The emergence of multinationals

This very same issue is back again in a different context to that which prevailed in the 1960s; Chapter 7 has set some benchmarks in this regard: beyond the metrics or methods which can amend the assessment of economic activities (particularly those linked to digital technology). For decades, the scale and scope of industrial production has been profoundly broadened with global and open markets. Large, concentrated and diversified multinational companies are truly essential worldwide; in their wake, these firms bring about an array of services and subcontractors that drive the activity in many countries, among which production and added value are distributed: Eastern “tigers”, Eastern European countries, South American and African territories, to name a few.

It is obvious that the activity of multinational companies cannot be limited to a particular territory; the electronics firms are only one example among others; this loosens the ties that companies formerly maintained with the land from which they came from. Present global firms buy, sell, manufacture, subcontract and trade everywhere. Their management acts and thinks in a truly global perspective, far beyond the nation-state(s) in which they were born. Although firms sometimes return to their native territory to get through a difficult period (as was the case of the Korean chaebols put in difficulty during the Asian crisis of 1997 and the Hyundai group in 2017), their multiple interests and their competitiveness force them to distribute assets, means of production and markets internationally. Their large size, diversification and risk distribution go hand in hand with means and strengths that largely transcend the perspectives and policies of the countries where they produce and distribute their services or goods⁸. This raises multiple issues and sometimes very sharp reactions, which are specifically linked to the concentration of these companies and the conditions of competition, where their position is very strong. For years now, multinational firms have contributed to the diversification and growth of world trade; their direct investments supported the development of many territories; they have opened up international trade considerably.

While the first globalization that transformed the world more than a century and a half ago moved goods and raw materials across the world’s seas, the cross-border redistribution of investment and manufacturing production characterized the second wave of globalization that occurred during the last 30 years of the 20^th Century. More recently, information and communication technologies stimulated a “third wave” of globalization which took off around 1970, and which has become widespread since the appearance of the Internet around 1995 ([CHA 80], p. 85; [BAL 16], p. 45). Today, IT and digital companies (components, platforms and associated services) are attracting attention because of the contribution they make to our personal and professional lives; their performances are emblematic of this third wave of globalization: they sometimes significantly reverse the comparative advantage of the various regions where their presence (and the technology that they support) promotes change. The authors of this volume, like many other scholars, insist on three points that must be taken together:

• – the digital market is dominated by megafirms that are active all over the world;
• – concentration (through own growth, buyouts, takeovers or mergers) builds up turnovers and results in multi-billions, especially in the communication sector⁹;

• – the rate of profit and market capitalization of these firms grow higher and quicker than what was allowed by previous industrial activity.

Mega-companies, often American

The doctrine is divided on the causes, consequences and lessons to be drawn from these three findings. Since its inception, computerization has been dominated by American industries. The famous French report: “L’informatisation de la société” [NOR 81] took note of the dominant position benefitted by IBM at the time, but without yet imagining that this company, dating back to the 1920s in its modern form, could have a change in fortune¹⁰. Has Microsoft software not also been ubiquitous in computer systems, at least in personal computers, office automation and word processing, for many years? Just like how IBM processors dominated the computer market in 1970, our present electronic assistants are now organized around Intel processors (sometimes AMD) which reveals temporary unquestionable dominances; it is therefore difficult to see at present, just as in 1978 with the then dominant firm IBM, who could overturn this dominance! Of course, China’s spectacular industrial and commercial investment effort, supported by a mercantilist industrial policy, is producing results (Huawei); but, despite the promises of openness that China accepted by joining the World Trade Organization (WTO), this country benefits from an enormous and deeply protected domestic market, and gives its counterparts some concerns without yet having the competitive capacities of a Korean company like Samsung¹¹!

