- Introduction: Why tolerate any longer big business?
- PART 1 – Knowledge, the only material that doesn’t diminish by using it
- Chapter 1 – Intellectually improper property rights
- Chapter 2 – The war against sharing knowledge and creativity
- Chapter 3 – Bad for innovation, poor countries and most companies
- INTERMEZZO – Looking ahead: globally radical interventions
- PART 2 – Completely different economic relations
- Chapter 6 – Reinventing the market: no more dominant corporations
- Chapter 5 – Reinventing the market: no intellectual property
- Chapter 6 – Seperate research and production
- PART 3 – Attempt after attempt to curb worldtrade
- Chapter 7 – Efforts to create more just global regimes
- Chapter 8 – Transnational companies also commit crimes. These usually go unpunished
- To conclude is to begin – Putting an end to neoliberalism
Introduction: Why tolerate any longer big business?
It is all too well known, but we cannot escape naming it again: some 150 transnational corporations dominate worldwide production, transport, distribution and retail of food, energy, communications, financial transactions and other services. These mega-corporations hardly care about environmental damage, waste and the depletion of our natural resources, as well as social and economic inequality.
What we may not consider is that these transnational corporations not only derive their power from the undeniable fact that they operate in all corners of the world, merge and at the same time divest business units that it is a pleasure, outsourcing much of their work to subcontractors, are deeply intertwined with the major investment banks in New York and in the City of London, and commit crimes like ordinary people – probably more because they rarely get punished for it. What we think little about is that these mega-corporations derive their global superpower from the fact that they work closely together to exert influence at national, regional and global levels, on laws and regulations, on setting standards, on whether or not to allow of products on markets, whether or not to enforce laws and regulations.
We describe how a small group of transnational companies is constantly increasing their market power. This interwoven group, we believe, has succeeded in acquiring oligopolistic and semi-monopolistic positions in the market where they operate. By acquiring key positions in production networks, constantly buying up, merging and divesting entities; and unfair competition through tax avoidance they can deny new entrants access to the market. All this means that the theoretical invisible hand no longer works in our transnational economy.
Our proposals in our book basically are threefold: countering dominant companies, abolishing intellectual property; and the separation of research and manufacturing, which must involve government research and the results of which must be freely available to everyone.
PART 1 – Knowledge, the only material that doesn’t diminish by using it
In Part 1 we discuss a fundamental aspect of the strength of corporations, which is that they strengthen their power through the ownership of intellectual property rights.
We show how the appropriation of intellectual property rights helps transnational corporations to maintain their competitive position. Our analysis is twofold. First, let’s break down the myth of a eureka moment in inventions. The reality is that inventions are a step-by-step process that always builds on previous work and ideally can be built on. The patenting and appropriation of fixed-term exploitation rights at a particular step in that process ignores that reality, the authors argue, and is a phenomenon that arose simultaneously with capitalism. In addition, we argue that many patents build on state-sponsored research (described in the book The Entrepreneurial State of Mariana Mazzucato) and are thus a transfer from public to private. An iPhone, for example, consists mainly of technology developed by the state in a nice package.
We then describe the negative effects of patents on the market economy. First, they stop the theoretical process of creative destruction where, through constant innovation, old technologies are replaced by new and improved variants through competition. One of the cornerstones of a true free market economy. By granting patents, this process is interrupted for the duration of the patent (starting point maximum 20 years) and innovation is stopped. We give examples of medicines and greener engines where better variants are stopped because a company acquired a patent.
Another negative effect is that a veritable industry has emerged in acquiring patents that are never used except to file lawsuits against others who would use the technology of the patent or to trade for the same purpose. Again this stops innovation and fair competition. Anyone who comes onto the market with a new product risks being sued for infringement of one of those patents that are on the shelf.
Developing economies in particular are hugely affected by this proliferation. They used to be able to disregard it in their own jurisdiction, but since the World Trade Organization approved the TRIPS treaty, all members have been bound by ownership. This means that they now have to license expensive technology from Western companies, while Western countries have never had to comply with these conditions themselves during their economic development and eagerly copied from other countries.
Chapter 1 – Intellectually improper property rights
- Property rights without scarcity
- Breaking with former cultures
- Creating monopolies
- Not easy to demarcate
- Stifling innovation
- Endless proliferation
- Strategic weapons
- First to invent
- Patens are values; values can be sold
- Patent value hard to establish; a bubble coming
- Lawsuits and other techniques to block innovations
What looks self-evident in the system of intellect property rights lost in this chapter a lot of its glamour. With a piece of land, for instance, one can imagine that it makes sense to establish an exclusive property right. However, knowledge and creativity do not diminish in value once more people use it. Establishing a monopoly right in those fields is a Fremdkörper.
There are several reasons to get rid from the system of intellectual property rights:
- While knowledge and creativity only can be developed by using what has been developed before by others, intellectual property rights establish a monopoly which hinders this ongoing process of discovery. For society this is a missed chance.
- At present, more and more knowledge and creativity has been protected by intellectual property rights. Thus, less is available for public use.
- For material goods it is quite well possible to determine what are its borders and what belongs to whom. However, knowledge and creativity are fluid, do not have fixed borders. This is a source of conflicts and legal procedures.
- For patent offices it is nearly impossible to determine what is new in, for instance, an invention. However, establishing such a certainty is one of the conditions for granting a patent.
- Intellectual property rights are a non-ideal and non-efficient form of taxation.
- More and more, corporations use intellectual property rights in order to prevent others to invent and come with new products. Companies try to protect their patents as well by taking as much patents as possible around the original patent in order to make sure that this will not be attacked. There are also enterprises – patent trolls – that buy thousands of patents with as a sole purpose to accuse other enterprises that they have violated ‘their’ intellectual property rights.
- Where there is value, there is trade; thus, this is the case as well with intellectual property rights. Because it is a monopolistic right nobody can know exactly what is their real value. One must be afraid that hyper inflated prices of intellectual property rights may present us with the next bubble that may lead to a new financial crisis.
- One may assume that in the next decades a lot of new knowledge and creativity may come from emerging countries. Thus, one may wonder whether it is wise for Western countries to make intellectual property rights any moment more strict, and thus elevate the price they must pay themselves later to others for the use of intellectual property rights.
The patent-system is modelled on the idea of private ownership. It is the wrong model. In many cases it has blocked the flow of knowledge. Discussing the many inefficiencies which the system has led to, we come to the conclusion that the current patent-system has fundamentally undermined the process of innovation. It is time to set the process of innovation free.
Chapter 2 – The war against sharing knowledge and creativity
- Create a value and it can be stolen
- Can piracy be halted?
- The Anti-Counterfeiting Trade Agreement rejected
- Illegal trade in abundance
The ‘illegal’ use of knowledge and creativity seems to be unstoppable. Therefore, within WTO, there has been established a treaty on Trade Related Intellectual Property Rights, TRIPS. However, once it became clear that its sanction mechanisms apparently are not sufficient to stop all different forms of illegal use the rich countries tried to establish more strict systems that should keep the system of intellectual property rights on track. One of them was ACTA, the Anti-Counterfeiting Agreement. However, through mass protests against the continuing privatization of our knowledge and creativity the plug was pulled.
Will trying harder make the ‘illegal’ use of knowledge stop? We do not think so. We argue that the whole concept of private ownership is misplaced. Instead of fighting the supposedly ‘illegal’ spread of knowledge it would be better if more effort were put into stopping the illegal trade of weapons, women, and children
Chapter 3 – Bad for innovation, poor countries and most companies
- Do intellectual property rights really promote innovation?
- Some innovations less desirable
- Poor and less poor countries
- Protection of traditional knowledge and cultural expression on a dead end street
- Not in the interest of medium and small sized companies
The magic word, nowadays, is innovation. As we made clear here before, patens do not stimulate innovation, they block it. In this chapter we make clear that this has more or less always been the case. We show on a case by case basis that knowledge-creation never has been by patents, copyrights, plant rights and suchlike. It turns out that those who claim to have been measuring the positive effects of patents for innovation more often than not have measured their beliefs in the value of patents. Those who deem knowledge and innovation important do best to give up these beliefs.
The great question then becomes: which parties will now become the drivers of knowledge-creation and innovation? Can we pry the concept of knowledge loose from the concept of ownership? Can we have knowledge that is neither privately nor publicly owned? In the final part of this book we will attempt to answer that question.
