Periodic Reporting for period 4 - CORPLINK (Corporate Arbitrage and CPL Maps: Hidden Structures of Controls in the Global Economy)
Periodo di rendicontazione: 2021-08-01 al 2022-05-31
Multinational firms are among the largest, most powerful global players in the 21st century with a far-reaching influence on policy, society, and the world economy. It is estimated that between one to two-thirds of global trade takes the form of intra-firm trade. But as firms grew during the 20th century, their legal architecture developed into something very different from the prevailing image of a singular, unitary actor that still dominates the neoclassical theory of the firm. Modern firms had evolved complex multi-subsidiary structures, spanning hundreds, and at times, thousands of independent corporate entities linked together by a complex web of ownership arrangements. What drives such a great proliferation of corporate entities in a group? Do these developments have an overall positive or negative impact on society? should we embrace them or not?
The CORPLINK project's core aim was to a) understand the cause for the increasing complexity and complicatedness of modern corporations and b) deepen our understanding of the relationship between the corporate world and the political and legal environment. The increasing complexity of corporate groups is a subject that attracts surprisingly little attention. Prior to the project we already knew that one of the key drivers of subsidiary proliferation is taxation. But was it all about tax? Most studies were focused on specific tax arbitraging schemes perpetrated by very well-known MNCs, with no overall understanding of the impact of the corporate organization on state and society.
The project was predicated on the intuition that corporate complexity is far more significant and impactful than thought and is used as a power tool by the corporate organization. This form of power was little understood, and largely ignored and furthermore, conventional political science lacked the conceptual and analytical tools to investigate this form of power. we believed that by studying corporate arbitrage, we may learn more about the drivers of wealth inequality in the world.
The CORPLINK project's core aim was to a) understand the cause for the increasing complexity and complicatedness of modern corporations and b) deepen our understanding of the relationship between the corporate world and the political and legal environment. The increasing complexity of corporate groups is a subject that attracts surprisingly little attention. Prior to the project we already knew that one of the key drivers of subsidiary proliferation is taxation. But was it all about tax? Most studies were focused on specific tax arbitraging schemes perpetrated by very well-known MNCs, with no overall understanding of the impact of the corporate organization on state and society.
The project was predicated on the intuition that corporate complexity is far more significant and impactful than thought and is used as a power tool by the corporate organization. This form of power was little understood, and largely ignored and furthermore, conventional political science lacked the conceptual and analytical tools to investigate this form of power. we believed that by studying corporate arbitrage, we may learn more about the drivers of wealth inequality in the world.
To better understand the drivers of corporate complexity, the project developed an algorithm that captures ownership and accounting data from corporate subsidiaries around the world. The data is used to construct an image of a corporate organization. We call these imaged, equity mapping or EM in short. The project produced circa 250 EMs of the largest corporate groups in the world. The CORPLINK team then devoted considerable time discussing the resulting visual maps with corporate lawyers and accountants to learn about specific schemes embedded in these maps.
We have learned that an important feature of corporate law known as ‘entity law’ whereby each corporate subsidiary tends to be an independent legal person subject to the rules and regulations of a licensing authority, is having a momentous implication for the development of modern capitalism. A corporation is a legal entity licensed by a sovereign authority. A corporation cannot be multinational and the so-called multinational corporations are in effect network of separate companies held together through equity ownership. Professional services known as ‘business planners’ construct corporate groups in such a way that they can avoid or even evade national rules and regulations. Tax is only one such rule; there are prudential rules (such as financing rules); liability rules, reporting rules, and the like, and all can be arbitraged.
We concluded that modern MNCs are not simply avoiding rules, but through the use of arbitraging techniques, they create in effect their own preferred regulatory environment. An ability to shape an environment rather than being shaped by it is a form of power, arbitrage power, pervasive, yet poorly understood. Through a series of publications (some forthcoming), the project was able to illustrate empirically how MNCs employ this powerful tool.
Who benefits from this power? In a series of publications and forthcoming publications, the project demonstrates that arbitraging help to shape and coalesce the wealthiest elite nowadays, a rule-based transgressor elite that can use the rules of the game of society to its advantage. The project also shows empirically that some sophisticated governments e.g. the U.S. were able to employ arbitraging techniques to advance geo-political goals.
We have learned that an important feature of corporate law known as ‘entity law’ whereby each corporate subsidiary tends to be an independent legal person subject to the rules and regulations of a licensing authority, is having a momentous implication for the development of modern capitalism. A corporation is a legal entity licensed by a sovereign authority. A corporation cannot be multinational and the so-called multinational corporations are in effect network of separate companies held together through equity ownership. Professional services known as ‘business planners’ construct corporate groups in such a way that they can avoid or even evade national rules and regulations. Tax is only one such rule; there are prudential rules (such as financing rules); liability rules, reporting rules, and the like, and all can be arbitraged.
We concluded that modern MNCs are not simply avoiding rules, but through the use of arbitraging techniques, they create in effect their own preferred regulatory environment. An ability to shape an environment rather than being shaped by it is a form of power, arbitrage power, pervasive, yet poorly understood. Through a series of publications (some forthcoming), the project was able to illustrate empirically how MNCs employ this powerful tool.
Who benefits from this power? In a series of publications and forthcoming publications, the project demonstrates that arbitraging help to shape and coalesce the wealthiest elite nowadays, a rule-based transgressor elite that can use the rules of the game of society to its advantage. The project also shows empirically that some sophisticated governments e.g. the U.S. were able to employ arbitraging techniques to advance geo-political goals.
The project innovated an entirely new way of mapping corporate architecture. These maps are far more accurate and granular than available so far. The mapping techniques allowed us to view, for the first time, certain important common features among the multinational enterprises.
The project shows conclusively that arbitraging is a core function of modern MNCs, and reaches far behind taxation.
The project was also able to show that arbitraging is a form of power, and illustrate empirically how it works in real situations. In doing so, the project opened up new avenues for research on corporate power and the drivers of wealth inequalities in the world.
The project shows conclusively that arbitraging is a core function of modern MNCs, and reaches far behind taxation.
The project was also able to show that arbitraging is a form of power, and illustrate empirically how it works in real situations. In doing so, the project opened up new avenues for research on corporate power and the drivers of wealth inequalities in the world.