Table C.1 shows that the dominance of American IT manufacturers and software is not new: at the end of the 20^th Century, the near 1,500 American companies listed here generated 55% of the world turnover of the information industries; their profitability clearly exceeded that of non-American companies, a significant number of which were either loss-making or subsidized: 96% of world profits in the sector therefore failed American companies¹². Strassmann, author of the study mentioned here, proved that in the two main segments of this branch (computers and software), the three leaders (IBM, HP and Dell for computers; Microsoft, Oracle and Cisco for software) took more than half of the world’s profits¹³! The prominence of American megafirms in the digital sector has not ceased since 2000: despite a major renewal of hardware manufacturers, software houses and electronic components. Some startups, that were unknown or almost unknown in 2000, dominate today (like Asus or Google); other companies have either disappeared or regressed (like Motorola or Yahoo!); and as IT, telecoms, video games, broadcast and platforms are not immune to the effects of scale, concentration is again increasing. Moreover, when circumstances are favorable, companies can increase both their turnover and their margins, which strengthens their dominant position (as is currently the case for Microsoft, Apple and Google).

COMMENTS ON TABLE C.1.–

• – concentration highlighted by these tables is obviously different from the one that could be established for 2017. Some of the current leading companies were unknown in 2000, because Internet platforms were non-existent (Facebook) or in their infancy (Google). However, the mechanisms that promote concentration today are similar to those that led to the concentration of electronics, computing and communication some 20 years ago;
• – figures above are in U.S. dollars. We did not mention the exchange rates applicable to non-U.S. companies that work with other currencies. Firstly, because of the prominence of dollar transactions on these markets; and secondly, because the turnover and the profits of American companies are of a much higher order than those of other global companies.

Although this concentration is understandable, it undoubtedly raises issues because Moore and Rock’s laws (discussed in Chapter 6) apply to the chips industry and to most activities that depend on it; a narrow club of industrialists is therefore at the forefront of this industry, thanks to very high investments and very rapid capital turnover; the operating risk that renews itself with each generation of electronic chips imposes this strong capitalization, encourages concentration and requires a cross-border market. This was confirmed since 2000. Downstream of the components, the design, assembly and development of computers, game consoles and personal assistants such as the iPhone or Samsung Galaxy are also subject to empirical laws that promote industrial concentration. Chapters 1, 3 and 4 have evoked these disruptions in various forms, and Chapter 5 depicts the iconomic transition that generates a quantum leap between the past and the future. Concentration and disruption are thus the common lot of digital manufacturing industries.

Software, in the broad sense, is more heterogeneous than manufacturing: it includes market companies and non-market organizations; peer-to-peer (free software and blockchains) and community projects such as Wikipedia, as well as collaborative economy, crowdfunding, crowdsourcing and blockchains as discussed in Chapter 4. Because of this diversity, some segments of the digital economy may escape concentration; but club, network and scale effects remain significant everywhere¹⁴. Even the leisure and entertainment media are disturbed, as clarified in Chapter 2, which describes the dividing lines within the media between professionals and amateurs on one side, and between craftsmen and large groups on the other, for example in the cinema; the same is true of service activities, whether they are disinterested, cooperative or commercial.

Diversity of situations

The diversity of situations is therefore great; the most active operators (who are sometimes, but not always, the richest!) are pushed to join forces or buy out start-ups, which leading companies like Alibaba, Apple, Amazon, Facebook, Google, Microsoft, or even Tesla or Twitter do daily. History often suggests a fear that these concentrations towards a potential monopolization could bypass competition and market mechanisms. However, things are not that simple. Not all mergers prepare for global success, quite the contrary. There are counter-examples: in telecommunications, the MCI-Worldcom case ended in fraudulent bankruptcy¹⁵; furthermore, two major acquisitions of Microsoft have not only proved that the biggest companies do not win every time, but also that such operations can destroy part of the accumulated wealth. Between 2011 and 2017, the attempt to integrate the Swedish company Skype into Microsoft, followed by the costly purchase of the Finnish telephone company Nokia in 2016, resulted in a questionable or mixed result (Box C.1). Thus, nothing is set in stone, even for billionaire stock market stars!

This requires thought about the counterparts that a strong market position, a high profit margin and unbridled ambition can have for the general public. Should concentrations be systematically sanctioned? Should preference be given to measures that prevent the abuse of a dominant position and limit economic concentrations?

