True or False? Corporations are bigger than the government?

[salvorhardin]

A statement we tend to see bandied about a lot on the left is that, "of the 100 largest economies in the world, 51 are corporations while only 49 are countries". Far less frequently do we see what is being compared (bolding mine):

For example, of the 100 largest economies in the world, 51 are corporations while only 49 are countries, based on a comparison of corporate sales and country GDPs
http://www.globalissues.org/TradeRelated/Corporations/Rise.asp

Is this a valid comparison? No. I don't think so. The GDP is a measure of value while sales are simply a measure of revenue. In fact, if we take a look at what Wikipedia describes as the most common model for GDP...

GDP = consumption + investment + (government spending) + (exports − imports), or, GDP = C + I + G + (X-M)
http://en.wikipedia.org/wiki/Gdp

...it becomes even easier to see that it's disingenuous to compare simple corporate sales to GDP.

Does this mean that our government doesn't pay undue interest to corporations? No. Not at all. Large corporations have much louder voices than the average citizen. This is a serious problem. I just don't like myths being thrown around as facts.

What do you think? Am I wrong? Are GDP and corporate sales comparable? Is this a case of a myth that turns out to be true?

[Imperialism Inc.]

1. I guess I don't fully understand the objection.

If you are objecting I am guessing that you think looking at corporate sales somehow overweights the corporations. I don't really see the basis for the objection.

From the page you provided:

The GDP of a country is defined as the total market value of all final goods and services produced within a country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time

Doesn't corporate sales capture the same information?

I could easily be wrong here but I don't see the basis for an objection. Is it exactly the same thing? Maybe not, but I don't see a big difference.

[salvorhardin]

2. As I understand it, counting sales is inaccurate because it multiply counts goods used in production

For instance, if Solid Sandworks sells silicon to Amalgamated Chipfab for $100 and they produce microprocessor chips which they sell to Crapbox Computers for $1,000 and Crapbox Computers then sells computers using these microprocessors for $10,000, that $100 of sand gets counted three times and the $1,000 of microprocessors gets counted twice if we simply sum up the total sales (that's assuming that the costs of production are reflected in what companies charge for their products). GDP is structured so as to measure only the value added at each step along the way.

[Imperialism Inc.]

3. Hmm. OK I understand what you are getting at a little better but

I still don't see the problem.

First it isn't clear to me what corporate sales means. To whom are they selling? Is the corporate to corporate stuff included? I don't think the term "corporate sales" is intended to exclude end consumers but is it only end consumers? Probably not. So you have a point but, from the perspective of a corporation it seems like a valid measure of production. They aren't double counting anything. For instance looking at Chipfab, only the 1000 is counted not 1000 + 100 and the 10,000 that Crapbox will charge later is not considered. No double counting.

Now, if we look at both Sandworks and Chipfab there is obviously some double counting, but then looking at the GDP of the country Crapboxb is based in and Crapbox at the same time has a double counting in the GDP. So, again, it isn't perfect but it seems like a very reasonable comparison to get an idea of how much is being produced by corporations compared to entire countries.

[cosmik debris]

4. Of course it is a bogus comparison.

You can't compare the output of one entity to the income of another entity.

It is a misdirection play.

[Imperialism Inc.]

5. Huh?

They are comparing the market value of goods produced by 2 different entities. What is bogus about it?

On Edit: Just to clarify. The "output" of one entity is measured in terms of the market value of the goods it produces. The "income" of the other entity is a measure of the market value of its goods. So your assertion that they are different things is incorrect as far as I can see.

[salvorhardin]

6. Sales are not a representation of value added

Ideally sales represent all costs (including labor, production, and materials) which is where the double counting comes in if you simply sum up sales. To get the actual value added one needs to subtract out the costs. Using my previous example if we simply sum the sales we get $11,100. However, let's say that each company sets the price of their goods at twice what it costs them to produce their goods. So the value added in our example economy would instead be $5,550. Of course, in the real world it's slightly more complex than this but that's why measures such as the GDP don't look at sales but consumption and investment instead.

