Comparing corporations to territorial units

If you want to compare the size of ExxonMobil to the size of Senegal, the right comparison is probably between Senegal’s GDP and ExxonMobil’s value added: sales net of purchases of raw materials and intermediates.

Dan Drezner complains about the “Corporation X has sales bigger than the GDP of Country Y” comparisons on the grounds that “GDP measures the value-added that an economy generates per year, so the proper and correct comparison is between a firm’s profits and GDP.” (For example, an on-line retailer might have huge net sales but very few employees and little value added. So might an oil refiner.) Kevin Drum responds that GDP is a measure of total activity, not profit, so sales is a better analogue to GDP than profits.

Without addressing the question why Drezner thinks the claim that corporations have now come to rival countries in size &#8212 which, true or false, is a positive not a normative claim &#8212 has a “left” political spin, it seems to me that neither Drezner nor Drum is right. The right analogue to GDP, which as Drezner says is a sort of value-added measure, would be … value added: that is, a firm’s sales net of its purchases of raw materials and intermediate goods (that is, wages plus depreciation/amortization plus profits plus taxes paid). Value added is going to be lower than sales, but obviously much higher than profits.

I’m not sure how easy it is to extract from an annual report or 10-K. It’s also not a perfect measure, because there’s a big difference between the supplier-customer relationship between me and FedEx and the supplier-customer relationship between WalMart and one of its captive suppliers.

A much simpler measure would be employment. Multiply a firm’s headcount by some sort of population-to-employment ratio (about 2 for the U.S.) and you have the size of the population that the firm supports. Wal-Mart has 1.8 million employees; McDonald’s is second with 450,000. (Both of those numbers may be exaggerated by high ratios of part-time to full-time employees.) That makes Wal-Mart about the size of a smallish state or a tiny country: Oklahoma or Connecticut, Namibia or Moldova.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: