What does it mean when corporations are as economically powerful as governments?

In 2016, a non-governmental organization by the name of Global Justice Now, based out of the UK, produced a report listing the largest governments and corporations by revenue. Their report stated that the “10 biggest corporations make more money than most countries in the world combined and that 69 of top 100 economic entities are corporations not countries.” The complete listing of governments and corporations is here.

An article in the Journal of Economic Perspectives by Luigi Zingales of the University of Chicago provides the following commentary about corporations that rival the size of governments:

In some cases, these large corporations had private security forces that rivaled the best secret services, public relations offices that dwarfed a US presidential campaign headquarters, more lawyers than the US Justice Department, and enough money to capture (through campaign donations, lobbying, and even explicit bribes) a majority of the elected representatives. The only powers these large corporations missed were the power to wage war and the legal power of detaining people, although their political influence was sufficiently large that many would argue that, at least in certain settings, large corporations can exercise those powers by proxy.

The 2015 list produced by Global Justice Now consisted of 26 governments and 24 corporations in the top 50. Walmart was number 10, ahead of Spain, Australia and the Netherlands. I’ve updated the list for 2016 (see below). Walmart is now number 9 on the list, and there are 26 corporations in the top 50 in terms of revenue.

What does it mean when corporations are as large and economically powerful as governments? Is this a good thing? Governments can coerce people, while companies grow by persuading people to buy their products, unless businesses use their economic power and resulting political influence to suppress competition—a common practice in both the developed and developing world. But are governments a more effective and appropriate steward over the vast wealth they control than corporations? Politicians and government bureaucrats are not likely more altruistic or caring of people than business executives and managers. (This reminds me of an excellent interchange between the late Milton Friedman, a Nobel Prize winning economist and academic at the University of Chicago, and talk show host Phil Donahue about the relative greed of people in business and government, here). Perhaps the more important question is whether appropriate checks and balances remain between business and government when businesses rival the size and economic power of governments. I don’t know. I’m just asking questions.

Here is the ranking of governments and corporations by revenue in 2016. Data on government revenue (not GDP) from the CIA World Factbook for 2016 and on business revenue from the Fortune Global 500 list.

Rank Type Name Revenue, $billion
1 Government United States 3,363.0
2 Government China 2,300.0
3 Government Japan 1,696.0
4 Government Germany 1,523.0
5 Government France 1,308.0
6 Government United Kingdom 996.3
7 Government Italy 842.5
8 Government Canada 594.7
9 Corporation Walmart (US) 485.9
10 Government Spain 461.3
11 Government Australia 420.5
12 Government Netherlands 340.8
13 Corporation State Grid (China) 315.2
14 Government Brazil 311.9
15 Government South Korea 297.3
16 Government India 273.3
17 Corporation Sinopec Group (China) 267.5
18 Corporation China National Petroleum (China) 262.6
19 Corporation Toyota (Japan) 254.7
20 Government Sweden 248.3
21 Corporation Volkswagen Group (Germany) 240.3
22 Corporation Royal Dutch Shell (Netherlands) 240.0
23 Government Belgium 232.3
24 Government Mexico 224.3
25 Corporation Berkshire Hathaway (US) 223.6
26 Government Switzerland 215.9
27 Corporation Apple (US) 215.6
28 Corporation Exxon Mobil (US) 205.0
29 Government Norway 199.8
30 Corporation McKesson (US) 198.5
31 Government Austria 187.3
32 Corporation BP (UK) 186.6
33 Government Russia 186.5
34 Corporation United Health (US) 184.8
35 Corporation CVS Health (US) 177.5
36 Corporation Samsung Electronics (South Korea) 174.0
37 Corporation Glencore (Switzerland) 173.9
38 Corporation Daimler (Germany) 169.5
39 Corporation General Motors (US) 166.4
40 Corporation AT&T (US) 163.8
41 Government Denmark 156.9
42 Corporation Exor (Italy) 154.9
43 Corporation Ford Motor (US) 151.8
44 Government Saudi Arabia 149.7
45 Corporation Industrial & Commercial Bank of China (China) 147.7
46 Government Turkey 146.4
47 Corporation AXA (France) 143.7
48 Corporation Amazon (US) 136.0
49 Corporation Foxconn (Taiwan) 135.1
50 Corporation China Construction Bank (China) 135.0
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The next issue of Agriculture and Human Values is now published

