How Have Changes In The World Economy Since 1945 Affected Room For Manoeuvre Of Multinational Firms - Essay Example

?How have changes in the world economy since 1945 affected room for manoeuvre of multinational firms? Introduction The end of the Second World War brought about a variety of global changes, from the political, to the economic, the social, and the cultural. These changes helped the global recovery of many countries which were damaged by the war. Significant investments to industries and rebuilding activities were made by various corporations soon after WWII and these activities were spread out in various parts of the globe. These activities have impacted significantly on how corporations have carried out their activities. Eventually, multinational corporations rose from the ravages of the Second World War via numerous branches in different parts of the world. Various economic opportunities gave these MNCs a chance to grow; however, it also presented them with significant challenges in terms of competitive advantages and profitability. Based on these considerations and under these conditions, this paper shall now discuss how the changes in the world economy since 1945 have presented room for manoeuvre of multinational corporations. It shall discuss the significant changes seen after World War II and how these changes have provided an avenue for the expansion of multinational corporations. Body A. Background Multinational corporations have been in existence for a major part of human trade and economic history. These corporations have found their earliest beginnings through the British East India Company, the Hudson’s Bay Corporation, and Royal Africa Company. When World War II ended, many colonies were able to gain their freedom and the goals of colonial powers shifted towards industrial activities. In the midst of major rebuilding efforts in war-devastated Europe, the United States emerged as a major economic player (Shaikh, 2010). In the years that would follow the re-emergence of major corporations from countries like the United States, the United Kingdom, France, and Germany also ensured the establishment of major business houses outside the mother countries and into host nations (Shaikh, 2010). When many colonies in Asia regained their independence, various corporations realized that they had to make decisions about their operations abroad. Some of these corporations opted to close their operations in these former Asian colonies, most likely in order to keep the secret of their technologies. These corporations also became more guarded with their technology, choosing to withdraw their operations from the countries rather than to allow the host nations to control these operations (Shaikh, 2010). In effect, the subsidiary operations of corporations in the former colonies declined. Through increased tariff and legislative restrictions on the corporations, corporate activities continued to decline (Glyn, 2007). After the Second World War, economic activities increased in pace and this caused MNCs to shift and adjust their activities in order to meet increasing demands on their capital, their labour, and on their legislative local host country policies (Glyn, 2007). These changes presented developmental issues to these corporations within an expanding context of globalisation and liberalism. However, just as the more liberal economic processes have presented better opportunities for expansion, these have also served to impose legislative limitations to economic growth and development (Arrighi, 1994). This discussion shall evolve around the changes and the challenges which multinational corporations have been faced with in the years following the Second World War and the changes which these MNCs have had to make in order to thrive and survive in the post-WWII era. B. Historical context and scenario for MNCs following the WWII A major shift in macroeconomic considerations and policies after WWII has been seen and this shift has been considered as a major move by Western nations using Keynesian policies to the liberal and free-market policies (Mohamed, 2008). This change has been considered ideological and is mostly related to the contrasting roles of the state and of state legislations. The principles of free market capitalism have been the main concept behind the globalisation activities which was seen towards the latter part of the 1970s (Mohamed, 2008). After the Second World War, the national economies were mostly under state control and these economies were highly influenced by the views of Karl Polanyi who considered social structures of solidarity being necessary tools in reducing social tension caused by competition (Mohamed, 2008). The impact of the state and regulations was also significant to the solutions being supported by Keynes to manage the instability seen in the free market (Mohamed, 2008). The period following the Second World War until the early 1970s is considered by many economic analysts as the Golden Age; and on the other hand, the late 1970s was known as the neoliberal or liberal age (Gibbon and Ponte, 2005). This change in ideals impacted significantly on the society and on corporations. Moreover, these changes implied renewed activities in the globalization of businesses. When the shift from Keynesian to neoliberalism principles became apparent, financial market liberalization followed (Gibbon and Ponte, 2005). Goods became globally linked and financial markets were integrated and reinvigorated in the mainstream economic policy-making. After the Bretton-Woods financial arrangements ended, Thatcherism started to gain ground in the UK, and Reaganism in the US became significant policies which caused the shift from the Golden Age to the neoliberal age (Mohamed, 2008). The end of the Cold War and the fall of the USSR also led to economic and political changes in Europe and liberalisation policies among corporations. With further calls for liberalised policies, many corporations and economic analysts started lobbying for the reduced government roles in the control of economic policies (Taylor, 2008). This became the anti-state ideology which dominated the neoliberal age. This change was crucial to the effective domination of the MNCs because it provided them with a fertile ground to launch their economic activities (Taylor, 2008). Within the liberalist ideology, democratic