I recently suggested to colleagues that I thought that we were looking at accounting in the wrong way. We were still seeing large companies (now commonly called PIEs, which stands for public interest entity) as if they were microeconomic entities.
But what if they were not? What if they were macroeconomic entities? Then what?
The evidence supports this suggestion. Many multinational corporations are much larger than many countries.
By definition a PIE has a macroeconomic impact.
And if that is true the whole 'theory of the firm' view of the entity is wrong when applied to it. What the entity actually is, in that case, is a power bloc to rival government, and in the case of the big tech companies and others we do, of course, see that to be the case.
So why are we holding them to account as if they are still just companies? They aren't. The shareholders (one or two founders apart) have very little control in most cases (and I will note the exception of Exxon in another blog). Those shareholders have no meaningful ownership stake in the firm: they simply own a right to an income stream the company might pay. And the obligation to stakeholders is, in most cases, greater.
So why not treat them for what they are? And why not regulate them as macroeconomic entities, accountable to all, and not just a few shareholders whose identity is, in any case, unknown because of the way in which modern shareholding is registered?
Thoughts are welcome.
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[…] as macroeconomic entities (see this morning's blog on that issue)PIEs are big enough to do net-zero carbon without offsetting, which is essential. So they should […]
I couldn’t agree more! It’s absurd to think of multi-national corporations – and I most definitely include banking as well as tech and mining – as though they are companies/firms with the usual conventions that apply. They aren’t, they are a whole other operating/ecological system by the time they are that big. And the biggest of them are as secretive as hell.
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
This clearly is a massive task and needs to be tackled. Such is the arrogant power of these companies that only concerted international pressure can deal with it; meaning G7/G20, OECD, EU, US, China, and all the UN agencies working together to bring back anti-trust and monopoly regulation worldwide.
Making competition policy and economic regulation fit for purpose and actually applying them with effective statutory representation of the collective interests of consumers would be sufficient. That would provoke more than enough opposition from them, the politicians they’ve suborned, the armies of professional flunkies and functionaries they retain, and the tame academics and feeble-minded media operatives they’ve bribed – without getting in to a further unnecessary fight about how we should label and treat them. We know they’re too big, too ugly, too nasty and too powerful, but all we need to do is to try to stop or reduce the extent to which they’re capturing economic rents at the expense of final users and governments (in terms of taxes avoided).
Unless we think about them appropriately I suggest we will not work out how to regulate them properly
This us a ‘cart and horse’ issue
If we pretend all companies are the same we will, of course, get regulation wrong
And right now the ‘private enterprise’ card is used to prevent proper regulation
Watch and learn from how the Biden administration will tackle them. The US has a long established process for regulating ‘private enterprise’ going back to the 1880s. The model of economic regulation established here in the 1980s and 1990s – which the EU has adopted and adapted – is fundamentally flawed.
One or the factors contributing to our problems in economics, the environment and accounting is the willful blindness found in accounting and the so called ‘professional’ (but actually too narrow) focus on specific things to the loss of others.
To call these items ‘externalities’ is typically Neo-liberal ignorance inducing reductionism and it’s got to be stopped. But it also begins in the legal sphere and where the law posits the investor class as the first in line in terms of obligations.
That is just absurd and is just a ruse to ensure the rich get their cash with a playing field levelled for their benefit only. Pension funds are just as bad and their remit needs expanding to take into account this wider macro impact too.
It’s a good idea to me. And it takes into account the reality of what is actually happening.
“The shareholders (one or two founders apart) have very little control in most cases (and I will note the exception of Exxon in another blog). Those shareholders have no meaningful ownership stake in the firm: they simply own a right to an income stream the company might pay. And the obligation to stakeholders is, in most cases, greater. So why not treat them for what they are? And why not regulate them as macroeconomic entities, accountable to all, and not just a few shareholders whose identity is, in any case, unknown because of the way in which modern shareholding is registered?
Thoughts are welcome.”
That is flat out fascism. That is what Mussolini did, it’s largely what the Nazis did as well. The capitalists were allowed to keep their ownership. Collect their — regulated — dividends. But all the actual power over what happened belonged to government. In economic terms that’s actually what fascism is.
Steve
I seem to have missed this over the weekend- apologies. I am not sure how this happens, but it does sometimes.
I have to admit that you have done the most massive over-extrapolation, to the point of being ridiculous.
Fascism required rather more than state capitalism. You might have noticed it was also intensely nationalist, deeply racist, anti-democratic, and much else.
And what I am not saying is let the capitalist take all. What I am saying is that the capitalist entity has a duty to all – way beyond shareholders who might suffer a consequence as a result.
In fact, what I am staying is not remotely what you are suggesting I did.
So I wonder why you said it?
Doesn’t the phrase ‘too big to fail’ mean – a macroeconmic entity. I bet you central banks are treating some companies as macroeconmic entities in their models. right now. It’s just they don’t call them that, and don’t talk about it. Like they rarely talk about govt spending funding income and saving.
Yes