Globalisation naturally plays best to scale factors and thus into the most scaleable industries. Those frictionless or near-frictionless businesses that can more easily turn product or services into 1s and 0s, bytes of data, that can then be transported at near zero cost anywhere in the world. “Friction-free” businesses such as these gain significantly from the operational leverage provided by easy, almost no-cost, worldwide distribution.
Tech, finance and media companies are the most obvious examples and beneficiaries. And their largest and most successful companies are typically US- and to a much lesser extent UK-domiciled. They can also of course be found in the more protected 1bn+ domestic market that is China. In these industry sectors and markets, it is increasingly a winner-take-all game, with all the monopolistic risk characteristics likely to warrant attention from democratic populations and governments.
These businesses are in effect the new countries, as big, wealthy and as productive as any nation state, but without a population of millions of direct, engaged stakeholders with a voice3. And with a democracy’s many checks and balances replaced by the incentives of shareholders and managements to reward on a much narrower basis.
For an example of the consequent concentrations, witness the cash balances of the world’s leading tech companies. Moody’s recently reported that just 5 US tech firms – Apple, Microsoft, Google, Cisco and Oracle – hold over $500bn (c.£350bn) in spare cash, equating to half of the rest of US corporations’ cash put together and more than the liquidity arrangements of three-quarters of sovereign countries.
Witness also the systemic risk carried by the world’s 30 or so leading banks, who marginally avoided breaking the system completely, to be saved by democratic government intervention and the largesse of taxpayers.
“Banks are global in life and national in death.” Mervyn King, ex-Governor, Bank of England
Witness in the UK the connivance or worse of the free news media in the breach of privacy of innocents and the major concerns over conflicts and influence within media ownership in almost every country.
Finally note the priority recruitment by leaders in all three industries of individuals previously employed by regulators and/or with great political connectivity.
Yes, these Great Globalisers’ operating models and effects on society require careful scrutiny, as we gain a better understanding of the systemic and monopolistic risks they pose. They increasingly get this attention. However a watching eye is perhaps even more deserved on these genuine disrupters of commerce and society. As leading, live, working models of globalization writ large, they exemplify with full clarity the concentrations, inequalities, democratic deficits, tax arbitrage and governance challenges wrought by the global commercial model. They are its poster children, and we can therefore learn a lot about the performance, economic contribution, ethics and governance challenges of globalization just from watching how these corporations themselves behave and in particular how they redistribute wealth….or don’t.
3 After more than 20 years of reports, enquiries and commissions, shareholder democracy remains a distant dream and to many is no longer a credible or achievable objective.