September 12, 2012
Everyone seems to be ignoring the white elephant in the room – you can’t have a Federal Europe without considering the major European corporations and their interests.
The citizenship of corporations
Whenever the federal theme is discussed everybody talks of nations relinquishing sovereignty, of people not being ready, of European Identity. Nobody talks about the major economic shareholders that are the corporations. And we must clearly understand and state this from the beginning – major corporations have very resourceful lobbyists, and will always have a bargaining chip with national states. With states.
It is actually quite easy to explain. A corporation uses the nation states system as leverage – if one state fails to provide to its needs, it moves operations to other states. I will admit that this is a very simplified look into the matter, but if you strip away the details this is basically it. Whether it’s tax refunds or other form of state help, employment politics and legislation and even political lobby, a corporation makes the best of its presence – the State gains taxes , employment, etc. and the corporation gets more profit. Because a corporation is based on profit, as every other business out there.
There is however a more intricate level – a certain level of identity. Corporations start out within a territory and thus an association is created between the respective two. In some ways it’s a sort of nationality – no matter how international Siemens or Renault become, they will always be a German and respectively a French corporation.
This in turn is somewhat false, as with the free movement of capital, a “Dutch corporation” might have a Middle-Eastern majority stakeholder. And this in turn might turn out to be a problem. Because adding to the conundrum, we now have to take into account the views and interests of the majority stakeholder.
And so the question arises – what will the corporations do in relation to a Federal Europe?
Changing the game – Nation State to Federal Entity
At first glance this might seem as a deal breaker, because a powerful Federal Entity will be less interested in bargaining with corporations. Favorable national policies will also disappear in favor of unified federal policies. And another factor, that this writer considers worthy is the loss of that identity connection.
This identity is important – Germans are proud of German companies, and it’s the same with every nation within the EU. And it’s not wrong. In some ways it’s the same case with sports – every national team is granted support by the people, and every success is celebrated popularly.
There is a fine print, and it’s a very difficult one – every corporation needs a certain territory that it uses to sustain the business. While this might be more obvious with companies that use natural resources – coal, gas, oil, etc. – it is more diluted when it comes to companies dealing with services for example. This type of “corporate territory” has a certain protection level from the national state. It’s easy to understand way, and I will refer you to the first paragraphs here. This protection makes it hard for a competing corporation to access the same territory. This protection works for both the state and corporation, and it only brakes when one of the sides becomes unhappy, or demands too much of the other. Negotiations are the word of the day, and a certain balance is kept, at the expense of a truly open market.
The Federal Entity is somewhat different. A centralized government means first and foremost a centralized tax system. Which means that tax deductions that were fairly simple to gain from nation states will be harder if not impossible to attain, because a Federal Governance system will be forced to maintain a certain level of fairness and equality of chances all across its territory. Furthermore, competition will increase, and chances are that it will increase to the point where a more powerful corporation can render another corporations operations within a territory so costly, that the latter will move. And that paves the way to monopoly, increased costs for end-users and social unrest to a certain degree (unemployment for example).
To most people this is a reason to say no to Federal Europe. Because business wise it might cost us plenty.
But Federal Europe has it’s perks – let’s not forget that EU is one of the world largest innovators and also a very dynamic and solid market. Attributes that attract corporations. Free movement of labor, capital and products across the EU means that corporations can set up shop somewhere and bring whatever resource they need to that location easily – be it human resource, products or services. Less legal hassle is quite a charmer to corporations.
Moreover we must not forget that Federal Units (this writer advocates regions, as previously presented here) will have the power to grant some advantages to local based corporations, and with such diversity across the EU, practically every region will have something particularly attractive to certain business segments.
Expanding the business will also be easier – within the same common frame, setting up a new branch or expanding an existing one should be easy as one two three. Common fiscal policies and procedures are also a bonus.
Corporations need to become a partner, and they should have their views listened to and taken into account. Because we cannot ignore the economy – and this crisis has shown us just that. Businesses are the backbone of the economy, and supporting them is a key element of growth. We cannot empower a Federal Union without making it business viable.
A Federal Europe will be a powerful entity – there is a lot of knowledge, know-how and enthusiasm left within this old continent. We should not be afraid to pull our resources and offer to any and all entrepreneurs the best we have to offer.