As European empires crumbled in the 20th century, power structures that had dominated the world were up for renegotiation. Yet instead of a triumph of democracy, what emerged was a silent coup against its very core – namely, the unstoppable rise of global corporate power and new infrastructure to protect it from rebellious peoples. After spending years investigating this power grab for our new book Silent Coup, four systems stood out to us as having enabled multinational corporations to expand their control and to insulate themselves from democracy worldwide.
1. Corporate justice.
The investor-state dispute settlement (ISDS) system enables multinational corporations and foreign investors to challenge entire countries at obscure but powerful international tribunals. What for? Anything they can claim threatens their “rights” under international investment and trade treaties. So far they’ve used this system to challenge environmental regulations, taxes they don’t want to pay and a wide range of other state actions (or inactions) from raising minimum wages to failing to quell protests or other activities that can interfere with their profit-making. The amounts of money at stake in these cases can be vast – many millions and even billions of dollars that states have to pay from public budgets. But beyond enabling money-making, this system has also helped corporations to steal decision-making power from the people (usually without our knowledge).
In El Salvador, we learned how an Australian-Canadian mining company’s case threatened the poor country with a giant bill but was also delaying further action to protect the environment and already-stressed water resources. Unusually, the government was openly resisting this case, which was well-known on the ground and denounced as an attack on Salvadoran sovereignty. In South Africa, we learned how the government quietly settled another case challenging Black economic empowerment policies, giving a group of European investors exemptions to them. Rich countries including Germany were also increasingly being sued through this system. Today there are hundreds of other ISDS cases that are currently pending against states around the world – but they’re typically heard in faraway places and shrouded in secrecy that the mainstream media rarely penetrates.
The International Centre for the Settlement of Investment Disputes (ICSID) sits at the centre of this system and has overseen the majority of known cases so far. It is a little-known branch of the World Bank that is officially supposed to support the bank’s global development and poverty-reduction goals by encouraging international investment into developing countries. But its track record – and its own history – tell another, anti-democratic story. At ICSID’s headquarters in Washington DC, we found copies of historical documents that showed how some developing countries tried to resist its establishment – arguing, like El Salvador is now, that it would threaten their sovereignty. The bank deployed strategies including deceptively framing this system as a “modest proposal” that would be based on consent, and not circulating notes from consultations, in order to push it through despite these concerns.
This system emerged in the mid-20th century as a growing number of European colonies were agitating for independence. Before the World Bank took up the idea, it was pitched among business elites. At a 1957 conference in San Francisco, the Deutsche Bank’s Herman Abs proposed what was described by Time magazine as a new “capitalist Magna Carta” to protect private interests against rebellious peoples, independence movements and new governments that could try to nationalise or redistribute resources. He wasn’t the only European involved. The British Lord Shawcross was behind similar proposals, that were merged with Abs’s. After stalemates at the OECD and UN, Americans and the World Bank took up the idea amidst the Cold War and desires to quash any alternatives to capitalism.
It took decades for this system to be enshrined in thousands of international investment and trade treaties crisscrossing the globe. At first, these were primarily signed between rich countries and poorer ones, giving corporations and investors from the former advance consent to sue the latter. The 1990s brought new mega-treaties including the North American Free Trade Act (Nafta) and the Energy Charter Treaty (ECT) that expanded this system to enable threats against rich countries too. Law firms and financiers also seem to have fuelled an increase in cases. Corporate claimants are advised by law firms that such cases can, for example, be used as “leverage” in other negotiations with governments. Third-party financiers will pay for their claims to be mounted, taking cuts if they’re won.
These cases are typically judged by tribunals of three “arbitrators” who have included former corporate and government officials as well as former treaty negotiators. Issues like human rights and the environment are not their expertise or concern. Some countries have started to try to extricate themselves from this system and the treaties that enshrine it – though they often include what are called “sunset clauses” that mean their provisions stay in force for years even after they’re cancelled. South Africa decided to do this after the case we investigated. Critical to their decision was an internal study that failed to find clear evidence that giving investors access to this system indeed increased rates of investment, as proponents of it claim.
