Are Corporations Too Powerful and Presenting as a Threat to Global Economies, Civil Societies - Case Study Example

ARE CORPORATIONS TOO POWERFUL AND PRESENTING AS A THREAT TO GLOBAL ECONOMIES, CIVIL SOCIETIES, AND THE ENVIRONMENT? Student’s Name Student’s Number Tutor’s Name Are Corporations Too Powerful and Presenting as a Threat to Global Economies, Civil Societies, and the Environment? Abstract The main goal of the study was to determine if corporations are too powerful and presenting a threat to the global economies, civil societies, and the environment. The study was analysed based on the “too big to fail” theory. The case study of the corporation that was used for the study was BP. The study affirmed that the corporations are too powerful and presenting a threat to the global economies, civil societies, and the environment. In explanation, the study was able to confirm that BP is one of the biggest multinational corporations that existed today. Due to its “too big to fail status”, the company polluted the environment in 2010 on an incidence known as the Gulf of Mexico oil to spill but the United States government helped it to conceal the costs at the expense of the environment. The incident threatened several economies that depended on the Gulf and oil while the functions of the civil society including the media were affected in the concealing of evidence. Contents Abstract 2 Introduction 3 Definition of Terms 4 ‘Too Big to Fail’ Theory 5 The BP Case 5 Six Key Points 6 Conclusion 10 Reference List 11 Introduction The aim of the study was to determine if corporations are too powerful and presenting as a threat to the global economies, civil societies, and the environment. The case study of BP was analysed to help argue the facts. The analysis of the case study was based on the theory of ‘Too big to fail’ to help justify the collusion between the government and the company during the event. Based on the theory, BP as a corporation has proven to be too big and powerful thus capturing the interest of the political class. Large corporations such as BP have undeniable cultural, environmental, political, and economic force in the globalised world.(Roach 2007) They impact lives of billions of the world population in different imperceptible and complex ways. The study affirms that the corporations are too powerful and presenting a threat to the global economies, civil societies, and the environment. In explanation, when the corporations are too strong, they tend to overshadow the other structures that ought to regulate their practices such as the civil societies and governments at the local, national, and international levels. As a result, they might make huge profits as private entities at the expense of the global economies that will have to bear the cost of their negative social, political, and environmental impacts. The background rationale of the study is to help understand the unsustainable conditions associated with too strong corporations. Definition of Terms Neo-liberalism it is a modern theory in the politics and economics that argues that the government should minimise its interference in the free markets, encourage privatisation and the free market, and engage in activities such as reduction of expenditure on the social services. Global Economies is the international exchange of services and goods expressed in monetary units. Corporations are groups of people or a company given the mandate under the law to act as an entity. Civil Society is a community or group of citizens brought together through a common interest and collective process. Environment is the conditions or surroundings that flora and fauna operate and lives. Corporate Social Responsibility is a business approach that promotes sustainable development through delivering social, environmental, and economic benefits to its stakeholders. Bailout is a situation in which the government offers money to a struggling business entity with the intention of preventing the consequences that are associated with its fall. ‘Too Big to Fail’ Theory ‘Too big to fail’ theory argues that some businesses are too large to the extent that government should provide assistance whenever it is facing a challenge.(Kaufman2014) In explanation, the government should support such businesses to ensure that they do not fail since their failure might be disastrous to the economy. A failure in a large company would mean that the subsequent companies that relied on it will also be forced to shut down thus reducing the employment opportunities as jobs are eliminated. It is, therefore, less costly to bailout such companies or businesses compared to the cost associated with the economic failure. As a result, governments always consider bailouts of such companies as the best cost-effective solution. The doctrine of ‘Too big to fail’, therefore, secures the big firms or firms that are deemed to be big. The interpretation of the doctrine can be based on the argument that big firms have greater scope and economies of scale thus more efficient compared to the smaller companies.