We point out that:
- small and midsized companies are especially disadvantaged by the patent-system,
- that the same goes for most artists in the sphere of the arts
- that poor countries in the catch-up phase of their development are especially hampered by the patent-system
- that the only ones who have derived any advantage from the patent-system are large companies –and that they did so through rent-seeking rather than knowledge-creation.
It is our firm belief that certainly after the digital revolution, the case for the defence of intellectual property rights has become hopeless. Hence we propose to radically get rid of the system. It is time to start imagining a world without it. Such a world would most likely also be a world without mega-corporations – for the simple reason that intellectual property rights form one of their most important power-bases.
The great question then becomes: which parties will now become the drivers of knowledge-creation and innovation? Can we pry the concept of knowledge loose from the concept of ownership? Can we have knowledge that is neither privately nor publicly owned? In the final part of this book we will attempt to answer that question.
INTERMEZZO – Looking ahead: globally radical interventions
In the first part of our book we analysed the complex give and take between, transnational corporations, states and international organizations. We have tried to show how the system usually works in favour of big business. In the course of the seventies they have won the ideological battle and acquired a solid powerbase in intellectual property rights.
Given this political constellation, how can we create a more just and sustainable society? How to run an economy as if the future matters? In the remainder of the book we identify several crucial issues that have to be tackled before we can create such a society.
PART 2 – Completely different economic relations
In this part of our book we (cannot but) concluded that the mega corporations still holds the reigns. The 2008 crisis brought little change. One way or the other we will have to rewrite the rules of the global economic and financial order. This is a pressing matter. How to get back to markets that Adam Smith and the economists following in his wake would have recognized as true markets, rather than meagre forms of competition dominated by a few giant corporations? Markets work because they are embedded in social institutions. It is a misconception to believe that they function according to the American business model, the so called ‘Washington Consensus’.
Chapter 4 – Reinventing the market: no more dominant corporations
- Regulations in order to prevent market-capture
- Profits tend to become zero with full competition
- Competition law, anti-trust revisited: pro-active policies
- Do we need big banks? Not if companies are smaller
- Continuously restricting corporate size
- No more limited liability
- The odd misunderstanding about shareholders
- No more tax-evasions and the restriction of high frequency trading
- Redefining the idea of the enterprise: partnerships
- New companies: hybrid, trust, contract law, social security?
- Jobless growth. Ample employment in making the economy sustainable?
- A new calibration of industry and agriculture
We accordingly propose that every corporation entering a market should underwrite a charter as to what it precisely may and may not do. Even, it can be mentioned how big such a corporation may grow ultimately, thus what are the limits to its growth. Such chartering should be taken seriously: establishing a corporation should be seen as a privilege that society offers to private entrepreneurs/ risk takers.
When a corporation has become more of a price-maker than a price-taker, it should be split, no matter whether it acquired its economic power by legal means. Therefore we propose to energize present competition and antitrust policies and make them pro-active. Competition authorities should not only react on complaints from out the market, they themselves should investigate whether a corporation has become too big and too powerful, and accordingly they should pro-actively decide to split up such a corporation in many different entities, and keep them also in the years after such an action midsized or small.
Such procedures should go as well for banks and shadow banks in the financial sector
Money-creation has to be taken out of the hands of private banks. Only the central bank should have the right to create money.
A good corporation is not solely responsible to its shareholders. This business model, which is based on the idea that the best way to economic growth and prosperity is to stimulate greedy individualism and impose as few restrictions as possible, does not work.
Those who run the corporation should have a clear idea of the multiple objectives that have to be achieved by a successful business. The idea that it is about shareholder value maximization is, at its best, empty rhetoric and at its worst can do a good deal more damage than that. Corporations not only owe responsibilities to share-holders, but as well, on an equal footing, to investors, employees, customers, suppliers, and the community at large. For this reason we believe that the idea of the ‘limited liability’ of shareholders sets a company on the wrong foot and should be abolished. Risk taking should not go without being responsible.
Corporations should pay taxes in the countries where they make their profits. In this field a whole series of measures needs to be taken to avoid tax evasion and high frequency trading.
All in all we believe that footloose companies operating in dis-embedded markets can only lead to disaster. We should devise a better idea of the good company and work back from that to the rules and incentives which might lead a corporation in the right direction. In this, we follow the principles of reverse engineering.
Concerning many times hybrid new enterprises social, legal, contractual and organizational questions should be completely rethought and re-regulated.