American antitrust

For American law, predatory behavior is defined by a simple criterion, that of harming the interests of consumers. Those who fight against the growth of the GAFAM and wish to dismantle them for reasons of principle distort American law, unless they demonstrate that it is the concentration of these companies that harms the consumer, as a Commissioner of the Federal Trade Commission (FTC) put it bluntly: “The fact that industry concentration and firm profits trend upward for a time does not show that competition is in decline. The causal chain between market structure and firms’ economic rents is complex and multi-directional” ([OHL 17], p. 62). Thus, if the Google search engine and the iPhone, iBook, iTunes, and such services designed by Apple satisfy the user, nothing really stands in the way of these companies’ growth! In the end, as long as the user is not an obvious victim of the concentration, the latter is not inherently condemnable [SHA 17]¹⁸. In a synthetic test, this expert from the FTC and the U.S. Federal Justice points out that nothing specific condemns dominant companies just because of their size, as the U.S. jurisprudence targets:

• 1) cartel control, a provision that has been somewhat fallow for a quarter of a century because it is difficult to implement, although it concerns essential abuses;
• 2) horizontal mergers (between firms in the same market segment), which have become more flexible since 1982 and deserve less effort since megamergers have proved dubiously effective in practice; mergers even tend to be regulated naturally¹⁹;
• 3) excessive market power, an excess that is commonly attributed to the GAFAM but always very tricky to prove as it requires solid evidence that the consumer suffers actual damage, proof that is long, difficult and costly to report; this might explain why so few cases were investigated during the last 25 years on that ground;
• 4) break up of a giant firm in order to rectify clear damage suffered by the consumer; but here again, the causation between the size of the provider and the damage is also quite difficult to prove;
• 5) incidentally, regulation of electronic medias and communication, which faces multiple difficulties that have been identified for a long time in America²⁰. In the case of intensive use of personal data (big data on individuals, their behavior and their habits), from which platforms take great advantage, normative provisions may mainly force the operators to avoid privacy trouble²¹.

A tricky tool to handle!

It follows from the above that caution should be exercised in the face of economic concentration or dominant positions of companies involved in the digital sector. Moreover, the European market only has a very limited number of operators whose products or services could take precedence on the international scene in this area; European consumers thus mainly turn to American suppliers who seem to respond to their demands well enough. Truly, European antitrust rules may apply to American companies; but it is always difficult to judge the effect that a binding measure could have on companies whose services are favored by the population and by businesses²²! Would binding measures for these companies generate unforeseen effects in Europe? Would they turn, for example, against the interests of those consumers we wish to protect, such as the case of so many Europeans consuming this type of U.S. based service^23? In such matters, caution matters in Europe. Especially given that these platform providers are American and that their home country has both the longest experience of industrial and financial concentration, the oldest antitrust legislation, the most extensive antitrust jurisprudence and a credible federal justice in terms of cartel control and detection²⁴.

The digital era is characterized by strong interdependence. The major European players are taking advantage of globalization, including digital tools and services (aeronautics, space, energy, automobiles, banking, machine tools, etc.). A strict European procedure could complicate the European firms and consumers access to these platforms and services they are currently using. It would thus be prudent for the European Commission to avoid misusing the deterrent it holds in terms of concentrations and dominant positions, for fear of harming the Europeans themselves deeper than they may hurt the Gafam!