AHV_10460The latest issue of the academic journal I edit, volume 34, issue 3, of Agriculture and Human Values, has just been published online (here). There are 17 articles published in this issue along with four book reviews.

A brief summary of the articles is as follows: Forssell and Lankoski examine the hybrid nature of alternative food system in their study of alternative food retailers. Trivette elaborates on the mechanisms by which participants in local food systems build trust and develop reciprocity relationships with each other. Inghelbrecht et al use mediation theory to assess how GM crops affect both the human-technology relationship and the ongoing debate about GM crops in the EU. Winson and Choi argue that the concept of dietary regimes can provides insights about the factors that affect the food choices of people and the food environments within which they act. Gartaula et al examine political, economic and social factors affecting the food security and wellbeing of smallholder households in Nepal. Murakami et al present the case of a college sustainable agriculture course to illustrate how to incorporate the study of wicked problems and sociological tensions in a learning community. VanWinkle and Friedman identify the historical roots of farmer perceptions about the environment. Gupta and Makov assess the “localness” of food through two indicators of the origins of production inputs–economic value and physical mass. Minkoff-Zern and Sloat examine how policies and programs of the US Department of Agriculture facilitate or impede farming activities of Latino immigrants. Quark and Lienesch examine how the definition of legitimate science affects policy debates regarding food regime transitions. Laforge et al develop a typology of interactions between farmers and government food safety regulators. Thompson et al study the perceptions of food safety by directors of farm to school programs. Wills and Arundel assess whether online food retailers can be part of or participate in alternative food networks. Baur et al show how bureaucratic efforts to promote and enforce food safety affect the people who work in the food system. Leslie examines Argentinian farmers markets in order to learn how alternative food networks react to and evolve in neoliberal economic environments. Olivier and Heinecken evaluate the potential for NGOs to support urban agriculture projects, promote social capital and benefit and empower women. Eakin et al introduce a typology describing different aspects of food system sustainability.

When should we erect statues of prominent public figures?

The violence in Charlottesville, Virginia, centers on a proposal by the city council to remove a statue of Robert E. Lee, the leading general of the Confederate Army during the U.S. Civil War. One of many news articles about the statue and the controversy over its removal is here. Some groups approve of the plan to remove the statue. Some groups oppose the plan to remove the statue. Some group oppose the groups approving or opposing the plan. It’s a real mess.

Rpbert E Lee statue

But the situation in Charlottesville is not just messy and ugly. It is also complicated by persistent and unresolved problems of racial prejudice and discrimination that exist in the country. Therefore, it is not surprising that the question of the statue removal has resulted in arguments fueled more by emotion than by reason.

I don’t pretend to have an answer to these problems. But I would like to revisit the plan to remove the Confederate general’s statue. Is removing the statue the right thing to do? The answer to this question depends on understanding why we erect statues of prominent public figures and when it is necessary to remove them.

I can think of two reasons why we erect statues of or monuments to public figures. One is to honor the person and the other is to honor the cause supported by them. For instance, placing the faces of George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt at Mount Rushmore would be appropriate because by most standards these men were honorable and the causes they promoted were as well. In saying this we need not approve of all aspects of their lives. But if we can respect persons and want to acknowledge and remember the causes they advanced, then a statue or monument would be appropriate.