[Imperialism Inc.]

7. I totally agree with the summing the sales problem but I don't see

any evidence that that is what is being done. So an example.

When calculating GDP for the country that crapbox sells its computers they count the $10,000 once and only once. When they count the corporate sales for crapbox they count what? You are saying they count the sales of not only crapbox but the companies they purchased from? Why? Why would they do that? On what basis do you claim they are doing that? The corporate sales for crapbox would be $10,000 just like in the GDP calculation.

Ok so what about chipfab? Well normally chipfab's numbers don't get counted directly in GDP. There I totally agree. But they are counted indirectly by counting crapbox. Do we want chipfab counted, indirectly, in GDP? Absolutely! What we don't want is them to get counted twice and they aren't. But they also aren't if we look at crapbox's sales . Not sales plus input costs, sales. And if we stop to just look at chipfab then we only count the $1000 not the 1100 (sales plus inputs).

Now, what we don't want to do is try to add up all the individual corps to come up with a world GDP. There we will certainly be double counting. But that is not what the people making the claim have done. They are looking at individual companies.

A google search lead me to this list that is the basis of the claim.

http://www.corporations.org/system/top100.html

The lists links lead me to the original source which is here.

http://www.ips-dc.org/reports/top200.htm

The link to the PDF seems to be better formatted.

You may be correct as they don't go in to their methodology in detail but common sense tells me sales means sales not sales plus costs of everyone else you buy from.

[salvorhardin]

9. No, you're misunderstanding

If I charge you $1 for a cookie, my costs in producing that cookie are reflected in that $1 sale. For instance, if it costs me 50 cents to make that cookie I can't very well charge you 30 cents because I would be losing money. So when you buy a cookie from me, the sale price includes my costs and the additional 50 cents, my profit, is the value added in my cookie. The GDP would measure that 50 cents, not that $1 sale.

[Imperialism Inc.]

10. No that isn't right.

GDP would measure the full dollar.

http://www.businessdictionary.com/definition/gross-domestic-product-GDP.html

Value of a country's overall output of goods and services (typically during one fiscal year) at market prices, excluding net income from abroad. GDP can be estimated in three ways which, in theory, should yield identical figures. They are (1) Expenditure basis: how much money was spent, (2) Output basis: how many goods and services were sold, and (3) Income basis: how much income (profit) was earned. These estimates, published quarterly, are constantly revised to approach greater accuracy. The most closely watched data is the period to period change in output and consumption, in real (inflation adjusted) terms. If indirect taxes are deducted from the market prices and subsidies are added, it is called GDP at factor cost or national dividend. If depreciation of the national capital stock is deducted from the GDP, it is called net domestic product. If income from abroad is added, it is called gross national product (GNP). The main criticisms of GDP as a realistic guide to a nation's well being are that (1) it is preoccupied with indiscriminate production and consumption, and (2) it includes the cost of damage caused by pollution as a positive factor in its calculations, while excluding the lost value of depleted natural resources and unpaid costs of environmental harm. Called also gross value added (GVA).


ON EDIT: Sorry for doing this again but I just wanted to clarify. I think where you are getting confused is on #3 in the definition. It says income (profit). But if you do it that way then you need to do that all the way down the chain to get to GDP. So yes for you as an individual company only count the profit but then for the GDP as a whole (which is what they are comparing to when they do country wide GDP) you'll need to go down the chain and get every one's profit. Or, as the definition points out, just count how much was spent (i.e. the full $1 for the cookie).

I think that is where you went wrong. When looking at corporate sales, if you only counted profit then you would indeed have to go get the profit from everyone in the chain of production as well since that is what you do when using that method for a country's GDP. But why not just look at corporate sales which is the equivalent of doing GDP by total value of goods (#2 in the definition). Much easier that way.