Chapter 5 – Reinventing the market: no intellectual property
- No more intellectual properties
- Buy-outs, compulsory licenses, patent pools, wisdom of the crowd, secrecy
- In offering prizes you don’t build a new research practice
- Preventing the privatization of knowledge
- Taxation: far from ideal and not efficient
- Trademarks rightly protect a name
- Trademark not a guarantee for trust
- Tracing the chain from investment decision to consumers
After having scaled down the corporation to civil proportions we take up the issue of intellectual property rights. Our guiding idea is that a resource like knowledge should be no-one’s property. In search for a new policy we discuss various possible solutions like: pricing, pooling, compulsory licenses, buy outs, wisdom of the crowd and secrecy. All of these solutions fail. The reason for this is that they are still indebted to the idea that knowledge should be privatized. They fail to understand that knowledge is an infinite resource that is best mined when it is no-one’s property. The chapter discusses extensively the need and merits of the abolishment of intellectual property rights.
A special problem was: how to deal with trademarks? They definitely are an intellectual property right, but we decided not to do away with it. It is wrong to steal another’s name. That goes for the authorship of a book as well as a shop or any business. The person(s) who started it gave it a name. You can write a similar book or open the same kind of business but you can’t steal the name. This doesn’t mean however that by protecting one’s trademark one protects all forms of styling, branding and other related items that go with the name. That forms part of a copyright that in our view should be abolished.
At the other side, we should get rid of the naïve idea that the trademark gives the enterprise the aureole of: trust me, concerning quality of the product and under what conditions it has been produced and transported. This trust looks not seldom undeserved. In fact, the legal instrument of the trademark makes us aware how little we know about what happens in the chain from idea, to creation, production, transport, intermediation, financing, marketing, sale, consumption and waste storage and removal. Globally there is a world to win concerning control on all those stages in the so called global value chain.
Chapter 6 – Seperate research and production
- A solid financial foundation for independent research
- Research regularly paid out of the state budget
- Under-investments, over-investments
- The state pro-active towards research
- The intellectual commons
- How should the state finance research?
- The accumulation of knowledge, a learning society
- Free riders
- The peculiar position of the news media
Once we have brought back the company to scale and abolished intellectual property rights, a question arises: how then should we organize research? How to mine the resource of knowledge to maximum effect? This is the task we undertake in this chapter.
Most of the research done in societies is financed out of public means. This is certainly the case at the frontiers of knowledge where investments are most at risk and the chance of failure is many times larger than success. When it comes to thinking big and taking great risks, large corporations usually are a failure. They tend not to invest in fundamental research. They seldom work at the frontier of knowledge-creation. Their short term focus does not allow for this.
Hence we propose to radically separate the production of goods and services from issues of research. Fundamental research should be done in separate research institutes. These can be public or private, but they should be financed out of public means and special taxes. These research institutes will compete on the basis of tenders formulated by independent committees, manned by personnel on a temporary basis, representing a diversity of interests.
It may still be useful for companies to have a research institute inside the company but then only as part of the ongoing process of production. In all cases the results will freely obtainable. They should be no-one’s property. However, such corporations have, by doing their own research and implying its results, a competitive advantage on markets.
We acknowledge that in the case of the news media it is hardly possible to separate research and production. We also acknowledge that newspapers and most other news media are in financial problems. High quality journalism is under threat. For a vital democracy independent newspapers and other news media are of utmost importance. So we support the idea of Robert McChesney. In this proposal the government grants each citizen a voucher of say € or $ 200. Citizens can use this voucher to vote for a newspaper of his or her choice. Such a newspaper can operate with the collected voucher money during, say, the next 5 years – until the new voucher elections -, without being dependent from advertisements. Online, those newspapers are for free; the paper price is only what it cost to print and distribute the newspaper. It should be regulated that no newspaper may get more voucher money than, for instance ten percent of the total amount of voucher money, in order to avoid dominant market positions.
PART 3 – Attempt after attempt to curb worldtrade
After a brief historical overview of how the international trade system has grown so skewed since World War II, we describe our solutions for a more equitable economy. Some of these are already part of the public debate, such as the abolition of arbitration courts (see the CETA debacle). Others are already being translated into policy, such as working towards a more balanced corporate taxation in the OECD project Base Erosion and Profit Shifting (BEPS) and the European Commission with their fairly far-reaching proposal for a consolidated common tax base (CCCTB).
