Introduction:TNCs or Transnational corporations are the fundamental apparatus keeping the global capitalist ideology thrive around the world.
Their sheer expansion in the size, number and global reach has made them significantly more controversial not least because of the role they play in the global economy but their relationship with many developing or developed states and how they are changing the global political, economic and social dynamics beyond recognition in the contemporary world whether this change is a positive or negative one that shall be discussed in this essay. Therefore, the purpose of this essay is to argue that the role of TNCS in the global economy is mostly negative with a focus on how they adversely affect developing countries by showing a disregard social and corporate responsibility. In addition to this, I will evaluate and analyse the relationship between that state and the TNC and crucially how the rise of non-state actors like TNCs have weekend the power of the state and changed the power dynamic. Theory:To understand this question, we must first understand what capitalism is because that is the system which continually perpetuates such huge corporations and allows them to thrive in the global economy.
This question largely depends on which perspective you study, from a Marxist perspective capitalism is a system in which individuals in society are split into two distinct social groups: the proletariat is the working-class people who are a source of labour to work in factories and consists largely of most non-elite in society. The Beourigise, on the other hand, are the people who own the means of production and consequently own the good that a produced, as well as the profits, made(Heywood,2013). Marx was highly sceptical of the capitalist system because of its exploitative nature and unfair distribution of resources in society. In his book the communist manifesto, he predicted the collapse of Capitalism and eventually be replaced by communist global order through a revolution. However, due to events such as the industrial revolution capitalism has expanded on an unprecedented level. The technological advancements, improved transport and connectivity has meant that capitalism is not limited to the western hemisphere, it, in fact, is a truly global system. History of TNCS:The most prominent TNCs of the 18th century was the certainly the East Indian Company which was global in every aspect making global connections by promoting the trading activities or territorial acquisitions of their home colonies in the Asia, Africa, America. In fact, it can be argued that TBCs outdate the national state because TNCs have been around for hundreds of years, the earliest origins can be traced back to the early 14th and 15th centuries where classical TNCs such as The Medici Bank in Renaissance Florence, provided financial activities and trading across frontiers before strategies such as the 1648 peace of Westphalia was signed which would recognise state sovereignty territorial integrity of national states.
It wasn’t until the 19th century when we saw a dramatic increase in the number of TNCs, the catalyst for this was global industrialisation of capitalism allow for mass production of goods facilitated by improved distribution networks and transportation links around the world as well as consumer demand for products. As we know today TNCs have are among the world’s largest economic institutions(Hewitt,2002). A general approximation suggests that the “300 largest TNCs own or control at least one-quarter of the entire world’s productive assets, worth about US$5 trillion” The creation of a more liberalised, integrated and free-market economic order has meant that “63,000 parent companies with subsidiaries of about 630,000 are present and conducting operations in, countries, industries and economic activities in the world”. To put this into perspective the sales revenue generated by such enormous TNCs have in fact eclipsed the GDPs (GDP refers to the total output of services and goods produced for final use by a state’s economy) of states for example: Large corporations such Royal Dutch/Shell total Iran’s GDP. Combined, the sales of “Mitsubishi and General Motors are greater than the GDPs of Denmark, Portugal, and Turkey combined, and US$50 billion more than all the GDPs of the countries in sub-Saharan Africa” (Globalpolicy.org.2017,p32)This rapid growth in TNCS can be linked to Economic globalisation that was complimented by the 1944 Bretton woods agreement which laid the foundation for the liberalisation of global trade and brought in an era of free trade across borders and the limiting of protectionist policies formally endorsed by many developed states to protect their industry and markets.
Institutions such as the International Monetary Fund (IMF), World Trade Organisations (WTO) and World Bank (WB) were the brainchild of these agreements in the hope of governing and assisting the global economy in times of economic downturn. What this also meant is that TNCs is that they had the perfect environment to grow and expand with little restriction. The states instrumental in the agreement were mostly democracies who supported capitalist free markets where businesses were in private ownership(Dunning,2005). The multilateral agreement promised the development of all states taking part and that the prospects of future war would be significantly reduced due to the mutual economic interdependence trade would bring (Hilton, 2009: p.31). Therefore, demonstrating how TNCs developed throughout history because of the favourable economic policies which allowed them to thrive and the rapid industrialisation of the 19th century coupled with rising consumer demand have made TNCs the preponderant global players of today. Criticism of TNCs:On the other hand, the greater role of TNC in the global economy has been a cause of concern for many scholars of economics and politics on what the actual role of TNCs is and whether they have a responsibility towards society and the globe. The first argument is that TNCs have brought about an era of Winners and losers.
To elaborate the Winners are industrially advanced states, particularly the USA where majority of the worlds TNCs are headquartered. While the losers are in the developing world mainly subsharan Africa, South America and parts of Asia. Here wages are considerably low, regulation is weak or non-existent and where production of goods is mainly catered toward an international market rather than the domestic requirements(Stiglitz,2011).