What would we say about a statue of Adolf Hitler in Berlin? Well, if we erect statues to honor the person and their cause, then a statue of Hitler would fail on both counts. No reasonable person can argue that Hitler was a good person and that the causes he advanced were honorable. If we want to ensure that we don’t forget our history, then museums, well-written history books, etc, can accomplish this without the need for a statue.

But what if a person was good and honorable but the cause they advanced was not desirable? Of course, we can consider the other possibility, too. What about a statue to someone who was neither good nor honorable but who supported, promoted or advanced a worthy cause? Would we erect a statue to this person? I’m supposing that we would not. So if we won’t erect a statue for someone who is not honorable but who advanced a worthy cause, is it appropriate to erect or maintain a statue for someone who is honorable but who advanced an undesirable cause? I think this question points to why the issue of the removal of Robert E. Lee’s statue is controversial. There may be things we want to acknowledge, remember and emulate about General Lee as a person, but is the cause he fought to uphold—a political and economic system based on slavery—one of them?

Regardless of how we feel about the statue of Robert E. Lee in Charlottesville, Virginia, we need to agree in principle on the conditions that warrant the creation and maintenance of statues of prominent public figures. Once we have decided on this we can determine whether it is appropriate or not to remove a statue. If statues should exist when these two conditions are met—for honorable persons whose works and ideals promoted socially-desirable outcomes—then the answer to question of what to do about the statue in Charlottesville becomes clearer.

If we can’t agree on general conditions or principles for erecting and maintaining statues of prominent figures in public spaces, then debates about the removal of some will degenerate into claims that all statues and monuments will eventually be removed, an outcome that is neither healthy nor desirable for society.

 

The sciences need social sciences

The US National Academies of Sciences, Engineering and Medicine recently completed a report to determine if funding by the National Science Foundation (NSF) for research that included a social, behavioral and economic (SBE) component was worth the investment. In other words, do we need the social sciences to do good science research?

The National Academies of Sciences held a public forum and live webcast to announce their findings and promote their report, all of which can be found online (here).

The answer is an unqualified “yes.” We need the social sciences to do good science research, especially research funded by the NSF. As noted in the report, “the committee concludes that the social, behavioral, and economic sciences advance the missions of NSF and other federal agencies and serve well many of the most important needs of society. SBE research also can be applied to business and industry and has enhanced the U.S. economy.”

The committee made three main conclusions.

First: “Overall, the social, behavioral, and economic sciences produce a better understanding of the human aspects of the natural world, contributing knowledge, methods, and tools that further the mission of the National Science Foundation to advance health, prosperity and welfare, national defense, and progress in science.”

Second: “The understanding, tools, and methods provided by the social, behavioral, and economic sciences—including research supported by the National Science Foundation—provide an essential foundation that helps other agencies achieve their missions.”

Third: “The social, behavioral, and economic sciences have provided advances in understanding and tools and methods that have been applicable to business and industry and that enhanced the U.S. economy.”

That’s good news for someone like me working in the social sciences. The challenge, of course, is getting other scientists to accept these findings.

The reality is that every major challenge we face on this planet has a human component to it and therefore requires a social science perspective. Global climate change is a case in point. Do we really think we will make any progress if scientists studying climate change are not consulting social scientists? Science can get us only so far if its pursuit of answers to problems either caused by or impacting humans does not also include insights from the social, behavioral or economic sciences. “Having a fundamental understanding of how people and societies behave, why they respond the way they do, what they find important, what they deeply believe or value, and what and how they think about others is critical in today’s shrinking global world,” as stated in the report.

I also like this statement: “Like all sciences, the SBE sciences bring a rigorous, methodical approach to pursuing knowledge—collecting data, formulating and testing hypotheses, analyzing evidence—that sheds light on the underlying nature of problems and can help point the way toward remedies.”

So, my colleagues in the sciences, do yourself a favor. Next time you write a grant proposal for research on an important scientific problem, invite a social scientist to be part of your team.