Chapter 7 – Efforts to create more just global regimes
- Economic democracy
- 1948 Havana-charter
- Stifled in 1950
- 1950 “bancor” disappears out of sight
- 1961 Non-Aligned Movement
- 1965 Conflict-resolution between companies and the state
- 1966 International Covenant on Economic, Social and Cultural Rights; International Covenant on Civil and Political Rights
- 1973 New World Information and Communication Order
- 1974 New International Economic Order
- 1980 Unesco-report Many Voices, One World
- 1980 Global competition policy actively discouraged
- January 1985 US and Great Britain step out of UNESCO
- Early 90s Big business regains the political initiative
- 1986 – 1995 Formation of the WTO
- 1995 – 1998 MAI, Multilateral Agreement on Investment rejected; ACTA rejected in 2012
- 2000 Trade equals war. Global Compact
- 1999 – 2001 and further. From Seattle to Doha, WTO under pressure.
- Fist decennia 21e century TTIP, TPP, CETA
What is our capacity to steer the (economic) globalization, sharing the proceeds of it in a justifiable manner, without the risk of a new crises like the one that destroyed economies in the thirties of the twentieth century and that contributed to World War Two? After this war the need was felt that countries would not lock up themselves in isolationism, while at the same time they should have enough possibilities to protect their economies against domination by too strong forces. The 1948 Charter of Havana was the first attempt by national states to lift political decision-making to this higher order. An International Trade Organization was proposed, under supervision of the United Nations. However, at the end it was not to the liking of the United States which torpedoed this project. The General Agreement on Tariffs and Trade (GATT) was called into action. It operated outside the boundaries of the United Nations. In successive Trade Rounds it succeeded in bringing down a lot of trade barriers. The complaint however was that rich countries nearly always were the rule makers, while poor countries usually ended up as rule-takers.
In the sixties and seventies a group of independent countries undertook initiatives to develop a more balanced view. This resulted in the proposals for a New International Economic Order and, for the sectors of culture and information, a New World Information and Communication Order. Both proposals experienced a sudden death with the rise of neoliberalism and the establishment of the so called Washington Consensus. The report Many Voices, One World was for the US the last straw. Both the US and GB resigned from UNESCO. The UN Code for transnational corporations didn’t survive the year 1992.
Remarkable is that, in the seventies of the twentieth century, big business successfully fought back against the loss of popularity and support in the sixties, by spending billions of dollars in order to convince public opinion that huge corporations are essential for welfare and national security. In the UN, the huge corporations signed a so called Global Compact, in which big business promised it would respect human rights. However, no official agent was set up to monitor their activities.
The offensive to forge the world to the needs of big business culminated in 1995 in WTO, the World Trade Organization. In itself it is useful that an international mechanism exists that put rules for international trade. Although almost all countries are members of the WTO, there is still a clear division between rule-takers and rule-makers. Most outcomes in the decision making process tilt to the views of the rich countries. This became painfully clear during the Doha Development Round, in which many trade-issues remained unsolved. To avoid stale mate the rich countries took recourse to proposed treaties like TTIP, TPP and CETA – regional partnerships between, respectively, the US and Europe, the US and the Pacific counties and between the EU and Canada. All of these ‘partnership’ deals are brokered behind closed doors. There is little transparency and no democratic control. Policies for food safety, banking rules, environmental rules are all up for grabs, with the outcomes usually slanted towards the interests of big business.
Chapter 8 – Transnational companies also commit crimes. They usually go unpunished.
- Much power, high profits, diminishing space for moral reasoning
- What kind of crime do companies commit?
- Companies tend to have two faces.
- Difficult for prosecutors in different countries to prosecute
- From self-regulation to global juridical structures?
- Guiding Principles: Protect, Respect and Remedy; Due Diligence
- Country-by-country reporting, BEPS, Corporate Social Responsibility, Inspection Panels
- Why aren’t corruption and similar impairments of fair trade an issue of the WTO?
- International Criminal Court
- International Criminal Court for Enterprises and Persons Responsible for Crimes in Enterprises.
- Who within the company is responsible for the crimes committed?
