Neo Liberal Approach and Social Democratic Approach for Transnational Corporations - Coursework Example

Business Studies Table of Contents Table of Contents 2 Introduction 3 Characteristics 5 Neoliberal Approach 5 Social Democratic Approach 5 Impact of Neoliberal Approach and Social Democracy Approach on TNC’s 6 Strengths and Weaknesses of the Neoliberal Approach 8 Strength and Weakness of the Social Democratic Approach 9 Differences between Neo-Liberal Approach and Social Democratic Approach 9 Conclusion 10 References 11 Introduction The paper studies the effects of Neo Liberal approach and Social Democratic approach on the transnational corporations. Focus of this paper is to analyze these two approaches in respect to the transnational corporation. The primary objective behind this project is to determine that whether these approaches ensure that the transnational corporations undertake various mechanisms in the interests of communities and individuals or not. It also aims to exhibit how these approaches ensure the above fact. For determining all theses factors, an in depth analysis is required. The other important objective is to identify the differences between two approaches and to find out if they have similar strengths or weaknesses. Prior to the in - depth analysis, it is necessary to understand the three core concepts of this research paper. Neo Liberalism came into existence the early 1970s. August Von Hayek and Milton Friedman were awarded Nobel Prize because of their legitimating monetarist neoliberal thoughts. In this regard, David Harvey had stated in his book ‘A History of Neoliberalism’ in 1974 that “a dramatic consolidation of neoliberalism at the national policy level occurred in both the UK and US”. It can be consider as the set of economic policies. During last 25 years it has become wide spread. The basic characteristic is to expand and intensify the market, through increasing frequency, number, formalization and repeatability of transactions (Web inter, 2005). Social democratic approach supports gradualism. It believes that the gradual democratic reforms towards the capitalist economies eventually can succeed in forming a socialist economy. Through revolutionary means it also can reject the forcible imposition. In the second half of the nineteenth century many parties considered themselves as the social democratic. In most of these cases, these parties were seeking to introduce socialism along with introducing the democracy, particularly in those nations where democratic institutions were lacking. Transnational Corporation refers to the companies, operating in international level. It comprises of those companies that sale products and services internationally or globally. Basically, these companies are dealing with Less Economically Developed Countries (LEDCs) with having branches in the More Economically Developed Countries (MEDCs). Few of the examples of these companies include Nike, Coca-Cola and Sony among others. Characteristics Neoliberal Approach The most important characteristic of the Neoliberal Approach is the privatization of the public companies. It also ensures lower corporate taxes. In this approach, it has been noticed that the nature of the employees or workers are basically part time. In this note it can be observed that in South Korea, more than 50% workers are on part time. It creates opportunities for the foreign investments. Also, it has negative effects. It increases the attacks of the trade unions (Katsiaficas, n.d.). Social Democratic Approach This approach opposes capitalism and communism. Social democratic provides rights to raise voice for needs and requirements. This thought also can inspire legislation for workers’ compensation, unemployment insurance, minimum wage and others (The Canadian Encyclopedia, n.d.). Impact of Neoliberal Approach and Social Democracy Approach on TNC’s Transnational companies are also known as multinational corporations that control economic property in other countries. A transnational company is one that operates direct business activities in at least two countries. With headquarters in one nation, it operates entirely or partly in one or more countries. TNCs are established in order to achieve growth and to escape protectionist policies of importing country. FDI helps a corporation to avoid high tariff which will avoid its merchandise from pricing competitively. Establishment of subsidiaries will help in reducing the cost through the use of inexpensive overseas manual labor in mounting countries. Transnational corporations can use foreign subsidiaries in order to minimize their tax liability (Law Library - American Law and Legal Information, n.d.). Although there are certain advantages of TNC’s, also there are many drawbacks of it. The first drawback is that it has an adverse impact on the local industries as because competition increases. It has also been found that TNC’s has a negative impact on the culture of the society. TNCs might face several difficulties as there are limited resources in the economy. And when such corporations are developed then it makes the resource even scarcer. Neo liberalism is the modern form of global rivalry. With neo-liberalisation, there is openness in the trade which leads to growth in the overall economy. Impact of trade openness on economic growth depends on additional reforms such as those that affect labor market suppleness, public infrastructure and person capital. It was found that the deal increases skill based technical change as well as inequality in both urbanized and mounting nations. It was also found that trade liberalization affects technological change and inequality. There is increase in profit as well as growth in the industries that widens the differences between those industries and others. There has been an optimistic relation flanked by the technology imports and in the per capita income growth. Technology helps the export oriented country to move up the value chain so that they can produce goods with high profits and which supports higher wage rates. Cecilia Olivet conducted a research and found that European TNC’s are violating the people’s right. The case was accessible at the tribunals showed that the behavior of TNCs was not good and the individuals as well as the communities had to suffer a lot. A session was conducted on “Neoliberal Policies and European Transnational in Latin America and the Caribbean” (Transnational Institute, n.d.) at Vienna and Lima which tried to analyse the factors responsible for violation of human rights, labour rights and environmental standard. It was found that there was exploitation of labor and criminal charges. It has been found that TNC’s are polluting the environment and the destructing the very important resources. TNC’s have also been involved in activities like promotion of corruption. It was also found that European TNC’s were violating the right of the communities, people and the local nation and African descendents (Transnational Institute, n.d.). Looking at the present state of the world, it can be observed that no positive alternatives are available rather than the policy to control globalization and open up a prospect for progressive globalization which is a policy of global reforms. All the transnational companies need to have a fair trade practices with regards to wage system or any other inequalities. It has been found that different TNCs have practiced inequalities in terms of payment of wages, incentives, allowances, pension plans, etc. Social democracy checks such inequalities that take place at any organization or with any individual. Hence, TNCs must work for the betterment of the society is it individual or the community. Strengths and Weaknesses of the Neoliberal Approach The basic strength of this approach has been that of high level political participation that encouraged this approach. It has great impact on society also. The neo – liberal approach satisfies significant social needs, which is not possible for the official governments because of the decentralized structure of the government that is provided by its constitution. In order to satisfy the different groups in the community, the bosses were able to centralize and organize fragmented power. As it ensures the inflow of foreign investment therefore it raises the possibilities of economic growth. There is a huge contradiction in the periphery of the neoliberal institutionalism. An idea or conception has been developed that the neoliberal corporation plays a very minimal role to shape the international politics. This approach widens the gap between the poor and richer. It leads to inequality of the income (Lots of Essay, n.d.). