Two basic thrusts

1. Transnational corporations and finance of globalproduction Serfati Claude, CEMOTEV, University of Saint-Quentin-en-Yvelines, Claude.Serfati@uvsq.fr Methods For Studying Firm Restructuring And The Impact On Workers, Cost Expert Meeting Leuven, 28-29 April 2011

2. Two basic thrusts • TNcs are not simply bigger and more internationalised than other firms : they constitute a category on their own • The blurring of production- and financial-related flows by TNCs raises theoritical and methodogical challenges C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

3. TNCs : A considerable weight • Tncs grip on the world economy (UNCTAD) : • Gross product of foreign affiliates/ world global gross domestic : 1990 : 6,5% ,2009 : 10,5% • 82000 transnational corporations with a total of 820,000 foreign affiliates • Total 2009 Sales : 29,2 $ trillion • Concentration and large domination by industrialised countries : • Top 100 : share of the total (only controlled by foreign affiliates) assets : 10%, sales : 16%, employment :12% • Five countries (the United States, the United Kingdom, Japan, France and Germany :73% of the top 100 firms, 92% of 5000 top companies C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

4. Still more compelling in High tech and innovative activities : • Top 10 companies account for 13.6% of the total R&D investment by the 1400 Scoreboard companies (which accounts for 80% of world Business R&D) (EC, 2010) • Corporate Spending Top 1000 (B&A, 2010) : North America +Eu + Japan : 93% of the total C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

5. Qualitative features of top TNCs control : • Reshaping of global production and appropriation of value (Global Value Chain) and control of firms beyond those formally owned by a parent/holding company (>50%) • Strong persisting links with ‘their’ governments, as evidenced (and even reinforced ?) by the current economic crisis C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

6. A category on their own • 1) organised as groups of enterprises (controled by a holding company) : “'associations of enterprises' bound together by legal and / or financial links which imply control” [UN Economic Commission for Europe] . • (see also : a holding company is “any company, incorporated or unincorporated, which is in a position to control, or materially to influence, the management of one or more other companies by virtue, in part at least, of its ownership of securities in the other company or companies” (Bonbright and Means, 1969) • By definition, groups are a structure in which financial control dominates industrial activities, despite financial and industrial capital are institutionally separated (next slide) C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

7. Groups : financial control dominates industrial activities • Holdings (Parent companies) of French Non-financial Industrial Groups : The reversed pyramid, source : Author, from 2010 Banque de France data C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

8. Group as a dominant form of valorisation of capital (firms as a combination of production factors) : French data • An irresistible rise : Share of groups in France’s macroeconomic data, 2000-2007 (Banque De France, 2010) • Huge domination by a handful of large groups Source : Author’s illustration, based on Banque de France data and INSEE data C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

9. A category on their own (follw’d) • 2) A major feature and a critical edge of TNCs as financial groups lies in their ability to build an integrated global space, with financial and industrial operations being addressed in a combined way : • Global : • The world has become a playing field for locating and sourcing their activities (the world as an ‘internalised’ area for large TNCs) • Valorization of capital could encompass a broad spectrum and have a global reach from industrial capacities enabling to ‘pure’ financial investments. C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

10. A category on their own (follw’d) • 3) This integrated global space can be analysed along a global value chain (GVC) approach [Gereffi, Humphrey, Sturgeon, 2005] • TNCs are central to governance (firstly based on power relationships) , control and appropriation of value created in GVC (and outside of their affiliates, e.g. Smes, public labs) • How to analyse interactions between core and support functions ? C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

11. A category on their own (follw’d) TNCs • Not bigger and more internationalised than other firms. • Requires analytical research keeping with painstaking efforts carried out by statisticians of national accounts (and updating Hymer’s claim that « TNCs could be the ‘swan song of capitalism ») • How to analytically take into account the fact that TNCs have become financial groups (with strong industrial activities) ? C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

12. The core role of finance in TNCs activities • A) Largely evidenced: rising share of value appropriated by shareholders (‘financialisation’) • Industrialised countries (From Husson, 2009) : • France : Long-termnon-financial corporations' dividends Source : National accounts C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

13. The core role of finance in TNCs activities (follw’d) • B) Increasing financial ‘logic’ of production : • Corporations as a bundle of financial assets and ‘slicing up’ of the global value chain • Foreign direct investment at the crossroads of production and finance (Portfolio Investment : pure financial investments) • M&As (± 80% of intra-OECD FDIs) as motivated by financial gains (capital gains) . 70% of mergers failed to achieve expected revenue synergies [McKinsey, 2005] . Not to speak of their negative effects on labour [Milberg, Winkler 2010, Huws Ed., 2006]. • 48 % of French outward FDI made by Holding companies (2004) • Large proportion of Inw and Outw FDI : ‘FIRE’ sector C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

14. Three FDIs’ distinct component which account for financial opportunities : equity, reinvested earnings, intra-company loans intra-company loans used as a vehicle for financial optimisation : creation of SPEs, etc. “Direct investment reflects the intra-firm financial activities”[Fontagné, Toubal, 2010] : • New OECD recommendations (2008) : country of residence of the ultimate controlling parent of the group and retreatment of ‘capital in transit’ • France’s case : 2008 FDI flows by ultimate investing country (EUR billions) : France 1st Investor….in France C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

15. Intangible assets : undisclosed or unlocatable ? • Considérable increase of their value, Source : Global Brand Finance [2010] You’vesaid ‘undisclosed’? • IAs’ genuine ambiguity : + reflects the increasing role of knowledge + is a creation of financial markets (a convention à la Keynes) and revenue-generating private appropriation of knowledge (IPR) (IBM, TI : IPR revenues: 1 bn$/year) 37% 57% C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

16. So, why such fascination for IAs ? Some appealing features : • no materiality, they offer opportunities, including profit-shifting (below) and invoices corresponding to transfers of an output the physical reality of which is impossible to trace by external observers • Intangible assets are often shared across TNCs’ affiliates, making it difficult to allocate an exact price or/and value to activities. Not only are prices and quantities generally not observed, but most of them can be considered as services produced collectively, and the production of a ‘unit’ of output is difficult to define (e.g.R&D) • Their (stock) market value is extremely unstable, paving the way for pure financial speculation (‘fictitious’ capital) C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

17. - IAs : Backbone for transfer pricing, and other tax-dodging policy : • Industries with a high share of intangible assets, the pharmaceutical and medicine industry and computer and electronic equipment industry set the pace of profit shifting [Gravelle, 2009] • What is the content of intangible services traded at the international level which ease profit shifting? R&D, software, Intellectual property (patents), accounting and management, marketing • Daunting ‘transfer pricing’ assessment. With such ‘paper transactions’, “It’s the equivalent of asking the Internal Revenue Service to connect the ends of two different plates of spaghetti,” U.S. Sen. Byron Durgan [Bloomberg, 2010] C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

18. An epitome of a intangible asset-based ‘new economy’ : 2,4% tax rate Google • “Double Irish” and “Dutch Sandwich” C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

19. France : the biggeryou are, the lessyoupay taxes ImplicitTax rate (Tax/Net income) and size of the companies (payrolls) , Source : Direction générale du trésor et de la politique • Thanks to transfer pricing, SPEs and Taxhavens Source : Alternatives économiques, 2009 C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

20. Conclusion • Research questions : • How tracing intra-TNCs flows in statistics (parallel to finding GVC in statistics) • Coupling case studies with methodological work C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011

21. Thank you for your attention C. Serfati, TNCs and finance of ...., Leuven, 28-29/04/2011