Provide European companies with pragmatic support to grow into world leading companies – and then tax them accordingly.
Europe is home to countless businesses and corporations at every scale. It is the scale, geographic scope and ownership of these corporations that determines how they must be considered at the European level. In terms of scale, these can be small or medium-sized enterprises (SMEs), encompassing startups and small independent businesses through to those with up to 250 employees or large businesses, with over 250 employees. Ownership may be public, private, or a combination of the two with a Member State as a major shareholder. In terms of geographic scope, we can group these into local businesses, cross-border companies (CBCs) and multinational corporations (MNCs).
European regulation should be aimed at nurturing startups and small businesses, supporting SMEs, and ensuring a competitive market in the face of large businesses.
SMEs are the lifeblood of the European economy, with most of the workforce being employed by companies of this size. These businesses are also at the greatest risk in the face of economic shocks, such as market fluctuations, supply limitations or uncompetitive market practices, and face a greater challenge with raising credit. European regulation and investment must be aimed at supporting SMEs to allow the growth of existing enterprises and the emergence of new businesses that can drive innovation.
Large businesses, with more employees and more capital, are less susceptible to the threats faced by SMEs, and can pose a threat to SMEs and each other. As the big fish in the European economic pond, large businesses, especially those that are (majority) privately owned, will be regulated where necessary to prevent national, regional or continental monopolies
The market is the domain of the private enterprise. Owned by individual owners or by shareholders, private companies represent the majority of companies, and are driven by profit. Competition by private enterprise is a powerful driver of economic efficiency and capital generation, however this is not always accomplished through creating the best product or supplying the best service, especially in industries that are naturally prone to oligopolies, such as those providing public services. While one response to these problems would be nationalisation and government ownership, Forward Europe only advocates this approach being taken in the case of strategically vital industries and infrastructure, and control of private enterprise instead being left to regulation or public-private partnerships, that leave the member state or European government as a major shareholder.
Local businesses are those that operate within a single member state, or possibly across one internal border, given the relative ease of cross-border commerce already ensured by the European Union. The primary regulator of these businesses, especially in the case of local SMEs, is the member state, subject only to the general support and regulation of locally implemented EU directives. In the case of large business however, Forward Europe aims to encourage the increased formation of cross border companies.
These CBCs are promoted to increase the efficiency of the European economy through the sharing of resources and the reduction of overhead costs and resource duplication among member states. CBCs can be formed in a number of ways, including unitary companies operating across borders, the contracting of smaller businesses in various member states under a prime contractor, or through equal partnerships between companies that remain separate but leverage each others resources to improve efficiency and reduce costs.
Often described in terms of their economic power, multinational corporations (MNCs) are, in fact, transformative agents with more profound impact than their strictly economic objective. In Forward Europe’s definition, what separates an MNC from a CBC is operation across the external border of Europe at a level greater than just the sale of a product or service. Simply put, MNCs help tie the world together in a meaningful way, and as a result, have grown throughout the past decades to become the primary arm of economic power projection of advanced nations. They are geopolitical entities as much as they are economic entities.
The European Union, owing to the power of our single market, and to the quality of our education and innovation, is now home to some of the world’s largest and most important MNCs in the world. Operating similarly to CBCs within Europe, with the same range of possible internal structures, European multinationals are already intrinsically multinational in their formation. However, Europe has rather naively ignored their geopolitical importance, and has been reluctant to coordinate with the private sector in legitimate power projection in support of our strategic objectives.
Until now, Europe’s efforts have been focused on harmonising and regulating the internal single market, while leaving much of the outward expansionary mission of the MNCs to the discretion of the economic agents themselves. By contrast, important economic competitors and geopolitical adversaries such as China have correctly treated their MNCs, such as Huawei, ZTE and Alibaba, as vectors of geopolitical power projection, and have carefully nurtured them into global entities through dubious business practices such as forced technology transfers, forced joint ventures, conditional market access and intellectual property or copyright infringement, to name a few. More recently, our corporations have been held hostage by threats of withholding market access, thereby subverting our corporations and turning them into unwilling agents of influence in Europe.
An ever stronger Europe will need to leverage strong, global leading MNCs in pursuit of our geopolitical goals. To that end, we should pursue an immediate set of strategic objectives:
- Secure fair terms for access to foreign markets
- Aggressively protect our intellectual property
- Defend our home market against unfairly subsidised competition
- Prioritise political and diplomatic support to advance the interests of our companies
- Allow European CBCs to consolidate through mergers and acquisitions (M&A), form corporate partnerships or be engaged as prime contractors and leverage home market for scale
- Encourage cross-border M&A to create global leaders in key sectors, and reduce redundancy between companies operating in different European states
By implementing the objectives outlined above, European companies will support the economic growth and stability of Europe, and allow European MNCs to grow into global leaders, and will help create trust and transparency with governments in our sphere of interests.
On the global stage, success of MNCs is largely driven by scale, fair and equal access to markets, and enabled by strong coordination and support from public diplomacy. Once this success is achieved, they should also be taxed accordingly, so that the European public can participate in their economic success.