(Moosa 2010) In explanation, big firms are more diversified compared to the small firms thus making them competitively superior to their counterparts. In addition, its diversity ensures that its exposure to the risk associated with the structural economic changes is minimised. Big firms also enjoy lower capital cost and significant market power.(Moosa 2010) The BP Case BP is a British multinational gas and oil company whose headquarter is in London, England. As of 2012, it was ranked the top six largest gases and oil company and energy company based on market capitalisation. (Bergin 2008) BP is also among the top five companies with the largest revenue turnover. (Dutta 2013) BP is an integrated oil and gas company and has a variety of activities including trading, power generating, petrochemicals, marketing and distribution, refining, exploration, and production. The company also has an interest in the green energy such as wind power and biofuels which were received positively as a sign that the company was going green. The green theme came into play when the company decided to change its name in 1998 from British Petroleum to BP which is an abbreviation of ‘moving Beyond Petroleum’. (Tomlinson 2015) However, the green-friendly credentials did not last long courtesy of the 2010 Gulf of Mexico oil spill disaster. The disaster became a major talking point with the corporate deemed to have ventured into the corporate social responsibility just for profit making activities. The company pleaded guilty of 2 misdemeanours, 11 counts of manslaughter, and a count of lying to the Congress that led to a fine of $4.5 billion in fines which are the largest criminal resolution in the history of the United States. (Tomlinson 2015) The company is still in the court facing damages of more than $ 17 billion. Six Key Points Corporations are too powerful that calls for the government to side with them whenever they are in trouble thus affecting oversight role of the latter. Upon the occurrence of the 2010 Gulf of Mexico oil spill that was declared a disaster, the United States government came into play to ensure that the company was protected. (Bradshaw 2014) In the process, the two parties committed what is known as the state-corporate crime which is defined as a moment in which the corporate entity and the state come together to cause a social harm. In explanation, the United States government and BP colluded to hide the environmental harm caused by the disaster. The federal government worked together with the BP to contain the oil spill impacts at the Macondo well with the intention of preventing the public from knowing the environmental impacts associated with the disaster. The act of concealing the damage was primarily due to the capacity of the company and was conducted despite the spill being declared a Spill of National Significance on 29 April 2010. (Bradshaw 2014) The government knew that if the information went to the public domain, the image of BP would be negatively affected thus it is financial standing. BP being a multinational corporation, such a scandal, if not concealed, would have made it go to its knees thus making economies struggle through unemployment and related impacts. As a result, the government decided to come in and help the company conceal the environmental impacts associated with the oil spill (De Wolf and Mejri, 2013). Corporations are a threat to the global economies. For instance, the oil spill in the Gulf affected the fishing, oyster and shrimping industries. In the state of Louisiana, seafood is an industry worth 2.4 billion which is more than 30 percent of those that originate from other parts of the nation. (Snyder 2010) The poisoning of the water with oil meant that the oceanic life would be deteriorated. As a result, the shrimpers and fishermen would lose jobs thus affecting the economy of the United States. In extension, the countries that relied on the support of the United States, being a super power, would have to suffer courtesy of the oil spill. The scenario is depicted to be similar with that of the fishermen in Alaska and Cordova that struggled for more than 21 years after the 1989 Exxon oil spill. (Snyder 2010) The wildlife that lives and breeds on the Gulf have also affected especially the waterfowl. Since the oil spill negatively impacted on the natural beauty of the Gulf, tourism activities that used to take place in the area were killed thus resulting into massive financial losses. Countries and states, therefore, had to suffer courtesy of the BP with states that were already struggling such as the state of Louisiana had to look for alternative means of growing their economy. The corporations are the threat to the civil societies. In explanation, the collaboration between the BP and the government during the oil spill disaster made it a threat to the civil societies of the third force. The government denied the media and non-governmental organisations the right to information thus inhibiting their activities. (Bradshaw 2014) After the oil had made a