Global Policy Forum

Greetings from Global Policy Forum.

One of our favorite books, called "A Factor of Ten," considers the scale of things in the universe. Using photos and text, it begins with the human scale and takes the reader downward by successive factors of ten to the atomic and subatomic level. It also takes readers upward by factors of ten to the planet earth, the solar system, and beyond. We were reminded of the book last week, as we reflected on rapidly-rising scale in the global economy, documented in the recently-released World Investment Report, an annual publication of UNCTAD. Yesterday's familiar scale is disappearing, to be replaced by dramatically new size and scope of transnational corporations.

The executives of the world's largest corporations, like Exxon and Mobil, Daimler and Chrysler, Citicorp and Travellers have decided that their scale of operations -- and of profits -- is simply not large enough. Through mergers and acquisitions valued at over $100 billion, they have nearly doubled the size of their companies, swallowing one or more of their biggest competitors. Just a few weeks ago, we witnessed a $108 billion takeover of Sprint by MCI Worldcom, two US-based telecommunications giants. Now, Britain's Vodafone Airtouch has bid for the German telecom giant Mannesmann, in a deal that will be worth even more.

Recent weeks have also witnessed huge mergers or acquisition bids in pharmaceuticals, banking, and media. Just a few weeks ago, Clear Channel Communications, the largest owner of radio stations in the United States bought AMFM Inc, the nation's second-largest company. The merged company is expected to control over 1,000 stations, located in virtually every area of the country.

Corporate law firms how been growing along with their corporate clients. GPF researcher Eleanor Lumsden has been doing some interesting work on the scale of these firms. Many firms have established global networks of offices and they have steadily expanded the number of their partners. In 1978, the largest firm in New York -- Shearman and Sterling -- had 264 partners. By 1999, New York's largest firm -- Skaddon, Arps -- had 1,257 partners. In the same period, the average number of partners of the top ten corporate law firms in the city had expanded from 198 to 678. Large-scale legal mergers are also beginning to take place, including some cross-border deals. Just this year, London's largest firm, Clifford Chance, merged with a major US partner -- Arnold and Porter -- to create the world's largest firm. Similar growth trends can be found in others fields that service mega-corporations such as accounting, management consulting, and advertising.

According to the World Investment Report, cross-border corporate investment soared in 1998 to a record $644 billion, as merger and acquisitions rose to $411 billion, a 74 percent increase over 1997, which in turn had increased 45 percent over 1996. The 1998 record has apparently already been broken. According reports in the New York Times, merger and acquisition activity in 1999 will surpass the previous year by a very wide margin. The World Investment Report notes the corporations that are already furthest along in global organization and investments. In first place stands General Electric, followed by Ford Motor Company and Royal Dutch Shell Group.

Imagine the differences of scale between these companies, which have annual revenues of over $100 billion, and other human enterprises. The UN, with its budget of $1.2 billion, is one hundred times smaller. And major international non-governmental organizations, with budgets in the $10 million range, are roughly a hundred times smaller still.

These companies inevitably cast a long shadow over global power relations and they fiercely oppose public oversight and regulation. In one of our postings this week, a New York Times story talks about how the US Comptroller of the Currency failed to investigate adequately secret bank accounts, money laundering and lax internal bank controls. It seems that Citibank, New York's largest bank, failed to enforce its own rules or to answer truthfully questions about large funds, recently deposited to accounts by President Omar Bongo of Gabon. According to the story, "Millions of dollars poured into Mr. Bongo's Citigroup accounts at a time when there were news reports that Mr. Bongo was under investigation for possibly accepting bribes from French oil companies." Citibank had reassured Federal examiners that Bongo's riches were being accumulated legally, though the bank had no such knowledge.

The Times story also notes that Citibank is under investigation for questionable money transfers of very large sums by Raul Salinas, the brother of the former president of Mexico, who (as we recall) has been accused of drug dealing, corruption, money laundering and even murder. Another area institution, the Bank of New York, is under investigation in a similar case for its role in millions of dollars of illicit transfers from Russia, some of which also involves public officials.

Democracy inevitably suffers in such a setting. Regulatory authorities, pressured by the corporate giants, shrink from their responsibilities. Elected officials accept corporate bribes without a second thought and steal fearlessly from the public treasury. Meanwhile, the giant financial service corporations insist that nothing is amiss and that "self regulation" is the only sensible approach to global rule-making.

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