"NO LOGO"

- Jeremy Agar

When "No Logo" was first issued, it was hard to find in the bookshops. Not surprisingly. The sorts of books that challenge corporate power are not featured in the chains, and in the smaller, serious stores, the radical critiques are typically earnest, dull and unread. According to the salesperson who eventually landed me a copy from overseas, a pop group had sung "No Logo’s" praises, making it a must-buy on the counter-culture scene. If so, we owe them our thanks. "No Logo" has become a hit, and it has done so without compromising its tough analysis.

When you take on the biggest of the big -- Naomi Klein’s targets are corporations like Nike, Starbucks and McDonald’s -- you are tilting at our culture¹s power base. Normally, radical critics are ignored (if their take is accurate and pressing) or they are ridiculed and patronised. The critiques of global capitalism that the agents of global capitalism prefer are those which bewail the impotence of the individual consumer or the omnipotence of the brand. Either way, potential critics are rendered passive.

Klein has given the corporate bashing machine no such easy options. Those uneasy at the surging arrogance of "global free trade" will find in her book plenty of information from which to draw conclusions. Klein puts the world economy in a context, so that we gain historical and geographic perspective. Yes, the facts are shocking, the scope of the problem is vast; but, yes, ordinary people are responding and posing alternatives.

Outside the capitalist tent, critiques of corporate power have had a notoriously hard time of it lately. Within the tent, activists were co-opted. No sooner did anti-war marchers carry around a catchy new peace symbol then their corporate opponents stamped it on clothing and sold it back at high prices to their younger brothers and sisters. That¹s the classic example of how our postmodern Western culture works. Protests are seduced by conformity, and flattered into triviality.

How can you attack slave labour, debt and immiseration in the developing world without boring the cool and the hip? How do you convince your friends that it¹s a bad thing to ruin Third World societies when they assume that they must be doing all right as a result? When huge profits are being reaped by the very corporations whose images and values the young seek to absorb, it is notoriously difficult to attract an audience to listen to them being denounced.

Klein has done so, and her success is deserved. Not only is she is an excellent writer, clear and detailed, able to survey the mess of late capitalist production as clearly as any contemporary; she shows how it got that way too. It helps that she is about 30 years old, part of the first generation to live their lives entirely in the ethos of brand-name capitalism. It probably helps too that Klein is Canadian, close enough to see inside the tent, yet still -- just -- standing outside. Canadians know well the struggle to preserve independence.

It has. "No Logo’s" timing is impeccable. Since the book came out in 2000, the world has had to pay attention to a new, deeper opposition to (World Trade Organisation [WTO] Director General) Mike Moore and his mates as they rush to global corporate hegemony. The protestors at Seattle, Genoa and Melbourne have made the issues impossible to ignore. They were not there because of Naomi Klein. But if there is one book that speaks to them and of them it is probably this one, because it is one book that combines a savvy understanding of how the logo culture works with a considered explanation of why it stinks.

Klein’s particular contribution to the topic is her analysis of logos themselves. The modern logo exists only as symbol, only as hype. It offers a spurious promise of community to the alienated. The product itself is nothing in particular. Henry Ford made cars for working families; Nike puts a swoosh on cheap gym shoes. What will happen when consumers tire of paying big bucks to wear advertisments on their shoes and messages on their backs? Will the people of Indonesia and Thailand begin to enjoy the wealth of their countries?

In September 2001, the Economist, a sort of in-house guide for the global elites, took the unusual, even panicky, decision to model its cover on "No Logo’s" design, promising to explain to its worried clientele how to put the "Pro Logo" case. The journal’s failure to address any of "No Logo’s" points must be a further boost for the book. The Economist preferred personal gibes, trying to discredit the messenger, hoping the message might be laid to one side. They put words in Klein’s mouth which she had made a point of not putting there herself.

More than anyone, New Zealanders know that, when faced with opposition, the There Is No Alternative crowd bluster. It is interesting that when the Economist chose to make a big deal of its own stated intent to cast aside the advocates of internationalism and democracy, they too could manage only outdated insults. Klein was two jumps ahead of them. If the WTO and its armies of apologists want to win, they will have to do better.

This book’s cover states: "Moving Mountains is an accessible introduction to globalisation debates, grounded in a critical analysis of mining corporations". I have to confess that I was not easily enticed! My previous forays into reading about mining projects were limited. For my sensibilities, they were just too hideous in their reach. I kind of knew, but I couldn’t force myself to go further and really know. This book sat, forlornly neglected, until time limits for this review meant that I could put it off no longer.