[Imperialism Inc.]

11. So anyway I think that is what happened just a misunderstanding of

what GDP is. You want to make sure that your inputs don't get measured twice but measuring them once as reflected in the final price is fine.

I will add though that it still depends on methodology. Corps often own many smaller companies. If they are including intra-Corp sales then there is a big big problem. Maybe that is what you are getting at? If that is the case (or even if it wasn't) then I would say we really need to be sure they didn't include intra-Corp sales (within the corp sales).

[cosmik debris]

12. In the example equation

government spending is a component of GDP. Government spending is NOT a function of a free market. government spending is a result of political decisions, not economic decisions.

The free market did not compel us to invade Iraq or build the infamous "bridge to nowhere". The free market does not support schools or WIC or the interstate highway system.

"Market value" of government services is not a comparable to "market value" of goods and services actually sold in the free market.

[Imperialism Inc.]

13. Well the goods and services purchased by the government,

be they wars or bridges or a fatter bank account for Bush's closest friends, cost a specific amount of money. So, I don't really see what you are getting at with this. Just like we measure how much consumers spend we measure how much the government spends. How that screws up the comparison I don't see it. The things produced by the country cost X (the total expenditure from the definition I provided). Who provided the funds doesn't really matter. As the definition I provided in post 11 specifically says GDP is equivalent whether you measure it by total expenditure, output of goods, or sum of profits along the production chain. So your claim that income and output are different seems to be false.

[cosmik debris]

15. Businesses supply goods and services where demand exists

Government provides goods and services where there is no economic demand, there is no requirement of return on investment, there is no risk in failure.

It is like comparing the yards that a football player runs to the yards that a baseball player runs. Different rules apply.

[Imperialism Inc.]

16. If we eliminate government spending variable then that makes the corps

even bigger than countries right? So at worst that doesn't hurt the claim it helps it! But really it doesn't matter. It is in the equation that way because spent tax dollars are the same thing as consumer spending. Either way it comes out of worker/citizen pockets and pays for a good of some kind. You aren't making any sense here sorry. There may not be a demand for feeding poor people but the government spending increases the demand for food. But GDP isn't about demand it is about value of output or total amount spent (same thing). The things (food in this case) the government buys have a value in dollars and have to be output by someone.

[cosmik debris]

17. I give up

I'm sorry I am unable to explain better.

Government activity is the cause of demand.

Corporate activity is the result of demand.

[Imperialism Inc.]

18. I understand that but I just don't see what that has to do with anything.

Because it doesn't have anything to do with anything. How much stuff is produced is the question. One way to measure the answer for a country is how much consumers spend PLUS how much the government spends. Whatever that number is is how much stuff needs to be produced. So for a corporation there is no government component. So what? The answer becomes how much did people spend for your stuff.

On Edit: I give up too. lol. It was an interesting question but neither of you have provided any reason to think the comparison is problematic. Maybe it is but you haven't shown why.

[cosmik debris]

19. It nullifies your concept of free market value.

You can't use free market value if the free market is not applicable.

[salvorhardin]

8. So why are they doing it?

By "they" I mean the people citing this myth. Is it ignorance or deliberate misdirection? If deliberate, then to what end?

As near as I can tell, the origin of this myth is in the 2000 report Top 200: The Rise of Corporate Global Power by Sarah Anderson and John Cavanagh of the Institute for Policy Studies originally published in 1996 (http://www.ips-dc.org/reports/top200text.htm).

Given the background of the authors of that report (see http://www.ips-dc.org/bios.htm)I find it hard to believe it's out of ignorance. So I have to assume it's a carefully crafted number designed to stir up anti-globalization sentiment. I don't think there's anything wrong with that. There's a lot to be concerned about when it comes to multi-national corporations. I just don't think we should use myths to advance our goals.

[cosmik debris]

14. It might be

The best comparison they can find, but more than likely they are doing it because they need evidence to prove some point.