Naked capitalism and the democratic deficit

A week which saw British Petroleum and Amoco merge to become the world's third largest oil and gas company provides an opportunity to examine how such multinational or transnational companies relate to existing systems of political regulation.

Have they escaped from national systems of governance, secure in the knowledge that global governance remains a pipe dream incapable of implementation? Or are their interests served by a certain kind of international regulation? And how can such multinational, transnational or cosmopolitan forms of governance be made subject to more democratic accountability?

These large questions will not be resolved in a newspaper article; but it is possible to highlight some of the issues involved and to indicate where more detailed discussions may be found. In the European context this unavoidably raises the question of the nature of EU integration and how best to address its democratic deficit.

Multinationals account for a quarter to one-third of world output, 70 per cent of world trade and 80 per cent of direct international investment, but only some 10 per cent of the world labour force. They are crucial for technology diffusion and are key players in international money markets. Of the 100 largest economic units in the world economy today it is reckoned that 48 are nation states and 52 multinationals.

BP/Amoco will have nearly 100,000 employees and an annual turnover of $100 billion, making it a substantially larger player than Ireland in the world economy.

We hear a lot about the sheer mobility and clout of international companies, of how they are capable of uprooting investments, thereby disrupting or destroying local communities and relocating to more profitable parts of the world. The Asian economic crisis revolves in good part around their behaviour, as they over-invested in Indonesia, Thailand and Malaysia, which now along with corruption, waste and IMF mismanagement could lead to an international depression.

This is the classical picture of capitalism red in tooth and claw. Not surprisingly, many of its antagonists or victims believe the multinationals operate by cartel rather than competition and that the best defence against them is to withdraw behind national or local boundaries. Globilisation, on this account, is a conspiracy against the world's poor and relatively weak by privileged players anxious to escape with minimal democratic supervision.

But this is, at best, only half the picture. On its other side are technological innovation, extraordinary feats of organisation and productivity and relatively stable participation in many markets, locations and communities. It is a contradictory picture in which positive and destructive elements co-exist and interconnect. That, after all, is in the very nature of capitalism.

The same point applies to regulation and the rule of law. Despite the sheer strength of multinationals they are still for the most part rooted in particular nation-states, from which they have normally expanded. (The distinction between multinational and transnational takes that into account; genuinely transnational companies are still in a minority.) They rely greatly on national governments to regulate for commercial and legal stability.

Multinational interests are served by the creation of a single market and currency in the EU, by its relatively strict competition regime and its capacity to negotiate on world trade. They are not served by the development of an EU social policy regime dealing with such areas as health, welfare and education. Their distribution continues to provide national political elites with legitimacy and which they show little sign of pooling. The same applies to wages, where there is little sign of trans-European bargaining and a marked asymmetry between the strength of employer and trade union organisations at EU level.

On balance, therefore, the existing shape of EU integration suits the interests of large international companies and they would be further served by the penetration of neo-voluntarist methods into national domains. But they do not control the integration process. Social democratic governments in the main member-states will make some difference; so will pressure to develop political union to accompany the monetary one; so will the development of social movements across national boundaries in the multiple level political system emerging in the EU.

There is an opportunity for critics of multinationals and those who believe they can best be regulated in the EU to work for more democratic accountability at all these levels, including the European and national parliaments, regions and local communities, through labour and civil society organisations.

The disparate and uneven quality of this process is captured by the political scientist, Brigid Laffan, who points out that "the development of European integration has created a disjunction between legal sovereignty which has been transferred, state sovereignty which is increasingly pooled and popular sovereignty which remains largely national".*

The term "democratic deficit" is used to describe the shortfall involved, a process by which government functions are transferred to Brussels, without commensurate transfers of powers to the European Parliament or adequate scrutiny by national ones.

Simon Hix discusses this in comparative terms.** He concludes that because the EU is still an "upside-down political system", in which the institutions at national level largely retain control, it is better to opt for a presidential-style Commission president than a full-scale federal-type polity if more democratic accountability is to be developed.

Within this process there is an important role for national parliaments, in particular their EU committees, whose role has been endorsed by the Amsterdam Treaty. But they have a long way to go to catch up with the intra-executive and intra-bureaucratic systems which have spawned hundreds of committees meeting on thousands of occasions each year.

Two books just published examine the prospects for cosmopolitan democracy, as a means of exerting control over globalisation and its agents, multinationals concluded. They make convincing cases that this is not a utopian project, but one rooted in contemporary realities and achievable using its fantastic resources.***

* "The European Union: a distinctive model of internationalisation", Journal of European Public Policy, June, 1998. ** "Elections, Parties and Institutional Design: A Comparative Perspective on European Union Democracy", West European Politics, July 1998. *** Daniele Archibugi, David Held and Martin Kohler, Reimagining Political Community, Cambridge: Polity Press, 1998; Andrew Linklater, The Transformation of Political Community, Cambridge: Polity Press, 1998.