A word of warning. This is not a book for easy bedtime reading. (Trust me, I tried this, and several hours later, I was pacing the floor and raging). It’s a book I’m glad I’ve read and one that I would recommend to others, especially those suffering from the syndrome of ‘this is just too awful to contemplate’. You’ll find it is, but you’ll be much better informed as you go!

Multinational mining corporations are among the key beasts of globalisation. They have been at the forefront of the push to mark out new physical, cultural and economic frontiers for global capitalism.

This goal of the editors is helped by the division of the book into four sections covering "Contexts", "Structures", "Challenges" and "Alternatives", respectively.

"Contexts" "…explores the logic of corporate power under globalisation and sketches the current operating framework for mining corporations". The "logic" is neatly exposed. This section of the book, and in particular the chapter by David Korten entitled "Predatory Corporations", spelt the end to restful sleep. Particularly chilling (because of its ongoing relevance), was the passage Korten cited from the Policy Planning Study 23 by George Kennan of the US State Department:

" We have about 50% of the world’s wealth, but only 6.3% of its population. In this situation we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity….To do so, we will have to dispense with sentimentality and day dreaming: and our intention will have to be concentrated everywhere on our immediate national objectives…We should cease to talk about vague … unreal objectives such as human rights, the raising of living standards, and democratisation. The day is not far off when we are going to have to deal in straight power concepts. The less we are then hampered by idealistic slogans, the better".

As Korten notes, "…it was necessary to couch this agenda in idealistic slogans to provide cover for intentions, which if revealed, would have been strenuously resisted by the rest of the world and much of the US public". Kennan’s study was written in 1948.

The second section of "Moving Mountains" focuses on "Structures" and examines specific examples of corporate mining in Indonesia, Canada and Australia and the consequences on cultures, livelihoods and environments. Bob Burton’s chapter exposes the public relations strategies being used by the mining transnationals to ‘manage’ public outrage. If only these mechanisms were more widely understood.

The third section focuses on "Challenges" to corporate mining from social and political movements. The first two chapters draw from experiences in Bougainville and the Philippines looking particularly at the effects of corporate mining on national self determination in Bougainville and at the role of mining corporations as agents of imperialism in the Philippines. The remaining chapters in this section address challenges to social impacts by the trade union movement, NGO’s and traditional landowners.

The final section questions "Alternatives" to the existing status quo - a useful and deliberate invitation to the reader to participate in challenging corporate globalisation as well as to participate in articulating and debating possible alternative visions.

The book is a "goodie". Don’t be daunted by the hideous nature of the mining industry. It serves as a very useful vehicle to examine corporate globalisation and provides a graphic context within which the authors have been able to demonstrate the gross ills of corporate globalisation. The reader is driven inescapably towards resource exhaustion, asset stripping, the displacement of people, the loss of sovereign power, dependence on foreign income, removal of foreign ownership restrictions, the driving down of environmental, social, labour and fiscal regulation, exploitation of indigenous populations, destruction of local political and social structures, environmental ruin, and the advancement of the rich at the expense of the poor. (This list is not exhaustive!).

But "Moving Mountains" makes it clear, too, that campaigns challenging the power, priorities and practices of global mining corporations have also globalised and that the transnationals have their own set of vulnerabilities as these once seemingly disparate struggles merge and find a global voice and force. The back cover blurb to the book boasts that: "It will inform and inspire readers seeking a greater understanding of the issues of globalisation, mining and the possibilities for change". I agree. If you’ve got to do the consuming thing that some folk do late December, pop a few copies of this book into those stockings.

Aotearoa/New Zealand is the most transnationalised developed economy in the world, according to the United Nation’s World Investment Report for 2000. The degree of our transnationalisation – an index constructed from four measures of the degree the country is dependent on foreign direct investment (FDI) – is two and a half times the average of those developed countries the index could be calculated for.

Is that good or bad? A few years ago, the World Investment Report – from the same department that brings us the Pro-Invest newssheet – would have said without question, yes. Now it is not quite so sure. The worm is turning. From 1975 to 1992, United Nations (UN) research on transnational corporations was carried out through the UN Centre on Transnational Corporations. One of its main projects was to construct a code of conduct for transnationals. The first President Bush demanded that should cease, the Centre was disbanded, and for the rest of the decade UN research seemed little more than a series of justifications for why foreign investment is good for you. Now under the United Nations Conference on Trade and Development (UNCTAD), the research is once again becoming guardedly critical.

