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4.6. Multinationals controlled by the nation state

The nation state can no longer underwrite our way of life, only companies can. Thus the nation state is finding itself challenged in areas where it anticipated no threat. At the same time it has become increasingly dependent upon tax income from companies and multinationals. This means that national economic interest is no longer a question of whether multinationals should be allowed to operate, but how. Putting it differently, the issue is about finding the right harness and knowing when to use it. The economy of the Western world failed in 2008 and again in 2011 largely because our banks and financial institutions, supported by our own regulatory bodies, were allowed to rob and cheat. Unfortunately, the problem runs too deep to be mended in a moment, particularly in countries where private-sector companies are literally calling the shots. So long as private-sector companies have the upper hand, the rules of the game will not change. We see this most clearly in the USA, but also in France and Germany, where politicians have favored stricter regulation but have only achieved minor changes. The multinationals are too powerful in this part of the world vis-à-vis the nation state.

This situation is somewhat different in China, where the State is currently the owner of most major businesses and can impose very strict rules on the market. At the same time, China's ownership structures today are in flux. They are not a permanent solution, but are functioning more like a rocket motor getting their payload up to orbit, until Chinese multinationals are strong enough to compete on their own. Looking at the total number of businesses in China over the past two decades we find that numbers of employees in State-owned enterprises are falling significantly relative to numbers in private-sector companies. Most of the new private-sector companies are also Chinese-owned. According to the China Statistical Yearbook 2008, only about ten per cent of employees were working for foreign joint ventures or enterprises capitalized from Hong Kong, Macao, or Taiwan (Fernandez and Jenster 2010: 7). According to the World Bank ranking, two of the world's four most favorable countries for entrepreneurship are now in the Chinese cultural sphere, namely Singapore and Taiwan (op. cit.: 8). Between 2007 and 2008 it became much easier to do business in China (up nine places - op. cit.: 9). It has also become easier to get credit (up ten places), and it easier to close a business (up nineteen places). But there are also aspects less favorable for economic growth, e.g. ease of starting a business (down seven places), and trading across borders (down eleven places). Thus we should not expect the shift of power from SOEs to private-sector players to continue at the same pace.

The Chinese dragons look as though they are running free, but in reality they are on a long leash. Enrich yourself, but only to the extent that you contribute to the common good. Use this piece of land, but we shall want it back in seventy years' time - or maybe even forty (we might change our minds). Start this business, but we want fifty-one per cent, or at any rate forty-nine per cent, of the shares. This formula has worked wonders in China for close to two decades now. As a result, while the poor people in the world have been getting poorer, there is one exception: about 400 million Chinese have been lifted into the lower middle class. Foreign direct investment and economic growth in China is doing more to fight poverty than all the political initiatives undertaken by the entire Western world over the past century. Does that mean that Chinese workers are not being exploited, even mistreated? No: it is true that conditions are improving dramatically, but it is also true that employees are being asked to work under conditions which remain strenuous. Many of these conditions would be unacceptable to the average worker in the West. For a Chinese peasant, though, they often represent an improvement. We should remember that these adverse working conditions are very much like conditions in Europe when it was first becoming prosperous, during the Industrial Revolution. In fact, conditions for laborers during the Industrial Revolution in Europe and North America were in most cases worse than what we see in China today.

While the nation state is growing weaker in the West, the reverse holds in China, where the State is growing stronger. Much of this is due to the fact that our States expanded into areas which they were not able to manage and control. As a result they find themselves threatened in areas where they never thought they would be challenged, where they used to have a quasi-monopoly, if not always clear legitimacy. For instance, private individuals are questioning State overseas-aid programmes, preferring to give economic aid and help poor people directly through small direct loans over the internet, so-called micro-loans. Suddenly the State is no longer competing with other aid-giving organizations in other countries, but with its own taxpayers. The large bureaucratic structures we have created to administer overseas aid, filled with whole series of corrupt middlemen, whether public or private contractors, have now been challenged78. If the nation state is gradually forced to give up its massive overseas-aid budgets, it will lose one of its most effective foreign-policy tools. This will further undermine its strength in the arena of international relations. Much depends on how capable the private sector will prove to beat handling sectors which have traditionally been managed by the State.

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