2. Corporate welfare.
The international aid and development system similarly emerged in the mid-20th century amidst decolonisation and independence movements. It has enabled corporations to break into new regions around the world, and then to expand their presence there. It has helped them get through tough times and respond to resistance from local communities. It has provided new resources and revenue streams – and new routes to influence and control the economies of the majority of the world’s countries. Like the ISDS system, it has also increasingly gone global and is now active in parts of Europe too.
Supporters and critics of international aid often talk about it in similar terms: as if it were a direct transfer of cash from rich to poor countries. The reality is more complex. Donor countries like the UK spend large amounts of money through private contractors based in rich countries that profit from this business. Companies don’t just sell things to be used in aid projects – they also manage whole projects. At events for this industry in Liverpool and Brussels, we saw up close this little-known side of aid: where humanitarian crises are opportunities for windfall profits, and enduring underdevelopment means a reliable revenue stream for years to come.
What are called development finance institutions, meanwhile, invest directly in private companies that operate in developing countries, or want to. They include the UK’s CDC which was first set up in 1946 to invest in the colonies and bring Britain economic benefits. It did not wind up when the empire did, however. It was instead joined by the World Bank’s International Finance Corporation (IFC) which was set up in 1956. Beneficiaries of these institutions’ investments have included luxury property developers catering to elites, as well as mega-chains like Lidl accused of violating workers’ rights. In Tanzania, we went to a diamond mine supported by the IFC – where the diamond in one of Queen Elizabeth’s favourite brooches had been found.
In recent years, the IFC’s size, reach, and influence have exploded. Its share of total World Bank spending rose from 13% to 35% between 2000 and 2013 (when it made more than $18.3bn in financing commitments). A controversial Bank programme called “structural adjustment” appeared to have paved the way for this growth – conditioning loans to poor country governments in the 1980s and 1990s on agreements to deregulate and privatise their key industries. Rather than supporting local development, this programme seemed to derail it. While this programme has supposedly been reformed, to better involve poor country governments, and focus more explicitly on poverty reduction, they didn’t in the end look too different.
The IFC had been envisioned in the 1950s by its founders and initial advocates from elite US political and business communities as a soft-power antidote to the spread of communism. But it did not close up shop when the Soviet Union did. Instead, its investments increased globally – including in several former-Soviet countries. A new European Bank for Reconstruction and Development (EBRD) meanwhile emerged to focus on these countries and help them develop new capitalist economies. (It has since expanded beyond former-Soviet countries too, and has also backed companies in Greece, Croatia, the Czech Republic and other European countries).
Since the 2008 global financial crisis, the visibility and power of giant corporations in aid and development efforts seemed to reach new levels. CEOs were sitting on UN panels discussing priorities for international development agendas. An initiative launched at the 2012 G8 summit at Camp David called the New Alliance for Food Security and Nutrition brought big agribusiness corporations to the table along with aid donors and developing country governments across Africa – which committed to numerous policy changes to support these corporations’ expansions. A proliferation of corporate-NGO tie-ups has meanwhile meant that organisations you might otherwise expect to hold companies to account for their impacts on local communities and the environment are also their ‘partners’ in development.
3. Corporate utopias.
Around the world, the territories of nation-states have been carved up into various “zones” that privilege corporate interests and insulate them against democracy. They include Special Economic Zones (SEZ) where normal rules and regulations don’t apply – from tax rates to labour laws. Increasingly large gated communities, where elites withdraw from cities and democratic processes to improve them. Wholly private cities where there is no traditional mayor but a corporate representative in charge instead. Tax havens where finance is king and there is little space for dissent.
In Myanmar, we met some of the small-scale farmers who have lost their land and livelihoods to the expansion of an SEZ that was supposed to support their country’s development. In Cambodia, we met some of the factory workers in SEZs in that country struggling with poor wages, working conditions and hostility to unions. In India, we saw another form of corporate carve-out: an entirely private city called Lavasa, the country’s first built and entirely run by a corporation, with a CEO rather than a traditional mayor in charge. Such carve-outs reflect inequality but also enable some people to withdraw from public debates including about the environment; in Vietnam, we found gated communities advertising green oases with cleaner air.