 

Colonel Chamberlain’s speech to Gettysburg mutineers

Our family has a tradition around the 4th of July. We watch the 1993 movie Gettysburg. The movie is based on Michael Shaara’s 1974 book, Killer Angels. The book is an excellent and well-researched account of the Gettysburg battle that combines historical detail with attention to understanding some of the key players. The movie covers the battle at Gettysburg on July 1-3, 1863, where more than 50,000 union and confederate troops lost their lives in battle.

We have this tradition not just because Gettysburg is a great movie (it is), but because it helps us remember the sacrifices so many people have made to make and preserve this great nation of ours, the United States of America. After watching the movie we often read the “Gettysburg Address,” the speech President Abraham Lincoln gave at the dedication of the Gettysburg field as a national park. He ends with the plea “that government of the people, by the people, for the people, shall not perish from the earth.”

We celebrate the 4th of July as Independence Day, the anniversary of the birth of our nation. But we also recognize July 4 as the anniversary after the day of the bloodiest battle on our land since the founding of our country. It was fought in defense of our nation and the principles it was founded upon. Good men died so that children could grow up and become even better men and women. It is important that we remember who we are and who and what came before us, and that we renew our desire to preserve this great nation of ours and make it and our world a better place.

One of the central characters in the movie is Colonel Joshua Lawrence Chamberlain, who commanded the 20th Maine, a part of the Union Army’s Fifth Corps. Early in the movie (about July 1, 1863), Colonel Chamberlain was given charge of a group of mutineers from another (disbanded) Maine regiment. One of the best scenes of the movie is Colonel Chamberlain’s comments to the mutineers. Because of it, most of the men took up arms and joined the 20th Maine, which proved pivotal in the upcoming battle at Gettysburg. This speech, as rendered in the movie, is a classic. Here it is.

This regiment was formed last summer in Maine. There were a thousand of us then. There are less than three hundred of us now. All of us volunteered to fight for the union, just as you did. Some came mainly because we were bored at home — thought this looked like it might be fun. Some came because we were ashamed not to. Many of us came because it was the right thing to do. And all of us have seen men die.

This is a different kind of army. If you look back through history, you will see men fighting for pay, for women, for some other kind of loot. They fight for land, power, because a king leads them or — or just because they like killing.

But we are here for something new. This has not happened much in the history of the world. We are an army out to set other men free. America should be free ground — all of it. Not divided by a line between slave state and free — all the way, from here to the Pacific Ocean. No man has to bow. No man born to royalty. Here, we judge you by what you do, not by who your father was. Here, you can be something. Here, is the place to build a home. But it’s not the land. There’s always more land. It’s the idea that we all have value — you and me. What we’re fighting for, in the end, we’re fighting for each other.

Sorry, I didn’t mean to preach. You, you go ahead. You talk for awhile. If you — If you choose to join us, you want your muskets back, you can have ’em. Nothing more will be said by anybody anywhere. If you choose not to join us, well you can come along under guard, and when this is all over I will do what I can to see you get a fair treatment. But for now, we’re moving out. Gentlemen, I think if we lose this fight, we lose the war. So if you choose to join us, I’ll be personally very grateful.

I wonder if it would help if our elected representatives in Washington watched this movie together.

Doing good makes you want to do more good

Can you learn to be kinder, more charitable and helpful? If so, then what can you do to increase such virtuous feelings and tendencies? A recent study published by economists (no kidding!) showed that there is a correlation between altruistic acts and increased preferences for doing altruistic acts. The study, “Altruistic Capital,” was published in the American Economic Review.

Most economists assume that preferences are fixed. That is, my preference for being kind or for wearing blue colored shirts or for eating chocolate will not change. In contrast, the authors assume that preferences for altruism can change. They liken altruism to a type of capital. Just as physical capital (machinery, buildings, etc) or human capital (learning, skills, etc) can be enhanced through investments in machinery or learning, altruistic capital can be enhanced through investments. What investments increase altruistic capital? Doing altruistic acts. In other words, doing good increases the desire for and perceived benefits from doing good.

