, and didn’t include their foreign earnings. According to released IRS documents in 2009, major corporations, which held $1.7 trillion in cash from domestic operations, held a total of $5.13 trillion when including foreign cash assets.
As recently as 2008, the Government Accountability Office reported that despite trillions in earnings for corporations, the majority of U.S. and foreign-based corporations doing business in the United States managed to avoid paying any income taxes, with 72% of foreign and 57% of U.S. conglomerates successfully avoiding paying income tax for at least one year between 1998 and 2005.
Between 2008 and 2010, 30 large and profitable U.S. corporations paid no income taxes, even though the U.S. corporate tax rate was officially 35%. Among the companies that avoided paying any taxes were General Electric, PG&E and Boeing. Congress and state governments have encouraged the establishment of “pass-throughs,” allowing corporations to avoid paying any taxes by “passing” the profits along to investors.
This has been an exception given to businesses for decades, though the percentage of nontaxable corporations has rapidly grown, from 24% in 1986 to 69% in 2008, allowing private-equity giants like Blackstone Group and construction firms like Bechtel Group to avoid paying any taxes on their revenue.
In 2011, despite the 35% tax rate for corporations, the ten largest corporations in the United States paid an average federal tax rate of 9%, including companies like Exxon Mobil, Apple, Microsoft, JP Morgan Chase, and General Electric. Not surprisingly, the eight corporations that spent the most money on lobbying had lower tax rates, including Exxon Mobil, Verizon, GE, AT&T, Altria, Amgen, Northrop Grumman, and Boeing.
In 2010, when General Electric recorded worldwide profits of $14.2 billion, with $5.1 billion coming from operations within the United States, the company – one of the largest in the world – managed to pay no taxes at all, and, in fact, claimed a tax benefit of $3.2 billion. Between 2008 and 2011, 280 of the largest publicly traded American corporations paid an average tax rate of 18.5% on their profits, just slightly over half of what the actual tax rate is and less than most of their competitors in foreign industrialized countries.
Canadian companies have also been hoarding mountains of cash, not to be left on the sidelines by their American and Europe-based counterparts. In fact, it was reported that Canada’s corporations had hoarded more than half a trillion dollars in cash reserves, about $525 billion, by the end of 2011. This amounted to almost a third of the size of the entire economy, with at least 45% of Canada’s biggest corporations hoarding cash instead of investing or creating jobs.
Cash hoarding also allows companies to avoid paying taxes, giving companies further reason to not invest. In the U.K., corporate cash hoarding amounted to roughly $1.2 trillion, about half the size of the British economy — though small compared to the $5.1 trillion hoarded in the United States, an amount larger than the GDP of Germany. An analyst at Ernst & Young stated, “Until these companies stop stashing the cash and start increasing levels of investment and dividends, the economy will remain on the critical list.”
Over the previous 22 years, the biggest American banks created more than 10,000 subsidiaries around the world, “using legal structures to pay lower taxes and escape tighter regulation,” according to figures released from the Federal Reserve. JP Morgan Chase, the largest American lender, had 3,391 subsidiaries, followed closely by Goldman Sachs, Morgan Stanley, and Bank of America, each with over 2,000 subsidiaries. Citigroup maintained over 1,500 global subsidiaries.
Since the repeal of the Glass-Steagall Act in 1999 (which had been put in place in 1933 to avoid another Great Depression), the big banks got even bigger, with even the Federal Reserve admitting that the law’s repeal was the “main catalyst” for the growth in the size of banks, whose assets tripled since that time to $15 trillion.
The combined assets of the five largest banks in the United States in 2011 was roughly $8.5 trillion, equal to 56% of the U.S. economy, compared to five years earlier, before the financial crash, when the total assets of these banks equaled roughly 43% of the American economy. The five banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs – are twice as large now as they were ten years ago.
The facts are in. The reality is this:
Big banks, corporations, and powerful states created the global economic crisis for which the people of the world are forced to pay, and suffer, with declining wages, decreased opportunities, increased debt and expanding poverty. Meanwhile, those who created the crisis make record profits, pay little or no taxes, hoard trillions in cash, and fail to “invest” their revenues.
The question is now, what are we going to do about it?
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, with a focus on studying the ideas, institutions, and individuals of power and resistance across a wide spectrum of social, political, economic, and historical spheres. He has been published in AlterNet, CounterPunch, Occupy.com, Truth-Out, RoarMag, and a number of other alternative media groups, and regularly does radio, Internet, and television interviews with both alternative and mainstream news outlets. He is Project Manager of The People’s Book Project and has a weekly podcast show with BoilingFrogsPost.