Fri - June 11, 2004 at 12:03 PM in

How to construct a misleading headline


The headline reads:

"Of the world's 100 largest economic entities, 51 are now corporations and 49 are countries. " The list is constructed by taking corporations based on annual revenue and countries on GDP.

The headline is naturally supposed to make us instantly afraid that Giant Multinational Corporations Are Now More Powerful Than Governments. But reading the headline, you'd never notice that:

* All of the top 20 are countries. The first corporation on the list (General Motors) is #23.

* The total GDP of the 49 countries on the list is seven times the total revenue of the 51 companies ($28 trillion vs. $4 trillion).

* The United States (#1) has a GDP of more than twice the sales of all 51 companies on the list ($8.7 trillion vs. $4 trillion).

* The countries near the bottom of the list are places like Bangladesh and Algeria: very small countries. But the companies near the bottom of the list are still giants, like NEC and State Farm Insurance.

Actually, I'm not even sure what the relevance of comparing countries to corporations is. There are only a few hundred countries in the world, but millions of companies (how about the headline, "999,700 of the million largest economic entities are corporations!"), and since every company's output is counted in at least one country's GDP, there's a lot of double-counting going on. Also, corporations are very different entities than sovereign governments, and just because a corporation has more sales than a country has GDP doesn't create a situation where there's an imbalance of power.

A more meaningful headline might be: "World's Largest Corporation Has Revenue Equivalent to Denmark's GDP." That still sounds big, but without being misleading or alarmist.

A more meaningful statistic might be the relative size of a corporation vs. the country it is based in. GM, for example, has revenue equivalent to 2% of U.S. GDP. Big, but erasing GM would have the economic impact of a mild recession. In Germany, however, the biggest corporation is DaimlerChrysler, which has revenue equivalent to 7.7% of Germany's GDP, implying a much greater reliance on one company (I am making the completely wrong and simpleminded assumption that all of a company's revenue flows through its home country). Even more lopsided: in the Netherlands, Royal Dutch/Shell has revenue that amounts to 27% of GDP.

Posted at 12:03 PM   Permalink      

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