But first it is useful to be reminded just how much transnational corporations (TNCs) dominate the world economy. In 1999 there were some 63,000 TNCs with around 690,000 foreign affiliates, "a formidable force in today’s world economy". The top non-financial 100 TNCs were based almost exclusively in developed counties (there was only one exception – Petroleos de Venezuela, ranked at 91), and had $US2 trillion in both assets and foreign sales, but employed only six million people. The 100 (which are ranked by foreign assets) were concentrated mainly in electronics, electrical equipment, cars, petroleum, chemicals and pharmaceuticals, but the others were far more diverse.

Sales of the TNCs’ foreign affiliates worldwide at $US14 trillion in 1999 were worth about twice global exports, and they were growing much faster than global trade and Gross Domestic Product (GDP). International production by the TNCs was about one tenth of global GDP (it was one twentieth in 1982). Yet this production employed only 40.5 million people – about 1% of the world’s workforce – and employment was growing much slower than TNC assets and sales. In 1999, the TNCs’ employment was growing at an estimated 11.9% per year, but assets of their foreign affiliates, bloated by takeovers, were growing at 19.8% and sales at 17.8% per year.

The domination of these companies is emphasised even more when home production is included. Then they account for about a quarter of global GDP.

However their activities are very focused in economies that are safe or profitable. In 1999, just ten countries received almost three-quarters (74%) of all FDI flows, and the same proportion (74%) went to developed countries. The largest source of investment was the UK followed by the USA, but two-thirds of global FDI came from the European Union (EU) – mainly in huge "mergers and acquisitions" (M&A). Japanese investment, though still large was down, but in a significant development, FDI into Japan quadrupled – mainly as a result of large takeovers, unusual in country that prefers greenfields investment.

The Report is now freely admitting that such things cannot be left to "the market":

"Markets and supporting institutions, however, do not work perfectly – far from it. Moreover, the interests of TNCs and host countries do not always coincide. Policy therefore matters. Governments have to make sure that they create conditions in which their economies gain the maximum benefits from FDI and suffer a minimum of losses" (p26).

In other words, FDI may not be good for you, and governments have to act to ensure benefits are gained. But as the Report also notes, international trade and investment rules limit the freedom of national governments to act in this way. UNCTAD advises them not to get in too deep:

"Because markets are not perfect, moreover, it is important for countries to preserve a ‘policy space’ for themselves in the new international environment. They should, for instance keep room for manoeuvre when negotiating international investment agreements in order to ensure that they are able to further national economic interests…. Simply participating in international production in a static way is not the way to develop: sustained growth requires that the base of domestic capabilities be dynamic. This calls for a number of policies which, while not directly related to FDI are critical to benefiting from it".

This is advice the Report would have shuddered at in the mid-90’s, but it is advice worth heeding.

Despite the advice, barriers to FDI are falling. Countries made 140 changes in their regulation of FDI in 1999. Of these, 131 were a change favouring FDI. Between 1991 and 1999, 94% of changes in regulations favoured FDI. Similarly, the number of bilateral investment treaties (BITs), like those that New Zealand has with Hong Kong and China, is increasing rapidly. In 1999, the number of BITs increased by 130 – from 1,726 to 1,856. There were just 181 in 1980. There is a similar increase in the number of double taxation treaties, plus of course the more widely known agreements such as the North America Free Trade Agreement (NAFTA), the EU, the World Trade Organisation (WTO) and Closer Economic Relations with Australia (CER) which include investment in one form or another. What is revealing about the BITs signed in 1999 is that none were between two developed countries. A third were between developed countries and either developing countries or former Soviet Bloc countries. BITs are to protect investors, not the host country.

These falling barriers are encouraging deeper integration of production, where the facilities created or acquired in one country are designed to be simply a step in a longer production process and cannot stand alone. Much of world trade is therefore in intermediate products. While such "deep integration" is increasing, it is by no means universal however. An important example is that the relocation abroad of research and development (R&D) has proceeded far more slowly than other functions. Branch economies like New Zealand should not hold out hope for large shares of TNC’s R&D expenditure and skills.

Some of the highest rates of M&A told the saddest tales. South Korea was the largest "recipient" of FDI through M&A in developing Asia in 1999. This was a result of the fire sale of many of its most important companies forced by the International Monetary Fund (IMF) and South Korea’s other creditors, largely to European and US TNCs in the aftermath of the 1997 financial crisis. Other "leaders" in this ugly stampede for developing countries’ assets were Argentina and Brazil – both in ongoing economic crisis. Similarly the continuing privatisations in Eastern Europe led to large scale M&A by TNCs.

