The Analysis of Multinational Corporations - Essay Example

Evaluate the ment: "[Multinationals] have grown so big they have superseded government [and]are accountable only to their shareholders" [N. Klein, 2000]. Why do firms become transnational It is that basic requirement of capitalist economy, the profit. The competition is growing globally and is very volatile creating an environment of hyper-competition. The economist thinks that trade is sustained by markets while government policies, regulations and tariffs disrupt it [Dicken (2007), p107]. While the environmentalist is concerned about the places where market does not exist but is created for e. g. lakes, rivers, oceans and even the sky above where pollutants are dumped without the need to seek permission to do so. The irony is that where the regulations demand that polluter must pay for creating pollution, in fact, a market is created where none existed . So the hue and cry by environmentalists to create such regulations does not seem too environment-friendly, after all [Bhagwati (2004), p.137]. The infant food manufacturers, of these Nestle was specifically targeted by social organizations, contributed to the death of infants from less developed countries (LDCs). They sold their products to people incapable of using them properly. The charges were that many third world nations have contaminated water supply and parents dilute the formula to stretch the supply. The defence by nestle stated that it has never advertised to substitute breast feeding with bottle feeding and that It had actually promoted formula as supplement to aid nutrition. Since mothers in poor nations have deficiencies or their work schedule does not permit them timely feeding. However, despite strong protests against the infant formula controversy, these multinationals are still strongly holding their place in LDCs [Auscampus (2009)]. When government reprimands a factory, through its regulations, for dumping hazardous waste into river or destroying environment by its activities, the company can obey the government by cleaning up environment or upgrading its processes. Alternatively it may move over to some other country, the LDC, for its operation. The LDC requires revenue generated by the company but does not use any high tech environment protection rules [VEXEN Crabtree (2006), pars. 2-3]. Are multinationals getting more powerful than state governments The answer could be obtained by evaluating the financial strength and extent of employment generated by these. If the revenue of General Motors and Ford put together, it would supersede the GDP for all of sub-Saharan Africa. The car multinationals are directly providing employment to more than 20 million people and to a lot more in the associated industries. Today these are in position to decide the fate of government. The ownership and power is same with other industries also. Today two corporations control 80 percent of the coffee production of world; merely four corporations account for 87 percent of the world's tobacco industry, and two corporations--Boeing and Airbus have almost monopoly over civilian airplane production by having a share of 95 percent. The top 200 firms now control one fourth of the world's monetary activity. Among the top 100 of these, increase in total assets has been extraordinary. Their assets have gone up to USD 4.2 trillion in 1995 from USD 0.5 trillion in1980. For example, the wealth of the food and retail multinational Wal-Mart, after buying Asda in Britain, has become more than 161 countries including Israel, Poland and Greece. General Motors is bigger than Denmark while Ford is bigger than South Africa [Morgan (2000), pars.3-5]. These multinationals are better organized than the states where they invest their money. It gives them power to negotiate and manipulate deals particularly in weak and developing nations [Kehl (2009), p.2]. The globalization is not only changing the powers of state, it is also changing the territories of the states. Ohmae [1993 as cited in Axtmann (1996), p.119-120] explained that global economy is causing emergence of 'region states'. A few examples of such cross Border States are Hong Kong and Southern China, Vancouver and Seattle and Toronto, Detroit and Cleveland. These region states are economically integrates entities which primarily link with global economy rather than their host country. Supranational bodies and Multinationals The few hundred multinationals are described as hub of the globalisation by United Nations. These handful multinationals are controlling most of the world's industrial capacity, technical knowledge and financial transactions. How just a single company can dominate a whole economy is evident from the Japanese giant Mitsubishi. With a collective economic activity that makes it larger economically than the fourth most populous country in the world, Indonesia. It is quite obvious that such corporations will have considerable political and economic influence. Today the success of world's most powerful governments is closely linked with well being of MNCs. No wonder it is believed that these have acquired the role of the state or have superseded the powers of government and now rule the world [Morgan (2000), pars.6-7]. And that is not all; the MNCs also have strong influence on supranational bodies. When NATO gathered for its fiftieth anniversary, a dozen companies contributed $250,000 each to put their chief executives as directors on different NATO summit's committees. Corporate also sponsored the WTO summit in Seattle. Companies such as Ford, GM, Microsoft, Boeing, and Deloitte and Touche all contribute over $250,000 to get five