Development institutions have also helped to spread such carve-outs. The World Bank for instance has produced dozens of reports studying and promoting SEZs. Along with investing in private businesses, its IFC branch and other bank teams gave developing country governments “advice” on how to make themselves more attractive to private investors, including what laws they should change. Carving out such zones for foreign investors seemed to be a regular item on the menu. Meanwhile, in 2015, an Asian Development Bank research paper read: “It is said that females possess the nimble fingers and patience with routine tasks required by the labour-intensive processes generally occurring in the zones and that they are also less likely than males to strike or disrupt production in other ways.”
The World Bank’s IFC was also investing in companies registered on the island of Mauritius which had transformed itself into an offshore financial centre – joining a global web of secretive jurisdictions where multinational corporations and elites can stash their cash and limit their taxes and contribution to the infrastructure of public life. While the Bank’s leadership acknowledged development challenges resulting from this system and warned of increasing inequality among Mauritians, the IFC had investments in numerous businesses registered there, but operating elsewhere. On the island, we had Kafkaesque experiences when trying to get information about them. One office worker wouldn’t even confirm the address of his building.
These carve-outs proliferated in the same period in the mid-20th century as formal colonial regimes were winding down. A free zone in Shannon, Ireland, set up in 1959, is often described by SEZ proponents as the first of its kind (though others give that dubious honour to Puerto Rico). In exchange for setting up shop there, foreign investors were given benefits like special tax holidays, tariff reductions, and grants for research. Over time, however, the distinction between being inside and outside the zone faded – as lower tax rates were rolled out nationwide, for example. This was often the point of SEZs: to test new business-friendly policies in a certain place before pushing them on entire countries and populations.
They had also similarly boomed after the end of the Cold War, and again after the 2008 global financial crisis. The International Labour Organization estimated that more than 66 million people – about the population of the UK – most of them poor, young women, worked in more than 3,500 zones of these zones across the globe. The idea of incentivising investors to set up shop in specific areas, with rules that suit them, had also spread beyond zones established by national governments – cities and regions were also following a similar model, competing with each other for investment. It was slicing and dicing rich countries and cities too – including London, where the Royal Docks Enterprise Zone was being set up with Chinese investment.
4. Corporate armies.
Corporations have a long history of violence, as a young American economist Eugene Staley noted in a 1935 study, War and the Private Investor. One of the companies he studied was United Fruit Company (now known as Chiquita), which had “created and deposed governments” and “ruled vast plantations with a free hand”. To prevent further conflicts between unruly populations and such companies (as resisting their expansion was ‘futile’) he proposed a new world government with institutions that sounded similar to the World Bank’s ICSID and IFC that we’d investigated. While such bodies have come into being, violence has continued.
Chiquita, in fact, admitted paying paramilitaries many times in the 1990s-2000s, and it was implicated again in attacks against those opposing its plantation expansions in Colombia. There were similar stories in Honduras, including those involving an IFC investee. From Israel-Palestine to southern Europe and back to the UK we meanwhile followed the expansion of private control over border security, immigrant detention and asylum systems. Along with profit-making and cost-cutting, we found reduced transparency and accountability. Nothing has been off-limits, it seems, not even nuclear security and the threat of nuclear war.
Like other systems and trends we’d investigated, modern private military and security companies also seemed to have boomed in the decades of ‘decolonisation’, as independence and anti-colonial movements rose and Europe’s formal empires fell. From the 1960s, numerous new private contractors were founded by British special forces veterans. Such companies boomed again at the end of the Cold War, as millions of people left state militaries and looked for new jobs. And then again with US-led wars in the Middle East and rising levels of income inequality.
The history of the Beretta family gun company – which was much older than most states – also offered us an interesting window into how who controls the guns in our world has changed. Beretta emerged in the 16th century, at a time when Italian city-states had become reliant on private military forces – which Machiavelli had called “whores of war” and urged leaders to eschew in favour of their own armies. As state militaries grew, they became major clients for Beretta. Though today the majority of its business is again with private customers. Most firearms worldwide are in non-state hands (legally or illegally), with new guns often developed for military use, and then adapted to the private market. Private security outnumber police in many countries; while some are contracted by public authorities, many clients are other companies.
The increased prevalence (or reemergence) of private security reflects income inequalities and leads to different experiences of safety and violence that can undermine the Universal Declaration of Human Rights’ commitment that “everyone has the right to life, liberty and security of person”. The history of who holds the guns shows that states haven’t always ruled supreme and that their monopoly on the use of force appears fragile or already fractured.