Privatisations in general went to domestic buyers in developed countries and foreign buyers in developing countries (New Zealand is obviously an exception to this rule). Overwhelmingly the buyers were from developed countries. The largest sales to foreign buyers in the period 1987-1999 were Brazil ($US31.9 billion), Argentina ($US26.4 billion) and, surprisingly, Australia ($US24.3 billion). According to the Report, New Zealand sold $US2.7 billion in privatisations overseas, but this seems a considerable underestimate. Worldwide, the Report says a total of $US221.7 billion was privatised to TNCs during that period.

While the Report refers throughout to "mergers and acquisitions", they are in fact usually straight acquisitions or takeovers. Only 3% are genuine mergers. Of the acquisitions, two thirds are full acquisitions (100% takeover) and only a third result in a shareholding of 10-49%.

Cross-border M&A increased by 35% in 1999, UNCTAD estimating a total value of $US720 billion in over 6,000 deals. While FDI flows and M&A values cannot be strictly compared because of timing and other technical problems, the value of M&A was 80% of that of FDI in 1999, indicating the dominance of this form of investment. That was expected to increase in 2000, passing $US1 trillion in M&A.

Yet most such M&A don’t succeed: they don’t achieve the gains claimed by managers. The Report summarises the evidence as indicating that the target firm’s shareholders benefit, while the bidding firm’s shareholders generally lose or break even. Rates of return on shares deteriorated. However individual plants taken over may benefit from higher productivity or greater available financial resources.

So why do these huge takeovers occur? They give TNCs two advantages over greenfields investment: speed, and access to proprietary assets. They provide the fastest means to quickly enter a market and gain market dominance. In addition, they hand to the acquiring TNC the target’s proprietary technology and information, and knowledge of the local market.

But, says the Report, given the dismal financial record of such takeovers, there must be other reasons. It lists advances in technology, liberalisation and changes in capital markets. Rapid technological change has intensified competitive pressures on TNCs. Taking over others is a shortcut and cheap method of innovation (if buying someone else’s technology can be called innovation!). Liberalisation of both FDI and trade rules has not only facilitated such takeovers, but has added to the competitive pressures as TNCs compete to dominate new economic regions formed by the falling border restrictions. Capital market liberalisation has made the takeovers easier by providing the finance. There is in effect a market for firms as commodities.

"Even firms that would not want to jump on the bandwagon may feel that they have to, for fear of becoming targets themselves". In other words, liberalisation and more intense competition is leading to less competition and the formation of new oligopolies and monopolies.

Again, M&A are dominated by the developed countries. In 1999, 90% (by value) were within developed countries, and M&A accounted for 90% of the FDI to the US itself. Services were a major target, being the subject of 60% of the sales in 1999. "Telecommunications, energy and financial services were the leading industries in the services sector, largely as a result of recent deregulation and liberalisation in these industries". The sale of manufacturing firms is declining and natural resources negligible.

In a number of host countries, concern is expressed in political discussions and the media that FDI entry through the takeover of domestic firms is less beneficial, if not positively harmful, for economic development than entry by setting up new facilities. At the heart of these concerns is that foreign acquisitions do not add to productive capacity but simply transfer ownership and control from domestic to foreign hands. This transfer is often accompanied by layoffs of employees or the closing of some production or functional activities (e.g. R&D capacities). It also entails servicing the new owner in foreign exchange.

If the acquirers are global oligopolists, they may well come to dominate the local market. Cross-border M&A can, moreover, be used deliberately to reduce competition in domestic markets. They can lead to strategic firms or even entire industries (including key ones like banking) falling under foreign control, threatening local entrepreneurial and technological capacity-building.

Concerns over the impact of cross-border M&A on host country development arise even when M&A go well from a corporate viewpoint. But there can also be additional concerns related to the possibility that M&A may not, in fact, go well. Half of all M&A do not live up to the performance expectations of parent firms, typically when measured in terms of shareholder value. Moreover, even in M&A that do go well, efficient implementation from an investor’s point of view does not necessarily mean a favourable impact on host-country development. This applies to FDI through M&A as well as to greenfields FDI. The main reason is that the commercial objectives of TNCs and the development objectives of host economies do not necessarily coincide.