seats each to the WTO opening and closing receptions [Morgan (2000), pars 17-18]. The requirements of liberalization made governments to carry out political and economic reforms such as privatisation, deregulation, and decentralisation, which though freed the business but at the same time reduced powers of the state. The governments, themselves, have pleaded with international trade organisations for reforms. As a result, free trade was permitted by the General Agreement on Tariffs and Trade (GATT), international financial entities such as the International Monetary Fund (IMF) and the World Bank, and regional bodies such as the European Union (EU) and the North American Free Trade Agreement (NAFTA) [Schmidt (1995)]. The WB and IMF regulate stabilization of global finances while WTO regulates the global trade. The growth of global markets is regulated by developments in communication and information technologies. Nation-state has surrender to these market which have strong structural effect limiting policy options of states. It is a challenge to the sovereignty of states [Held (2004), p.1]. The surge of FDI brought with it volatility of financial markets which in turn increased the incidence of financial crisis. Thus MNCs have great political and economic power over the nation state. As a result the monetary, fiscal and competitiveness policies and hence autonomy of states is constrained [Mitchi (2002) ,p.332]. Power of MNCs Vs Nation-States The extent to which states depend on MNCs for their well being may be gauged by the fact that state bails out firms when they face difficulty. Such was the case with the British, French and Italian steel firms in the 1980s and almost the world over in 2007-2008 recession. The state- giant business relationship has not shrunken away under the impact of multinational capitalism, but has been raised to a new and more powerful (for MNC) level. The multinational company still retains its link to the state, but has multiplied the links in many states in which it operates. Multinational capitalism therefore, almost, dictates the system while the latter comply for fear of instability. It is the reason, that Japanese government pumped billions of pounds into its economy over the last five years. Since it feared the consequences that collapse of Mitsubishi would be disastrous for the Japanese economy. The move against Microsoft has created real problems as the share price of Microsoft dropped 45 percent which would affect future investment in the dot.com companies [Morgan (2000)]. These incidents certainly do not indicate the end of state government control over activities of MNCs. But there certainly is lack of will to do so. According to WDM [(2000)] the globalisation has two components. There are the advances in technology which are not undesirable and then there is liberalisation which has given free markets to powerful and thus the governments' ability to social improvements has hampered. It was conceived that free trade should do welfare to all rather it is doing welfare of the select few. On the contrary liberalisation is diverting away ensuring that every aspect of society contributes in MNCs' quest of corporate profit. Though governments are expected to make rules for corporations, it is ,actually ,other way round as the corporations are dictating the rules to governments. The challenge is to overturn this trend since economic activity should serve the needs of the community. Enforcement of such regulations are the most likely way of restraining biased corporate activity. National and international legal systems should modify to bring corporate activity under the rule of law so that it does not create adverse consequences for communities. Twenty years ago, the Brandt report received great commendation. It's recommended that "effective national laws and international codes of conduct are needed to provide a framework for the activities of transnational corporations" is even more true today. Yet any such discussion is crossed off the agenda. The reason is already available since it is evident as to whose representatives are sitting in national and international bodies. [Wolf (2001)] also clarifies that globalization is not the destiny of a country rather it is chosen by it. The MNCs would have as much impact as the policy makers permit these. For example, the globalization is accused of destroying state's capacity to raise taxes or decide for income redistribution and economic policy. But is there any evidence to show that states cannot do as they wish The cause for concern is that state's, particularly a developing or poor nation, enthusiasm for free trade is forcing it to reform the taxation but trim the social programmes. In cases of big nations with robust socio-economic policy, the reforms are to internationalise its corporations. The agenda for globalisation and power of nation state are complementary. But the poor nations simply succumb to pressure of doing so and are often left behind in reaping the rewards of free trade for welfare of their communities [Weiss (1997), p'3-26]. Klein's statement is modified in the discussion here. It is true that MNCs exert great influence over nation- state. But it is the state which surrenders to sheer economic strength of MNCs rather than being superseded by the latter. The strong nations need MNCs to maintain their economic superpower status while poor nations get immense support in their national economy from entry of these giants. Otherwise, no one has stopped national governments to enact legal or other regulatory framework to control MNCs. Aus Campus.(2009). 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