The Global Balance of Power

The advent of the globalization era changed the balance of power in the world. All the political and economic relationships were centred on countries confronting other countries or aligning with them. The period that preceded globalization era, was the period of the Cold War. The world had two dominant superpowers, two super-states: the United States and the Soviet Union. The globalization led to creation of more balanced system than during the Cold War. The balance of power can be represented as equilibrium between corporations, nation-states and non-state individuals (Levy & Prakash 2003). All three powers overlap and affect each other within the system. The first kind of balance is the conventional power between states. The changing balance of power between the U.S. and other countries or between other nations still plays a very significant role for the stability of this system. The second power appeared recently and it represents the power of individuals and new balance between individuals and states. Friedman (2002, p. 393) provides an example of Osama bin Laden who declared a war to the U.S. and possessed such a great power that the U.S. had to mobilize an army, and “fired 75 cruise missiles, at $1 million apiece, at a person,” a single individual. The second important power balance that resulted in the globalization is between nation-states and global markets. The global markets are represented by millions of investors who transfer money around the globe making no efforts. They locate in main international financial centres, such as Wall Street, Frankfurt, London or Hong Kong. The attitudes and operations of investors and financial centres can have a great influence on nation-states nowadays. They can lead to the government downfall, taking into consideration the events in 1998 in Indonesia that led to overthrowing the regime of Suharto. The foreign corporations withdrew their support of Indonesian economy. Thus, financial centres bear more responsibility for the incident than other nation-states. The power of corporations is of a different nature than that of nation-states, but it is no less influential. For example, the United States can use the power against another nation by dropping bombs, but the global markets can do the same damage by downgrading bonds (Friedman 2002, p.393).

The Measurements of Power

The comparison of power between corporations and states requires an analytical approach. One should consider such factors as the size and financial resources of corporations and states, as well as the nature of the power, which can be economical and political. Evidence suggests that the claim that organizations have become more powerful than states is sustainable. First, there are numerous multinational corporations that possess huge resources, in some cases bigger than those of some countries. De Grauwe & Camerman (2003) argue that the most evidential fact that supports this assumption is that “among the hundred biggest ‘economies’ in the world, 51 are corporations and only 49 are countries.” For example, American corporation, Wal-Mart, had $405 billion in sales in 2010, making it one of the biggest and most lucrative businesses, as well as one of the richest economies in the world. Rothkopf (2012) states that “if Wal-Mart were a country, it would rank 24th in the world.” Thus, Wal-Mart has more resources than most of the states, including such nations as Denmark, Austria and Chile. Some companies can even exceed many countries by the size of population. For example, McDonald’s has over 2.1 million workers, which is twice as bigger that the number of population in Estonia (Rothkopf 2012). In fact, “the McDonald’s Corporation has become a powerful symbol of America’s service economy, which is now responsible for 90 per cent of the country’s new jobs” (Saul 2011). Every year, the corporation provides jobs to one million employees, which is more than any public or private sector company in the U.S. Moreover, reportedly one out of eight American employees has been working in the company at some point. It is worth mentioning, that even though some multinational corporations are big, they may not be as powerful as people used to believe. The high rates of profit and size growth do not indicate the extent of power they have. They may possess extensive power and such power may increase with time, thus indicating on the direct relationship between size and power. However, this relationship is not perfect and may be applicable only in specific cases. Saul (2011) claims that corporations may develop faster than government in order to solve social problems. For example, Wal-Mart is considered one of their biggest American health insurance providers. It has been increasing the amount of insured Americans more efficiently than the U.S. Administration by using innovations in business. The main issue of assessing power of corporations is that, unlike size, it cannot be measured in conventional and statistical ways. Power can be determined only by indirectly inferring its extent. In this regard, it is important to distinguish between economic and political power.

Economic Power of Corporations

Economic power refers to the ability of corporations to establish prices on the level that is higher than the expenses, and thus to make ‘excess’ profit. The degree to which companies can do it is affected by two factors. The first one is substitutability of products or services of the company. The availability of alternative products and services decreases the capability of imposing prices greater than expenses incurred to produce a particular product or deliver a particular service. The second factor is competition on the market. If the company has no or little competitors, it gains possibility to set the prices on the level suitable for business. The highest capacity of imposing prices can be achieved in the context of monopoly (De Grauwe & Camerman 2003). Karl Marx predicted that capitalism would eventually create monopolistic markets where corporations would have the ability to solely control prices. Similar predictions were represented by the proponents of the anti-globalist movement.