landfall, photographs that showed the oil-soaked brown pelican were still in the media platforms for public consumption. In reaction, the Unifed Command and BP placed efforts to ensure that the images of the Gulf were censored. The efforts were put in place through policing and instituting a sixty-five-foot zone around the animals, equipment, and clean-up workers. The BP hired the local law enforcement, Department of Human Security, and the Coast Guard that worked closely to ensure that the media was blocked from accessing the site (De Wolf and Mejri, 2013). The information had to be approved by the Department of Human Security and the White House before it could have been passed for public consumption. In the 152 days period that the government and the BP tried to contain the impacts using multi-methods, the oversight of the federal increased significantly with the failures of BP persisting. However, it is argued that the process made by the federal authority to take over the process were untimely thus making it ‘too little, too late.’ (Bradshaw 2014) But the government had to take the BP side since it is a multinational corporation. Corporations are a threat to the environment. On 22 April 2010, a rig toppled into the Gulf of Mexico releasing about 4.9 million barrels of oil from the BP known as the Macondo well. (Bradshaw 2014) In addition, dispersants were used to enable the breaking up of the oil spills into microscopic droplets that allow them to sink in the bottom part of the ocean. However, the dilution of the water column changes only the oil form and not the quantity thus ineffective. (Robertson & Sullivan 2009) Even though the use of dispersants might be of help to the animal life on the onshore but the aquatic animals that live underneath the water column will be significantly affected. The act of using dispersants is usually a trade-off between the immediate negative impacts of the oil concentration washed ashore and the long-term effects of dispersing the concentrated oil throughout the water column. It is important to note that the BP was the winner in the use of chemical dispersants since it managed to reduce its financial liability through concealing the volume of oil visible on the surface and the shoreline of the Gulf of Mexico. The amount of chemical dispersants that were used were over 1.84 million gallons that were injected directly, dumped by boat, and sprayed by plane at the wellhead. (Bradshaw 2014) But BP could not be held into task to compensate for all the losses since it is ‘too big to fail.' Corporations can affect the prices of commodities at the global level. The oil spill also saw the oil prices shoot up. The high rise in the prices of oil was based on the demand and supply theory. In explanation, the demand for oil was continuing to rise while the supply was inhibited to the oil spill in the Gulf. As a result, the supply of the oil became less quickly thus making the prices shoot. According to the International Energy Agency, the disaster was projected to slow the development and exploration of the oil projects conducted offshore worldwide. (Snyder 2010) In explanation, the oil spill has already revealed the dangers associated with offshore drilling thus making approval of new projects to be more difficult worldwide. The oil companies that would have liked to venture on such like projects are now less inclined. The increase in the prices of oil also made the developing economies of struggling. Most of these economies rely on oil to drive their economies. The increase in oil prices can reduce the growth rate of an economy since it affects the supply and demand of other goods apart from oil. The increase in the prices of oil can depress goods supply due to the increase in production cost (Bradshaw, EA 2012). Most of the industries that rely on oil as an input, therefore, experienced a shift up on the supply curve for the services and goods. Some of the industries that were likely affected by the increase in oil prices were heating, manufacturing, and transporting companies. The effect demonstrates why BP is a “too big to fail” calibre of a company. The strength of corporations has created a phobia thus illogically blamed in some scenarios. For instance, the rise in oil prices does not automatically lead to economic downturns. A good example is a correlation between the economic downturns in the United States and the increase in oil price. The comparison of the two indicates that not all significant fall in the prices of oil leads to recession. But five out of seven of the last recessions in the United States were preceded by a significant increase in the prices of oil. The main recessions caused by fall in the oil prices include 1973-1975, 1980-1981, and 1990-1991. (Luskin 2016) Some of the falls in oil prices are due to technological improvement thus does not affect the economy. In explanation, since mid-2014 the prices of oil have fallen by more than 70 percent while the demand has been in the rise. The drop has been due to the technology that America uses on the