Rise of the corporate nation-state

Around the globe, more and more corporations are beginning to act like governments.

They negotiate with guerrilla leaders, build roads, and set up schools. Increasingly, they're setting labor standards in places where nations can't or won't.

There's only one problem.

By accepting more social responsibility, they're taking on more power just as a small but growing backlash against rising corporate power is taking hold in the United States. The movement burst on the scene during demonstrations against the World Trade Organization (WTO) in Seattle last year. The backlash could gain momentum with even bigger demonstrations planned in the nation's capital this weekend.

At the heart of this debate lies a simple question: Who should set society's agenda - big business or big government? How Americans answer that could well determine the future of issues as diverse as campaign-finance reform and antitrust action.

"The real question out there is the conflict between mobile international capital on the one hand versus nationalism on the other," says John Ellwood, professor of public policy at the University of California at Berkeley. "The WTO is the poster boy of the conflict."

By most accounts, corporations are getting stronger while governments are getting weaker. "Business has taken a much more central role in our society," says Michael Maccoby, an anthropologist and management consultant in Washington.

Reasons given for this shift vary. Some observers say the trend is irreversible because globalization will make the corporation, not the nation-state, the primary entity on the world stage in the 21st century. Others see only a temporary pendulum swing.

Either way, signs of the new business activism lay everywhere:

*In Colombia last month, two American entrepreneurs met with a guerrilla leader to negotiate for peace - over the objections of the US State Department.

*Reebok International built a school three years ago in Pakistan as part of its effort to move children from factories into schools. The company, based in Stoughton, Mass., guarantees that its soccer balls are not made with child labor - one of the very few corporations to make such an explicit commitment.

*Recognizing the growing importance of business, the United Nations has created a global compact that urges businesses to uphold certain environment, labor, and human rights principles.

The trend draws sharp criticism from some activists. "Do we want a social-responsibility movement, where we have the corporations throw us some crumbs while they accumulate more power?" asks Russell Mokhaiber, editor of Corporate Crime Reporter, a legal weekly in Washington. "Or do we want to challenge the notion of the corporation? They shouldn't have the power that they have."

For example, Mr. Mokhaiber likens current campaign-finance laws as legalized bribery of government officials by corporations. "There's no comparison in terms of straight raw power," he says. "[Corporations] dominate the political process."

Other would-be reformers take the opposite tack. If they can't get governments to act, they turn to a corporation - even if such a move increases its power.

"In some ways, it's government default, it seems to me, that puts companies in this position," says Sam Brown, executive director of the Fair Labor Association, a coalition of corporations and nonprofit groups aiming to protect the rights of apparel and footwear workers worldwide. "And if the only economic authority around to make this happen is corporations, then OK."

Leading companies in the social-responsibility movement defend their actions. "It's not about power," says Holly Carver, acting director of government affairs for Levi Strauss & Co. in San Francisco. "It's about making sure that people are treated well."

These companies say they're eager to have governments take the power back. "It isn't because we're in the business of operating schools," says Doug Cahn, Reebok's vice president of human rights programs. "We want to use it as an example of how government can do better. It's to drive change."

In the past, the US has reasserted government power when corporations got too strong. That's what happened at the turn of the century when progressives reformed government laws and broke up the Standard Oil monopoly. It happened again during the New Deal.

Today, as a federal judge weighs how to break up Microsoft's monopoly, observers don't see a broad-based movement among Americans to reestablish government power.

"Maybe they don't totally trust [Microsoft's] Bill Gates," says Mr. Ellwood. But "they distrust the government more."

In fact, rebalancing the power between business and government could inspire new solutions to problems, just as America's wealthiest entrepreneurs - such as Andrew Carnegie, John Rockefeller, and Henry Ford - did a century ago, argues Mr. Maccoby. "Look at the universities they built and the libraries and the big foundations they supported.... In the long run, there's going to be a new infusion of creative energy."

On the other hand, demonstrators plan a series of large rallies in Washington this weekend when finance ministers meet at the World Bank and International Monetary Fund. In the past, such meetings drew little attention from US activists. Now, they're in the limelight with the WTO because of increasing unease about globalization of the economy.

"There's a consciousness forming among young people," says Mokhaiber of Corporate Crime Reporter. "You see it in these demonstrations."

(c) Copyright 2000. The Christian Science Publishing Society