Political Power of Corporations

It is more complicated to measure political power of corporations than economical one. Moreover, both the political and economic capacities of the companies tend to overlap. A successful company excels its competitors due to a possibility to represent a product or service of a higher quality or cheaper price, or due to a combination of other factors, such as marketing or brand value. The ultimate objective of the competition race is to achieve level of products or services sales that will help eliminate the competitors, thus creating monopoly in the market. The power which comes with monopolistic position can lead to power abuse. The corporation may create barriers to new companies that enter the market, though, such barriers are not easily erected. One way of achieving it is to gain support from the state officials and legislators who can build legal obstacles for new entrants. Therefore, some successful companies eventually choose to invest in political power, thus allowing consolidating of their monopolistic position and eliminating the threat of new competitors. The problem of bribery is vital in measuring the extent of political power of big corporation. In states, where corruption thrives, corporations may use states as the legislative subsidiaries. Such idea is plausible, since companies owing big money may dictate the rules. It can be said that big organisations possess the necessary resources to control the legislative agendas of many countries, enacting laws that benefit their goals. Though unproved, there is an assumption that corporations can influence the legislative decisions and lobby laws by having top state officials under financial control. Even though corporations can have damaging effects on economies of some countries, it does not mean that they have more power than the countries themselves. Big companies can cause an economic collapse, but the states also have leverage over commercial organisations. Thus, it can be said that corporations and nation-states are in position to influence balance and interdependence of powers. Corporations have a substantial potential to influence state policy, largely through the risk of withdrawal form market. For instance, when a state is attempting to reduce health care costs, it may try to impel pharmaceutical corporations to provide licenses of their patented medication to local enterprises for a much lowered fee. Such mechanism can artificially lower prices on drugs. However, when companies face such risk, they may choose to simply withdraw from the market. It would result in reducing the drugs availability. Therefore, the state administration would be forced to atop its attempts. On the other hand, corporations also bear losses in the result of market withdrawal. Similarly, corporation and nation-state may confront if state attempts to make companies provide free financial aid in a form of transferring their intellectual property to public in order to provide the technology to local business persons. Normally, when businesses have to choose between the option of losing major competitive advantages or withdrawing from market, they decide to do the latter. As the result, the governments would be forced to cancel their policy. The United States was rather successful in in this type of clash with big corporations. Thus, as much as big corporations attempt to affect nation-states, governments move to influence corporate behaviour. The risk of nationalization, which compels a corporation to sell its local companies to the state administration or to other local companies, as well as modifications to local business policies and protocols, can restrain the extent of power of big corporations. De Grauwe & Camerman (2003) argue that the growth of corporations is not as big as society perceives. They point to the fact that if compared to economic and political growth of the countries, it can be said that corporations became relatively smaller and less powerful than countries. However, the public perception is much different. Thus, it can be concluded that the major change took place not in the economic or political situations, but in the perception of such situation. There is an indirect approach to assess the development of the political and economic power of corporations. Such approach involves analysing the time of corporations’ existence on the market. The rationale behind this method is the assumption that when big corporations hold the same positions during a long period of time, there is a chance that they will manage to establish and develop extensive political and social networks. Such networks can be used to support them and provide instruments that can be used to hold better position in the market. Contrariwise, if the company’s existence in business is limited and it emerges and collapses quickly, its ability to establish necessary connection and political and economic power is narrow (De Grauwe & Camerman 2003). The balance of power is shared between corporations, nation-states and empowered individuals. All three powers affect each other within this system. Recently, the corporations have been gaining great economic and political powers. The balance between nation-states and international corporations is not perfect. The power of corporations is different than that of nation-states, but it is not less influential. For example, if a country may use military force against another nation, the global markets can do the same damage by downgrading bonds. Big corporations are progressively perceived as organisations with excessive power and influence. Such image is encouraged by expansive growth of corporations in size and profitability. This view has resulted in assumptions that corporations become more powerful than nation-states. However, there is no substantial evidence that the size of corporations results in possessing more power than countries.