Using the dependency the Marxist dependency theory which implies that developing countries are dependant upon support and technology from developed nations for their survival. This has lead to a structural imbalance in world trade which is increasingly dived on the North/south trade imbalance where the north exports high-grade premium goods in exchange for low-cost resources. This has perpetuated a cycle of inequality and poverty in the global south and TNCs are in the heat of this imbalance due to their trade practices and exploitative relationship with these developing states.
Furthermore, it is expressed that global companies access more capital from LEDCs countries than they invest into it by the notorious practice ‘transfer pricing’ that allows TNCs to reinvest their profits back to their parent company paying minimal corporate tax on an already low tax developing country. Hence , many scholars debate that ‘ international terms and conditions of trade operate at the disadvantage of most LEDC countries” who in turn get relatively low profit for their exports while having to pay a lot more for imports”(Chomsky,2008) This again highlights how TNCs how a lack of ethical and moral responsibility toward the host countries they profit from. Do TNCs promote economic growth?It can be argued that TNCs are can play a positive role for economies. As demonstrated by the modernisation theory is generally places importance on the perceived benefits of TNCs role in the global economy, especially in LEDCs. For example, theorist argues that TNCs bring FDI (Foreign direct investment) into developing countries to proving thousands of new jobs for the local populations as well as introducing new technologies to underdeveloped states(Heywood,2013). This also gives developing countries the opportunity to export there good on the international market and have access to global markets through the TNCS. moreover, TNCs can provide the local workforces within these countries with the relevant skills and expertise to make their goods more efficiently and reduce the export costs by TNCS directly investing in Infrastructure projects for better transport and links which directly benefits the host society.
Malaysia is an example of this because the country saw a dramatic increase in FDI, from 2002 to 2011 “FDI increased 30% mainly from financial services and high tech electronic multinationals. It is estimated that from the years 2008 to 2013 the average wage in Malaysia as a direct result of this FDI has increased 8% to $122(Heywood,2013,p229) This, therefore, demonstrates how TNCs can improve consumer spending power in developing states and raise living standards, Malaysia is just a microcosm of the greater good TNCs potentially bring, From an economic liberal perspective “The Magic of the market” is the key principle which TNCs abide by because the market is only reliable means of generating wealth, guarantees economic opportunity and prosperity. This economic freedom according to neoliberals also promotes other freedoms.
The argument is that open market-based economies n which enterprise and industry can thrive in brings the demand for social-political change. Social mobility increases as people take advantage of wider work opportunities provided by global investment by corporations, educational opportunities and career prospects increase due to the influx of new ideas and customs through the agents of economic globalisation i.e.-TNCs.
There economic globalisation driven by TNC is a force for “democratisation” around the world resulting in a more harmonious world(Yong,1994). Lastly, the technological revolution brought about by many TNCs in improving business processes cannot be ignored. According to studies over 50% of global commercial inventions and innovations in terms of patents are directly linked to TNC, companies like Google, IBM and Tesla are at the forefront of this Technological advancement.
This has benefits for the state, society and environment because the outdated technology used to produce inefficient and high-cost goods but with the influx of this premium software and hardware from TNCs mentioned everyone particularly the third world has access to this Technology without having to spend billions of R(Holmes,2009). TNCs and the developing world: On the other, as mentioned above TNC certainly provide millions of people with jobs and hence drive up employment, Due to the volume of jobs TNC create Many developing counties in Africa and Asia have indulged in a theory called the race to the bottom theory. This Socio-economic phenomenon refers to the act of government deregulation of the business environment, taxes and worker rights in the hope of attracting or retaining the economic activity of the TNC in their territory.
This theory according to Stiglitz is presented and well-orchestrated by TNCs and International economic organisation alike through the use of structural adjustment programmes (SAPs) Which are conditionality’s attached with loans handed out by the World Bank And IMF to poor underdeveloped countries to support their struggling economies. The conditions attached are Privatisation, Deregulation and austerity in public expenditure(Young,2005). These conditions allow TNCs to infiltrate Developing countries and in effect decimate their fragile industries. For example, The Anglo-American tobacco company monopolised the tobacco markets in African countries such as Kenya, Nigeria and Uganda and destroyed local competition.
A study by the Guardian found that British American Tobacco and other multinational tobacco firms have “have threatened at least eight African countries demanding they axe the regulation they brought in to limit the harm caused by tobacco” This is a prime example of haw International organisations and TNCs work in cohesion to suppress local business and governments. This can also be known as decolonisation and reminiscent of the past where the pure economic domination of one’s country takes place, in this case, many African states.(Guardian,2016) TNCs and Human Right abuses:It is well documented that there are numerous accounts of TNCs complicit role in human rights abuses.
As argued by Klien that human rights violations are a characteristic of the role of TNCs. This argument is based on the ‘amorality of profit’ which is ‘not necessarily immoral, but rather morally neutral(Jenkins,2005). It should be noted that TNCs almost never go to developing states with the intention of providing employees or betterment of human living standards, instead, they are enticed by the prospect of weak governance, limited awareness of human rights and lack the lack of democratic process in the foreign state.
