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Interview with prof. Ethan B. Kapstein

Ethan B. Kapstein is Arizona Centennial Professor of International Affairs and Senior Director for Research at the McCain Institute for International Leadership in Washington DC, a think-tank associated with Arizona State University.

He is also a Senior Advisor for Economics at the US Institute of Peace, and Associate Director and Senior Research Fellow at the Empirical Studies of Conflict (ESOC) project, a research collaborative based at Princeton, Stanford, and UCSD. Kapstein is a Visiting Fellow at the Center for Global Development and Research Affiliate at NBER. He has previously held chaired positions at the University of Texas at Austin, INSEAD, and the University of Minnesota, Ethan has also served as a Vice President of the Council on Foreign Relations, Principal Administrator at the Organization of Economic Cooperation and Development, and Executive Director of the Economics and National Security Program at Harvard University. Kapstein is a former international banker and has served as an officer in the United States Navy. A specialist in international economic relations, he has published widely in professional and policy journals, and is a frequent contributor to the op-ed pages of the International Herald Tribune and Los Angeles Times. He is the author or editor of ten books, the most recent of which is AIDS Drugs for All: Social Movements and Market Transformations (with Josh Busby), which won APSA's Don K. Price Award for 2014. Kapstein is a consultant to many private and public sector organisations, including Coca-Cola, Standard Chartered Bank, the International Finance Corporation, the World Bank and OECD, and has been a visiting professor at Sciences Po (Paris), the University of Nice, the National Institute for Defense Studies (Tokyo) and the National War College (Washington, DC). His free-time activities include sports (swimming, tennis, jogging), hiking, sailing, and reading.

Multi-national companies have always been a juicy target for politicians and pundits from the extreme left and extreme right. They are big. They are foreign. They typically stay out of the political debate. Now that the EU and US are negotiating a trade treaty, multi-nationals will be even a bigger target for criticism. What can they do about it?

“In some ways, multi-nationals are their own worse enemies. As you said, multi-nationals tend to stick to the business, and avoid public debate. That allows other people to create their image. I always tell the companies with whom I talk that they must make their case to the public. The private sector does a really poor job of explaining how the economy actually works to the general public.

You always have politicians claiming how they fixed the economy or how they grew the economy. Governments do not grow the economy: businesses do. Why won’t business say this? Why won’t they talk about the role in creating jobs and taxes? Why won’t anyone tell the public that there would be no money for social programs if the private sector could not make enough money to pay for it.

It is not a small matter. If politicians always take credit, and no one corrects them, then the public will naturally turn to the government to solve all problems. And the government will usually solve the problems by creating programs that cost money. That money has to come from the private sector, which is actually where all economic problems ultimately are solved. So this failure to explain to the public who is really responsible for the economy results in reducing the ability of the private sector to find solutions to problems”

So what should companies do?

“They should measure their impact on the economy, and inform the public. Companies, and multi-nationals especially, create all of an economy’s jobs and GDP, either directly or indirectly. It is obvious how they create jobs in the private sector. It is less obvious how they create jobs in the public sector, until you think about how government employees are paid: taxes. Companies pay taxes, and they pay employees who pay taxes. It is a pretty simple situation that the public does not seem to understand at all.

Let’s take Coca-Cola in the Czech Republic. According to our research, Coca-Cola contributed at least 0.2% of the 2013 GDP directly or through suppliers and trade. Eight percent of its total turnover was paid either in salaries- CZK 471 million- or taxes- CZK 293 million. The total indirect impact of Coca-Cola’s presence in the market was CZK 6.177 billion. If you add indirect employees, Coca Cola’s operations here created CZK 1.753 billion in salaries. Those are significant numbers.

If these numbers get out there in ways the public understands them, it will change the perception of business. People will understand that what creates a successful economy Is a business that can create the most value per crown of turnover. That means creating highly competitive businesses and highly competitive supply chains within a country."