Cyber-currency and blockchains: a dynamic field

For nearly three centuries, political economy treaties have devoted lengthy developments to currency, its role, the services it renders, the conditions under which it is issued and its value. Turgot (1727–1781) for example, considered that any commodity could be used as currency, but that to be a credible means of exchange and a sustainable store of value, currency had to be based on another commodity that was already valued for the services it rendered (for example, gold or silver). For Adam Smith, a few years later, currency was little more than a useful intermediary to stimulate exchange because, for him, work was the only real and definitive measure which could be used, in all times and places, to appreciate the value of any merchandise²⁵. As for Pigou, he stated clearly: “By money, I mean legal-tender money; and by the value of money, I mean the exchange value of a unit of it […] in terms of commodities”²⁶. The modern monetary doctrine, which is not really new, is more flexible: it recognizes that currency is, simultaneously, a unit of account, a standard of value, a means of exchange and a store of value. Anything that is accepted as payment for a good, service or obligation, whether cash or on credit, can therefore play the role of currency as long as it is not rejected by use. Such a currency is obviously sensitive to supply and demand. However, it also fluctuates according to circumstantial parameters that favor its use or rejection ([ROB 22], pp. 2–3)²⁷.

Cyber-currency is a monetary sign!

For the sake of clarity, let us apply the preceding definitions to new signs such as the bitcoin or ether: these signs, that are associated with a digital blockchain, do not meet the classical criteria of currency. They are not goods, as defined by Turgot; they do not represent any labor value, as defined by Smith; they do not fall within the definition put forward by Pigou and the economists of the interwar period, for whom currency can only be legal tender²⁸. It is a different story if we relate cyber-currency to the pragmatic definitions of an Englishman like Robertson, whose views inspired generations of financiers. His sharp view on currency would have inevitably led him to admit that the bitcoin and ether satisfy the conditions summarized above: they are widely accepted as means of payment; they serve as means of exchange and reserve; moreover, their unit can be perfectly divided. However, unlike legal tender, they have no link with a political or monetary authority, they are not attached to a territory nor to a tutelary authority, and they exist outside and despite political conditions. They are thus, in the literal sense, private a-territorial and apolitical currencies, defined by the partnership contract that gave birth to them. Accessible to everyone, managed by a community that keeps a faithful and lasting record of transactions recorded on the blockchain and that ensures visibility in an open cyberspace, they move freely!

Additional questions: How is the value of these monetary signs determined, according to what principles, and why does it change so rapidly over time²⁹? Regarding this, we must distinguish two situations: that of decentralized currencies such as the bitcoin, which are issued over a long period and under the conditions provided by their founders, and for a final amount defined in advance (a fixed number of the cyber-currency unit). And that of centralized currencies, which are issued by a central authority such as Ripple. In the first case, the currency is issued over time until it reaches the money supply provided for in the partnership agreement, which the founding agreement sets in advance (21 M. BTC, for example). On a daily basis, new signs compensate mining with a premium that awards the actual formation of new blocks³⁰. However, in the second case, the money supply circulates as soon as the money is created; the issuing organization is compensated by the commissions it receives on the transactions that are recorded in the blockchain over time.

The consequence, in either case, is that there can be no monetary creation other than that provided for by the founding agreement, which averts any inflation of the monetary sign. However, the value of cyber-currency varies according to a number of circumstantial factors: the strong or weak demand for money, the opportunities for use or investment that it allows, the accidental or political risks that threaten its technical system, and so on; the constraints that could restrict the use or circulation of this currency, or even impose on its holders to abandon it, are obviously a relevant factor. The volatility³¹ of these currencies is directly related to these risks, to their scope of application and to multiple exogenous factors such as the penalization of the holder, or the taxation of capital gains by holders of cyber-currencies in some countries³².

What are cyber-currencies used for?

The emergence of cyber-currencies should no doubt be seen as a continuation of the turmoil that has shaken sovereign currencies since the disappearance of the monetary stability, that previous generations still dreamed of at the time of the Bretton Woods agreements (1944). In fact, no contemporary currency can escape the risk of being manipulated by the tutelary authorities, in favor of macro-economic or socio-political objectives; moreover and beyond public policies and monetary regulation, constant financial innovations have accelerated monetary creation in proportions that are beyond comprehension, particularly since the 2007–2008³³ crisis; lastly, the emergence and maintenance of very low or even negative interest rates on currencies, such as the euro and the Swiss franc, are deceiving savings and disrupting the distribution of pensions based on capitalization, while the population of pensioners is still increasing. Private monetary signs such as the bitcoin thus came at the right time in 2009, in order to meet a demand for cash that would escape political uncertainties and zero or negative returns from legal-tender money. In this context, cyber-currencies are gradually becoming part of the financial landscape. For the time being, they respond to niche requirements: for example, that of compensating for the lack of foreign exchange in survival economies such as the one in Venezuela³⁴; or of escaping the meticulous control of foreign exchange in China or in deriving African countries.