- Resolution Ecuador: transnational companies and Human Rights
The regime of world trade needs a thorough make over. We start with a principle question: when does free trade add to the prosperity of society and work back from there. We believe the WTO rules should be fundamentally rewritten.
First of all WTO needs to become part of the UN and so that the coordination of trade and its consequences can be reviewed with a broader set of questions in mind than is currently the case in WTO. However, it is an extremely problematic organization: WTO has not been embedded in the United Nations. Thus, there is no connection to other urgent global issues, like health, labour conditions, rights of trade unions, energy, environment, transport, safety, food, stable prices for natural resources, fair tax policies and maintenance without fiscal races to the bottom. Issues like competition and antitrust policy are missing as well in WTO.
For our second finding we quote Sara Sun Beale, professor at Duke law School: ‘Because of their size, complexity, and control of vast resources corporations have the ability to engage in misconduct that dwarfs that which could be accomplished by individuals.’ Because this nearly is no subject of, criminal, investigations, mostly it in stays in the dark. Possible crimes can be found in the field of violation of human rights, financial malversations, harm on the environment, safety, workers’ rights, theft. Because huge enterprises see the whole world as their field of exploration and tax evasion, it is nearly impossible to start criminal procedures against their possible misbehaviour. An extra complexity is that an enterprise as a company is a legal entity, but at the same there are persons from flesh and blood that deal in name of the corporation. It is our opinion that both should be brought before a court in the same criminal procedure.
The worldwide connection of (transnational) corporations in the global value chain and their specific liability does lead us to the conclusion that there should be made a new International Treaty for the establishment of an International Criminal Court for Corporations and Persons Responsible for Crimes in Corporations.
Meanwhile, it is encouraging that globally operating corporations more and more become obliged to sign declarations that they will avoid violations of human rights and so on. We mention, among many others, the so called Guiding Principles. This does not take away the fact that in no civilized society we make an agreement with potential criminals that they promise to behave decently! There should come a moment that they will be brought before the court, if there would be an obvious cause to do so. Why should this not be the case for extremely powerful corporations that operate on a global level? Why should they stay unimpeachable? To prevent that they will not be prosecuted in any national jurisdiction, our unavoidable conclusion is that there should be established an International Criminal Court for Corporations and Persons Responsible in Corporations indeed. For sure, it should not be easy to get that far, but it should happen, once.
TO CONCLUDE IS TO BEGIN – Putting an end to neoliberalism.
- The present economic power relations are very much a reason for concern
- Derailing the neoliberal philosophy
- Creating a level playing field for companies
- Yes, there is an alternative!
Our situation is grave. The urgent questions, we raised in our book, is how to free ourselves from the yoke of large companies and their inclination to short term thinking? How to run the economy as if the future matters? It is not unlikely that climate change will turn out to have catastrophic consequences. The degradation of biodiversity is worrisome. How to mobilize citizens and collectively set steps toward a better society?
All over the world, people are realizing that neoliberalism has led us into a dead-end street. We urgently need a new agenda, constantly informed by further debate and research. We believe the following guidelines have to be taken into account:
- Governments should not only correct market-failures, they should also create and shape new, better socially embedded markets.
- There should be clearer limits on the use of scarce goods and resources (water, energy), and there should be better ways of monitoring and enforcing those limits.
- We should have better and more pro-active competition policies
- We should heed the fact that wealth-creation needs patient finance and long term thinking. In that respect neoliberalism’s imagery of wealth-creation, in which the CEO’s of big companies are the true and only wealth-creators, is hopelessly false. Wealth-creation is the result of a complex interplay between the public and private sector, in which both sides, along with the working population, have to be seen as part of the collective process of wealth creation.
- We should make a clearer distinction between companies that extract value, and companies that create value. The first should be discouraged, the second encouraged.
- The current patent-system is broke. Knowledge is an infinite resource and we have to create forms of knowledge production and circulation that take that fact more into account. Accordingly we should institutionalize research in a different manner.
- We have to put an end to the discrepancy between political decision-making, which primarily takes place on a national level, and economic decision-making, which takes place on a global scale. Large companies should be brought to law by an international criminal court operating on the same scale as they do. No order has lasted forever. We have lived too long under the belief that ‘there is no alternative’. We hope to have shown that the contrary is the case. There is a way towards a more just, fair and sustainable future. And it is urgent that we start moving in that direction right now.