Economies of Scale

The World Trade Organisation makes businesses bigger – and that makes the rest of us smaller

By George Monbiot. Published in the Guardian 11th November 1999.

The market is imperfectly responsive to demand. No one sells cars on the basis that they will run 150 miles to the gallon, even though the demand is well-established and the technology has been available for years. No one sells phone lines with the promise that if a fault occurs you will not be cast, when you try to report it, into a limbo of machines masquerading as human beings and human beings masquerading as machines, despite the fact that such considerate service has turned thousands of mild citizens into psychopaths.

Companies compete, in other words, on limited grounds. The market heeds some consumer demands – principally low price – but not others. The bigger a company becomes, the less responsive it is likely to be. If, for example, the bakery at the bottom of my road decided to alter the way it baked its bread and I complained, threatening to take my custom elsewhere, the owners would be mortified. If half a dozen customers complained, they would go back to the old way of baking immediately. I have power in this marketplace, because they are not much bigger than I am.

If I make a similar complaint to a supermarket, I will doubtless be treated with respect, and perhaps even asked to fill in a form, but when I have gone, the staff will tap their heads. The superstores are big enough not to have to worry about me. As businesses grow, their customers’ power becomes blunt and diffuse.

At the end of this month ministers from all over the world will gather in Seattle to launch one of the most important events since the fall of the Berlin Wall: a new round of global trade talks. The World Trade Organisation furiously contests claims that a new agreement will disadvantage the developing world, threaten the environment and destroy the regulations protecting consumers and the workforce. We can (and in subsequent columns, doubtless I will) argue interminably about these issues, but one outcome of the talks is inevitable, which is perhaps why it has scarcely been discussed. A new world trade agreement will enable big business to get bigger.

The purpose of the agreement is to harmonise regulatory standards worldwide, to render, as the draft text boasts, “the WTO system truly universal in scope and coverage”. This will enable a company currently trading on one side of the world to sell its product, without alteration, on the other. In a single global marketplace, transnational corporations will be able to reap massive economies of scale. Small companies, trading locally, will be hard-put to compete.

Already in Britain we have witnessed what appears to be the terminal decline of small farms, shops, filling stations, pubs and publishing companies. The global harmonisation of standards that has taken place so far has led to a rush of mergers and takeovers. A new round of talks will soon make the thunderous deals of the 1990s look like a village jumble sale. Across dozens of sectors, small business is threatened with extinction.

The champions of global trade argue that consolidation is good for the consumer. Prices, they maintain, will fall as big firms reduce their costs and smaller ones can no longer shelter their uncompetitive practices behind geographical barriers. This may or may not be true: vertical integration and de facto cartels could, in the long run, make the market less, rather than more, competitive.

But in all other respects, the disadvantage to the consumer is clear-cut: the greater the imbalance of power between seller and buyer, the less responsive to demand the market will be. When a company has one hundred customers, it listens carefully to what each of them wants. When it has a million, it responds to the lowest common denominator. This is why, when people who work outdoors want a pair of boots or trousers that will last for years, they don’t go to the outdoor shop in the high street, but to the army surplus store, whose products will give them three or four times the use. The reason is obvious: the initial purchaser, the Ministry of Defence, wields power in the marketplace. Big enough to be heard by the supplier, it can fine tune its demand until it obtains precisely what it wants.

The new mega-corporations enjoy disproportionate power both inside and outside the market. They use it further to standardise the trade rules from which they benefit, and to bend the business of the state to their defence. This is why the CIA was co-opted into staging a mock WTO meeting in Seattle in August, in the hope of discovering how to crush challenges to the corporate agenda. This is why, when the Irish prime minister Bertie Ahern visited the United States last year, he was lobbied to approve sales of Monsanto’s maize not by the US trade secretary, but by Sandy Berger, the director of the National Security Council.

When a single global marketplace has been engineered, across which single corporations can roam, we shall find them deaf to our entreaties. Were we to tell such monsters that we shall take our custom elsewhere, they will ask us which planet we had in mind. This is the new world order, of earth-swallowing companies, the leviathans of the 21st Century, to whom you and I are no more than bobbing plankton. If we do not resist them now, their new “free trade agreement” will ensure that consumers never wield power in the marketplace again.