principles supported economic liberties. During the Golden Age, industrialists and the smaller businesses as well as labour unions were able to establish a strong voice in support of closed economies and the regulation of the financial departments (Mohamed, 2008). As various industrial companies transitioned into MNCs, their loyalties also shifted in favour of the financial sector; moreover, they were quick to lobby for openness and for decreased state regulations. The shift to neoliberal policies was sealed as a result and the MNCs enjoyed this period because it allowed them economic freedom and unlimited profit (Krippner, 2002). This marked a period of financialization for many MNCs and as a result, it helped usher in the era of globalisation. With the decreased regulation of the economic sector, businesses and alliances were reshaped to fit contractionary macroeconomic policies which limited the role of the state and decreasing the growth in other countries (Kiely, 2005). In the aftermath of the Second World War, Western nations supported trade unions and strong labour relations. As a result, unionised labourers were able to gain rights and benefits during collective bargaining. In turn, they were pressured to work hard and to increase productivity levels. MNCs at this point, engaged a long-term consideration in relation to investments and labour relations because they were able to gain a steady stream of profits with limited competition in the domestic markets (Mohamed, 2008). After the Second World War, the labourers from MNCs were able to enjoy job security, good wages, benefits, including health insurance. The Neoliberal age in short, liberalised the financial markets and financial flows. The experience of the financial crash in 1929 led to the agreement among policymakers that finance must be controlled if the financial goals of any country would ever be met (Mohamed, 2008). The international financial transactions were also considered disruptive for various countries and the countries maintaining closed borders also limited their international monetary transactions. The scenario following the Second World War demanded that in order to survive, the MNCs must try to influence their host countries into reducing their restrictive monetary policies (Gibbon and Ponte, 2005). These strategies took on a global nature with efforts made towards global production which the host countries could not manage well. B. Changes seen from the Golden Age to the Liberal Age In the aftermath of the Great Depression, it was understood that the open economy which was allowed to reign free was not beneficial and that it disrupted the national economy of most countries (Henderson, 2005). Keynes was one of those who understood that the government must manage economic stability and maintain full employment with macroeconomic settlements. This understanding prompted Keynes to recommend that countries allow economic liberties only to cover the goods they cannot produce or create for themselves (Mohamed, 2008). Bilateral trade and capital arrangements were preferred over economic openness. This was known as national capitalism, one which sought full employment and better domestic transactions (Mohamed, 2008). Under this scenario, international cooperation can be pursued once the general national aims have been met; however, this international cooperation must not block the fulfilment of full employment and instead it must support employment goals by attempting international trade (Lowenfeld, 2003). In effect, “if necessary controls over trade and capital flows should be used to ensure full employment” (Mohamed, 2008, p. 8). Efforts to control national capitalism were dominant in the US foreign policy before WWII and Roosevelt was elected with the encouragement of small businesses, farmers, and labour groups. As a result, going into the Second World War, the Keynesian principles and national capitalism was strong in the US (Mohamed, 2008). Businesses existing during WWII feared that policies which support full employment would lead to the dominance of the national economic planners on the US policy making. These businesses suggested that lower taxes would help stimulate the economy, promote full employment, and support the decline which may be seen after the war (Porter, 1985). These corporations wanted to support large export surplus after the war until the economy could be restructured to maintain full employment. This scenario meant that the US would have to lend to other nations. This would however lead to an open world economy, one which was opposed to capital control and trade barriers (Trebilcock and Howse, 2005). After the war, there was realignment of interests and of MNCs wanting to export and bankers wanting to lobby for open capital markets. The policies of the US and of the UK during the Bretton-Woods negotiations were not supportive of the liberal international processes. Negotiators at this point believed that capital flows from countries with surplus must be directed towards countries with serious deficiencies (Mohamed, 2008). These countries having surpluses would therefore have to inflate their economies and improve their imports; and countries with deficits would therefore freely seek their own policies. Analysts Keynes and White believed that the overall principle behind these activities is to give states a chance to control their capital movements. This recommendation was not supported by the US; moreover, other developed nations and US-based corporations were also opposed to idea of the US having to make the adjustments in the economic world (Dunning, 2001). Amendments to the Bretton-Woods agreement were later proposed in order to restrict capital movements and to give states a chance to control their capital activities. The World Bank also supported the productive flows of capital with the IMF financing the deficits (Hymer, 1970). The activities of the MNCs at this point were hardly stable, especially due to the fact that the financial arrangements of the developed nations were largely unsettled. Trade and increased international competition led to changes in labour relations and the close relationship between labour and protectionist policies slowly disintegrated after the Golden Age; these relations were not apparent during the neoliberalist period (Marglin and Schor, 1992). Due to these