Stephens takes this argument further by implying that TNCs in the hunt for profit, undermine the human cost of their business activities. Stephens illustrates this claim by demonstrating the role of large TNCs in the Holocaust in the 20th century, by implying that US technology corporations such as IBM turned a blind eye to the Nazis Human rights abuses in world war two for the sake of business. In the contemporary world where a plethora of example where TNCs have undermined the corporate and social responsibility to society and the environment. For example: Emere Godwin Bebe Okpabi, ruler and hereditary king of the Ogale community in the oil-rich Niger delta beliefs “Anglo-Dutch oil company, should be sued in Britain for historical pollution, he says he feels “betrayed and saddened …(Vidal,2017) In 2011 the UN environment programme (UNEP) records say there have been more than 40 major spills in the small Ogale kingdom over the years, of which 23 have been since 2009 with hundreds dead “(Vidal,2017) Critical theorist argues that TNCs should be held under the rule of law for the daily Human rights violation they carry out in many developing states. Multinational Corporation is an adjustable and permutant intuitions that makes profits from the ideas of neo-liberal economics, as well as the circumstances of the “host and home” state, this combination of which with limited levels of accountability and a decentralized body of decision-making hierarchy allows for abuses of human rights to take place internationally, by having double standards. Moreover, policies of TNCs such as the IMF, WTO, OECD and The World Bank, have allowed TNCs to gain a position of untouchable influence on agendas of socio-economic nature (Newfarmer, R. 1979).
This inhumane and treatment and double standards have led to many rebel groups opposing the capitalist globalisation of the world and in regions, as seen by the rebel groups such as the Zapatista in Mexico and FARC in Colombia to resist the “cultural imperialism and the corruptions of capitalism” (Fukuda-Parr,2011,p44) TNCs and the state:TNCs and the state is a complex relationship but they both require each other to be successful, however, sometimes there is power imbalance within this relationship. A key argument within this debate is that TNCs has reduced the power of that state. The difference of interest between these two institutions is the crux of the problem because states are accountable to the people and server them, whereas TNCs are accountable to shareholders and interested in the accumulation of capital. TNCs need states to provide the infrastructural foundation to carry execute it business practices. For example, states give legal protection of private property such as factories or TNCS, the necessary educated labour force, and diplomatic immunity in unstable foreign environments.’ (Thomas,2002) States need TNCs to produce material wealth and provide employment and investment for its citizens.
States depend upon foreign investment to improve GDP and employment figures for their political survival to win elections and gain public support. It would be fair to say that the state and the TNCs have a mutual interconnected relationship, however, there are worries that TNCs are going the advantage within this relationship. Sates can determine the condition and parameters the TNCs have access to their resources and markets through tax and regulation, however, TNCs have the power to simply shift operation from one country to another. TNCs also have immense lobbying power in different states and an example of this is NIKE in south-east Asia and its Sub-contractors who have an economic gain in Nike and lobby the government to give them favourable policies and treatment. This demonstrates their large bargaining power and is exacerbated by competing states who want FDI from TNCs. For example, US states offered great incentive for TNCs to build industrial plants in their area. “Tennessee has announced, it agreed to give car-maker Volkswagen $500m in incentives for its $1bn unit in Chattanooga” (Damato,2014,p12)Furthermore, TNCs also take exploit of low tax rates that states offer to obtain investment.
It is a well-documented practice for TNCs to pressure nations into reducing tax levels by threatening to relocate to another country. TNCs have limited the power of states through their practice of creating favourable business environments through incentives, transfer pricing and tax breaks to fully maximize profits at the expense of the state’s budget. TNCs go to great lengths to find a loophole in national law for the financial gain. The practice of transfer pricing determines prices either up or down and ultimately influence the amount of tax payable to national governments. The infamous case of Starbucks where it had a turnover of about $400million, however, paid $8 million in tax over the course of 14 years(Heywood,2013).
The issue of Sovereignty must also be mentioned because the concept of “hollowing out of politics and democracy” is linked to the rise of TNCS and Capitalism. The cosy relationship between state and TNCs brings the potential for corruption especially in developing states where governance is weak, for example: A survey found that 70% Indonesian believe that bribery is ok”(Pew,2012) and these attitudes permeate to the government level where corruption is rife and TNCs will exploit this and in fact bribe their way through government legislation. However, it should also be mentioned that TNCs when in times of economic downturn depend upon states to rescue them as seen in the 07/08 financial crash many states bailed out big companies e.g.- British Government bailed out RBS in 2008. (Andrew,2016)Conclusion:It is fair to say that TNCs have their positives and negative but as we see the negatives outweigh the positives when it comes to TNCs in the developing world. Due to their exploitative nature and disregard for human rights. In the global economy, TNS play a pivotal role in economic growth and driving forward the world economy.
But the structural imbalance between the developing cannot be ignored because it is preparing a north-south trade imbalance and supporting the notion of a neo-colonialist agenda prepared by TNCs. In summary, TNCs only benefit the developed states and have increased inequality in developing countries. The relationship between states is a dynamic one but states are under threat from an ever-growing non-sate actor inform of a TNC.