However, voices are being raised to criticize the bitcoin on the pretext that this cyber-currency would facilitate the setting up of “Ponzi schemes”, swindles which promise excessive remuneration to a gullible public whose first subscribers receive a magnificent contribution, which actually comes from the funds paid by the last subscribers, who have to pay to clean up the mess as soon as the deceit is revealed. It must be pointed out that these scams are as old as the world, that they were very much here before the bitcoin spread throughout contemporary history and that they particularly prospered under the exclusive reign of state currencies! In addition, these large-scale frauds are now flourishing in Asia, to the detriment of populations that are still unfamiliar with financial matters: many Chinese savers have been fooled by these fraudulent schemes since 2015; these villainous affairs, which did not in fact need a cyber-currency to exist, have only served as a pretext for the Beijing government to severely repress these deceptions since 2017, and have simultaneously condemned useful uses of bitcoins, which allow trading without constraint, as it bypasses the exchange monopoly enjoyed by the People’s Bank of China (PBC)³⁵! And if cyber-currency disrupts, it is because it escapes central control and allows tokens to be issued that give their holder rights over activities in making or sharing a business project, a project that does not necessarily fit in with the political planning of the Communist Party and the Chinese government³⁶.

Blockchains, Ledgers and institutional innovation

Bitcoin and cyber-currency have attracted a lot of attention since 2016; but truthfully, they are only the emerging part of a very important software and behavioral innovation that also needs to be appraised in non-monetary terms. Functionally, the bitcoin system and its variants are based on a “Ledger”³⁷, where multiple transactions are reported over time: financial and monetary transactions, of course; but also, administrative, conventional, real estate or even intangible transactions on copyright, trademarks or patents, where appropriate. These computer records are permanent, accurate and decentralized. They keep a distributed record of any obligation, act or fact whose history is to be established and monitored over time: personal civil status, land properties, car plates, models, company statuses, business or trade contracts, tax or customs forms, production or maintenance catalogues, loan registers, etc. A blockchain is suitable for such purposes; monetary applications are just a particular use of a general instrument that will certainly retroact on many social functions and on the memory of an organized society³⁸.

Based on computers linked together by the web, a blockchain keeps the trace of past activities in their chronological order and on an encrypted file reproduced in many identical copies on different node computers set in different places³⁹. It can therefore replace the trusted third party who attests to a contract or promise between two or more third parties (typically, in Latin countries: the notary). But also: a public register such as the land register, the commercial register or the civil register (births, marriages, deaths, nationalities etc.); a financial intermediary receiving the payment of a capital or paying a loan; the public offering of a company or a philanthropy, and numerous agreements which mark business life and involve a secure relationship between the parties of a contract.

This has two major consequences: the computing and decentralized commitments Ledger can advantageously replace an administration such as civil status; this tool can also destabilize intermediaries, “uberize” their services and replace a traditional service relationship with a cryptographic record whose security is at least equal, if not superior to that of the trusted third party, for a much lower price! This automation also improves administrative productivity, which is the case whenever a fast and programmable mechanical operation replaces a manual procedure. The blockchain thus induces, in Schumpeterian terms, a “creative destruction” that disrupts the established order as we said before. It opens opportunities that can also upset the institutional order: the notary, the bank, the insurance, the brokers and the mortgage registrar can be replaced by a blockchain that would reduce transaction costs for all the functions it performs; it is therefore a new intermediary, similar to the commercial platforms that bring supply and demand together (Chapter 3) and to the social networks that establish interpersonal or collaborative relationships (Chapter 4). This benefits coordination and cooperation between economic players, both in terms of performance and costs [POT 18].