The authors conducted a study of persons working in the banking industry and showed that “altruistic capital grows proportionally to the effort devoted to altruistic tasks,” consistent with Aristotle’s assertion that “virtue is an asset that grows through righteous acts” (quoting the authors). Specifically, the authors found that “employee’s perceived returns to altruistic acts … are [positively] associated with more prosocial behavior at work.” In other words, getting people to do good can create a “virtuous circle”, where doing good increases the perceived personal benefits of doing good, which in turn increases the desire for and tendency to engage in good acts, such as cooperation with others.

We need more good in the world. So do some good, and bring someone with you when you do.

Economic principles and healthcare reform

On Thursday, May 4, 2017, the US House of Representatives passed a bill repealing major aspects of President Obama’s healthcare law (Obamacare), as reported (here) in the Wall Street Journal and other news outlets. The bill goes to the Senate for a vote. The bill ends mandates for people to carry health insurance and for companies to offer specific types of health coverage, among other things. Another Wall Street Journal article (here) states that backers of the bill “are betting that these changes will engender competition, draw healthier people into the insurance pool and cut premium prices overall.” Interesting, this is the same justification that backers of Obamacare gave when it was passed in 2010.

I know a thing or two about economics. There is nothing in economic theory or experience to suggest that anything in the old or new laws will necessarily increase competition or lower costs. Competition exists when there are many buyers and sellers in the market, where it is relatively easy for buyers and sellers to enter or exit the market, and where “all” sellers sell products or services that are similar enough so that it is relatively easy for buyers to comparison-shop for the best product at the best price. In this system, sellers have incentives to lower costs and prices and to increase quality in order to attract customers to their products. Companies that do this well are rewarded with profits; companies that don’t do this well go bankrupt. The incentive to lower costs and prices and to increase quality diminishes when it is difficult for buyers to compare products and services — that is, when it is costly for consumers to shop around, and when companies know it is costly for consumers to shop around — and when it is difficult for potential sellers to enter markets — that is, when there are barriers to market entry. The health care system is rife with problems of comparison shopping and market barriers. That is, the health care system is not a great model of markets and competition, and it won’t be anytime soon.

The root cause of the problem with contemporary health care is the thing Americans like most about it. We pay a monthly fee for health insurance. Then when we get sick or need health care services, we might pay a nominal fee (e.g., $20) in return for health services, while most of the cost of care is paid by insurance companies whose revenue comes from the thousands of patrons paying the monthly fee. Once we have health insurance, we have no incentive to shop for the best healthcare product at the best price, but rather the best healthcare product at any price, because the primary cost of service is paid by the insurance company. The insurance company does not have a strong incentive to induce health care providers to lower costs because the company can pass costs on to patrons.

Even when individuals want to know the cost of a particular medical procedure or service, it is nearly impossible for them to get a straight answer. “How much will the physical therapy cost?” I once asked a clerk at the reception desk? “I don’t know. It depends on the contract your insurance company has with us,” was the reply. “What is your normal rate, and what discount does my insurance company offer on that rate?” I asked. “I don’t know what our main charge is. Your discount will depend on your co-pay and co-insurance.” The conversation never got any better. Only after I got the bill did I learn what the cost of the service was.

Transparency in pricing for medical care will help here. Giving individuals an incentive to price-comparison shop will help, too. Health savings accounts can do this. Recently I have been scrutinizing our health insurance bills because we have a health savings account. It’s time consuming because there are so many individual charges, most of which I do no understand. In one instance we received a bill for a doctor’s visit on a day we could prove no one in our family was at the clinic. If I was not paying out of a health savings account I would not have thought twice about questioning the bill. The insurance company would have paid it. But I did question the charge and was able to get it removed.

I understand the health care system is very complex. But economic principles are not.