The Many Woes Of The Fortune 500

The Soviet Union may be dead, but its old anti-capitalist rhetoric lives on, reincarnated as anti-globalization. Street agitators at meetings of the World Bank or WTO still claim that we are being impoverished by the monopolistic power of multinationals. At seminars and debates in Indian colleges, horror and fear is still expressed about the power of giant corporations, whose sales exceed the GNP of entire countries.

How extortionate are these giant corporations really? To find answers, I looked up the April 15 edition of Fortune magazine, listing details of the 500 biggest US corporations in 2001. It yielded some astonishing facts.

The net profit of the 500 giants was, on average, just 3.3 per of sales. This is a very slim margin. No extortionate profits here. Indeed, a detailed look at the 500 giants reveals distress on an amazing scale.

-No less than 98 of the 500 giants actually suffered a loss. Giant size does not mean giant profits. It can mean giant losses.

-The biggest loser was JDS Uniphase, an optical fibre giant. It lost an astounding $ 56.12 billion in 2001, more than the GNP of many countries.

· Lucent Technologies, long the world’s biggest producer of telecom equipment, lost $ 16.2 billion.

· Ford, the second biggest automobile company in the world, lost $ 5.5 billion.

· The biggest gas trading and pipeline company in the world, Enron, went bankrupt. Other giants to file for bankruptcy included the second-largest insurance company, State Farm Insurance (loss 4.99 billion); two of the biggest department stores, K Mart (loss $ 95 million) and Ames (loss $ 792 million); and two of the biggest steel companies LTV (loss $ 1.25 billion) and Bethlehem Steel (loss $ 1.95 billion).

· You might think the military-industrial complex rules supreme under the Bush administration. But in 2001, Lockheed Martin lost $ 1.05 billion and Raytheon lost $ 763 million.

· Motorola, one of the biggest names in the communications and electronic equipment, lost $3.9 billion.

· Corning, the biggest glass-maker, lost $ 5.5 billion.

· AOL Time Warner, the colossus formed by the 1999 merger of AOL (the top internet provider) with Time Warner (one of the biggest media-entertainment giants) , lost $ 4.9 billion.

· The biggest airline in the world, United Airlines, lost $ $ 2.15 billion. Other airline giants in the red included US Airways ( $1.9 billion) Delta ( ($ 1.22 billion) and North-West Airlines ( $ 423 million).

· The biggest producer of internet routing equipment and superstar of the stock market in 2000, Cisco, lost $ 1.01 billion.

· The biggest US producer of memory chips, Micron Technology, lost $ 625 million. The second biggest producer of microprocessors, Advanced Micro Devices, lost $ 60 million.

· The second biggest producer of personal computers, Gateway, lost $ 1.03 billion. Compaq Computer lost $ 785 million and Apple Computer $ 25 million.

· International Paper, the biggest paper manufacturer, lost $ 1.2 billion.

· The biggest data storage company, EMC lost $ 507 million.

· The biggest manufacturer of tractors and harvester-combines, Deere, lost $ 64 million.

· Amazon, the biggest internet retailer of books, lost $ 567 million.

This is only a partial listing of losing giants. But it suffices to prove that giant corporations have to struggle to make money, and some are going bust. Far from being super-dominant, the giants are a threatened species.

Why is their huge size no protection? Because the global market is a competitive one which allows newcomers to constantly challenge and upend established players. Small nimble companies often fare better than lumbering giants, who find it more difficult to adjust to a world where technology and demand patterns change at lightning speed. Remember that the dinosaurs were big too, but that did not save them from extinction.

Life at the top is difficult and ephemeral. Last year, 44 companies, almost one-tenth of the total, exited from the top 500. Those exiting included Litton Industries, a defence giant; Avis Rent a Car, the second biggest car rental company in the world; Quaker Oats, which processes more oats by far than any other corporation; Trans World Airlines, which for decades was the second largest airlines in the world but has now gone bust and been liquidated; Union Carbide, of Bhopal fame; and 3Com, the biggest producer of palmtop computers.

Which is the biggest company of all? It is Wal-Mart Stores, a chain of department stores that some readers of this column may not even have heard about because it is not a conventional multinational. Started by a humble shopkeeper, Sam Walton, it has grown steadily for decades through its policy of “everyday low prices.” While other historically famous chains offered discounts only for seasonal occasions or to clear unsold inventories, Wal-Mart followed a policy of keeping prices low every day, and constantly looking for suppliers who could keep lowering cost without sacrificing quality. The biggest company in the world today got big not by using its muscle to extort monopolistic profits but by providing millions of customers with the cheapest possible goods.

So much for the propaganda of anti-capitalists that big corporations are a threat to the world and are out to fleece consumers. The lesson is not that giant corporations are good Samaritans. The lesson is that global competition makes the self-interest of the capitalist co-incide with the self-interest of the consumer. Wal-Mart helps customers in order to help itself. So do other giants.

In the absence of competition, businessmen will seek to cartelise and reap monopoly profits. But force them to compete, and even the biggest corporation can be killed by the humblest consumers by the simple act of taking their custom to a better supplier. That is what some call the magic of markets.

This explains Adam Smith’s observation that capitalists are a lousy lot, but capitalism is a good system. Anybody doubting his wisdom should look up the Fortune 500.

What do you think?