changes, the style of management and the quality of the investments of MNCs changed significantly. The direction of MNC activities was directed towards diversified conglomeration (Crotty, 2002). Institutional investors also dominated and stock prices lost any long-term support. Moreover, the distribution of the shareholding and stocks led to the weakening of shareholders with more MNCs gaining major control of their stocks (Crotty, 2002). Higher stock prices resulted and long-term growth met with setbacks. Shifts towards neoliberalism have caused changes in the financial activities of MNCs transitioning from a restrictive market to a macroeconomic management. C. Industrial developments Coercive competition was seen during the neoliberal period and it was a period which saw MNCs into cutthroat competition and into fast-paced technical innovations (Nolan and Zhang, 2010). This high stakes competition also caused the MNCs to abandon their high road labour relations. Eventually downsizing and wage-reductions were seen from these MNCs. There was also a reduced aggregate supply of products, mostly because of large non-financial corporations (NFCs) being involved in the economic activities (Jenkins, 1987). Key industrial sectors involved in the manufacture of automobiles, airplanes, steel, and semiconductors dominated the international trade and productivity growth. Corporations involved in these activities became capital intensive and were involved in activities which were significant in scale and scope (Mohamed, 2008). A huge investment in capital was settled by MNCs on these major economic activities. And once these investments have been made, it was difficult to withdraw because these core industries required major and large equipment as well as a significant number of labourers and managers. Moreover, these major industries had equipment which cannot be sold without incurring major losses of capital (Mohamed, 2008). Understanding these qualities from the MNCs’ point of view allowed for industrialization activities to progress. The activities of these MNCs also enticed developing nations to invest in these industrial activities and in international trade markets. D. Challenges during the Liberal era The challenges in this era belonged to the developing countries which were trying to adjust to the feast-paced development activities of the developed nations and MNCs (Gereffi and Korzeniewicz, 1994). A huge number of policymakers and government officials have been significantly affected by the laissez faire policies in economic development. As a result, these developing nations tried to apply the credibility game in order to seek foreign investments and keep these investors happy (Mohamed, 2008). MNCs were not engaged in investing in developing countries, however, many developing nations which have gained their freedom from their colonial leaders were becoming actively engaged in economic developments. MNCs were therefore not totally opposed to doing business with these developing nations (Nolan and Zhang, 2010). These transactions were further supported after the emergence of neoliberalist ideals which led to the growth of domestic industries; moreover, these countries became more engaged in financial markets and in powerful industrial capitalist MNCs. E. Foreign Direct Investments With the expansion of the global economy, the growth of world FDI was also seen. International cartels disintegrated and in 1960, the world stock invested in FDI amounted to about $60 billion, and it rose to $500 billion in 1980 (Jones, 2005). After the Second World War, most of the FDIs came from US-based corporations. The FDIs from Germany and Japan was low after WWII, however, by the 1970s, these FDIs would also increase, and by 1980, most of the FDIs were seen in Western Europe and North America. Corporate FDIs were significant in mining and in petroleum with production facilities being built in other host countries (Jones, 2005). From the 1960s, MNCs involved in trading, international commodity distribution, as well as banking expanded their international investments. Integration within the domestic markets was also attempted by the MNCs with new firms expanded abroad, with the growth of global supply chains and similar related economic activities. F. International changes in tariff rates Under the provisions of the General Agreement on Tariffs and Trade (GATT) signed in 1947, the global trade barriers were decreased (Jones, 2005). The provisions of this agreement peaked in the 1960s as the US sought significant reductions in their tariff rates for manufactured goods. This reduction soon hit a plateau at the end of the 1960s with worries seen on the scale of foreign imports. Other developing nations however were still closed to international trade and the developed nations soon considered restricting their tariff rates (Jones, 2005). With floating exchange rates, the expansion of international financing markets and MNCs became apparent. Trade agreements were favourable for MNCs because it allowed them to move freely in and out of their host countries and experience limited restrictions in their activities. Even with the reciprocity agreements required of them, they were still able to gain much profit for their respective sacrifices. These trade agreements presented opportunities for these MNCs to expand their markets and to maximise the offerings of various host nations. III. Conclusion The changes in the world economy since 1945 affected room for manoeuvre of multinational corporations in the sense that these changes provided a venue for corporations to expand and also to be restricted in their activities. The end of the Second World War did not necessarily present a fertile ground for economic advancement of MNCs; nevertheless, the economic expansions gave these MNCs possibilities which could not be ignored. Although the states provided regulations in terms of tariff and economic profiteering, these regulations were soon discarded in favour of liberal trade policies. The changes in the economy since 1945 provided a significant room to manoeuvre for these MNCs, allowing them to grow, to expand their activities, to increase their investments abroad, and to overcome the state regulatory barriers which have been set up soon after the Second World War. References Arrighi, G. 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