The areas of concern transcend the economic and reach into the social, political and cultural realms. In industries like media and entertainment, for example, M&A may seem to threaten national culture or identity. More broadly, the transfer of ownership of important enterprises from domestic to foreign hands may be seen as eroding national sovereignty and amounting to recolonisation. When the acquisitions involve "fire sales" — sales of companies in distress, often at low prices considered abnormally low — such concerns are intensified.

The issues raised by M&A then lead to a discussion of the alternative form of FDI: greenfields investment, where the TNC creates a new asset.

In the short term, it concludes that M&A

• Will not always add to the country’s financial resources, and may not produce any productive investment at all, whereas greenfields FDI does;
• Are less likely to transfer new or better technologies or skills and may lead directly to the downgrading or closure of local production or activities such as research and development. Indeed, the "stripping of technological assets is a risk" (p180);
• Do not generate employment and may lead to layoffs. Deunionisation and loss of pay and conditions may also occur, though sometimes reductions in staff numbers lead to higher pay for those remaining. The loss of employment, wages and conditions highlights the importance of good social welfare systems;
• Can increase concentration and lead to anti-competitive results; "in fact mergers and acquisitions can be used deliberately to reduce or eliminate competition", whereas greenfields increases competition.

M&A may be better if the objective is to restructure the industry. Greenfields investment may destroy local firms through competition.

However, the differences fade in the longer term: M&A

The exception is that M&A have a continuing greater capacity to engage in anticompetitive behaviour where they increase concentration, especially in weakly regulated oligopolistic industries (industries with only a small number of competitors).

"Finally, there are the broader apprehensions regarding a weakening of the national enterprise sector and a loss of control over the direction of national economic development and the pursuit of national social, cultural and political goals. These issues acquire urgency when cross-border M&A result in industries thought to be strategic coming under the control of foreign TNCs. They may acquire a yet further edge in developing countries since these countries are predominantly host rather than home countries for FDI in general and cross-border M&A in particular.

"The basic question here is what role foreign firms should play in an economy, regardless of whether they enter through greenfields investment or cross-border M&A. It has to do with the extent of foreign ownership that a country can accept comfortably, and the economic, social, cultural and political consequences of such ownership. Many governments, local enterprises and civil society groups feel that certain activities (e.g. the media) should be exclusively or primarily in local hands.

"There are no a priori solutions to these concerns. Each country needs to make its own judgment in the light of its conditions and needs and in the framework of its broader development objectives. It also needs to be aware of — and to assess — the trade-offs involved, whether related to efficiency, output growth, the distribution of income, access to markets or various non-economic objectives. And it needs to note as well that some of these concerns are raised by all FDI, although the specific nature of M&A may exacerbate them. Trade-offs between economic objectives and broader, non-economic ones, in particular, require value judgments that only countries alone can make" (p xxv).

The Report concludes that under normal circumstances, greenfields FDI is better than M&A for developing countries because it provides additional resources with fewer risks as described above. Under exceptional circumstances, such as a financial crisis and where there is no alternative to takeovers, M&A may play a useful role in restructuring.

Which raises the question: if FDI is good for us, why is 80% of it in the wrong form? Or is the entire world in crisis and in need of restructuring? If that is the case, what is wrong with the whole economic system?

The Report concludes with a message to those who worship the free market and minimal government: "regardless of circumstances, policy matters". Governments need to address competition policy, risks and effects of M&A, employment issues, resource utilisation, and FDI policies (including sectoral reservations, ownership regulations, size criteria, screening, and incentives).

Pointed out is the risk that in the absence of regulation, firms will institute anticompetitive practices to replace it. But competition policy cannot be pursued effectively in one country alone. "This means that competition authorities need to have in place, and to strengthen, cooperation mechanisms among themselves at the bilateral, regional and multilateral levels, in order to respond effectively to M&A and anti-competitive practices of firms that affect their countries". There is little discussion as to what form that international cooperation might take however.

Competition is a controversial "new issue" being raised by the US and EU in the WTO and elsewhere. It can be a double-edged sword. A strong competition policy for a small economy can force it to accept TNCs as the only means to create competition. One application they undoubtedly have in mind is that of primary producer boards and cooperatives with export monopolies or dominance: competition policy could allow TNCs to force their way into those markets. Such policy carries the risk that the local competitors are forced out of business, leaving a possibly monopolistic, overseas-owned sector. On the other hand, an international competition policy that forces countries to share information on such matters as the anti-competitive practices and financial position of a particular corporation could certainly be of benefit. Unfortunately it is not difficult to guess which is the more likely to come about.