supply side which includes hydraulic fracturing and horizontal drilling. The technology has seen the consumers enjoy a world-wide tax cut that amounts to $7.8 billion per day. (Luskin 2016) However, the case of the Gulf of Mexico oil spill was not predicted thus affected automatically the economies. Furthermore, the economic effect was not only based on oil as a good but also the secondary effects that it caused. Corporations such as BP can, therefore, have greater impacts to the global economy. The study has some disconfirmations. First, there is no document that gives an approximate estimate of the economic loss that the Gulf of Mexico oil spill caused. The lack of estimate can be due to the nature of the impacts that were associated with the oil spill which includes the environmental ones. Second, it is not clear the reason why the United States government helped BP conceal the oil spill disaster (Bradshaw, 2012). The argument that the company is "too big to fail" is merely based on assumptions with other avenues such as corruption and negligence open for questioning. Third, the study did not focus on finding the real cause of the oil spill and the methods to which it could have been mitigated. The only mitigation measure identified in the study is the prevention of developing a refinery offshore. The study was also not able to capture the significant ways to which BP is a threat to the civil society organisations apart from intimidation and infringement of their rights to be informed (De Wolf and Mejri, 2013). Additional areas of study that can be considered include the characteristics that can be used to determine the difference between "Too big to fail" and "Not too big to fail" companies. Furthermore, a logical distinction should be identified among the companies to make the theory make sense. It is also important for studies to be conducted concerning how other powerful businesses that do not exist in the oil and gas industry affect the environment. Lastly, it is important that a study is conducted on how the legal environment and neo-liberalism encourage the notion of "too big to fail." Conclusion Corporations are too powerful and present a threat to the global economy, civil society, and the environment. The strength of these corporations is based on their financial capability that has seen them control the politico-economic status of the world. The multinational corporations have also proven to be bigger than the national government thus need for an international governing body to supervise them. Neo-liberalism makes the threat even worse as the multinational corporations take advantage of the situation to control the economic, social and political spheres of the countries or authorities in question (Bradshaw, 2012). These companies provide economic influx such as employment and tax revenue to the local and national governments thus influential to the entities. As a result, political entities can offer the multinational corporation lax labour or environmental regulations in fear that they might withdraw from the market (Bradshaw, EA 2012). In addition, they might give government assistance, tax breaks, and subsidised infrastructure based on their importance in the economy. Also, the corporations exert power over the political entities since they control the intellectual and technical property. In some of the instances, the corporations use their power to frustrate or intimidate the civil society organisations. Since they are private owned business, the corporations tend to care less about the environmental concerns but the profit margins. In most of the scenarios, the environmental concerns tend to limit the profitability of a venture. A business would, therefore, prefer to maximise its profits at the expense of the environment. Furthermore, they can forge the corporate social responsibility reports to ensure that they attract the green minds but not to achieve sustainability. 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Luskin, DL 2016, The recession caused by low oil prices, The Wall Street Journal, 7 Jan, viewed 10 Oct 2016, < http://www.wsj.com/articles/the-recession-caused-by-low-oil-prices-1452211556 > Moosa, I., 2010. The myth of too big to fail. Journal of Banking Regulation, 11(4), pp.319-333. Roach, B., 2007. Corporate power in a global economy. Global Development and environment Institute–GDAE. Tufts University. Robertson, TJ, & Sullivan, LL 2009, ‘BAD BOYS OF BUSINESS MAKE FOR BAD BUSINESS DECISIONS: A STUDY IN ETHICS’, Southern Journal of Business and Ethics, vol. 1, p.87. Snyder, M 2010, 8 long-term economic and environmental effects of the Gulf oil spill, OILPRICE.COM, 11 May, viewed 10 Oct 2016, < http://oilprice.com/The-Environment/Oil-Spills/8-Long-Term-Economic-And-Environmental-Effects-Of-The-Gulf-Oil-Spill.html > Tomlinson, C 2015, The truth about corporate ethics is still out there, The Sydney Morning Herald, 8 Oct, viewed 6 Oct 2016, < http://www.smh.com.au/business/markets/the-truth- about-corporate-ethics-is-still-out-there-20151008-gk40tf.html Read More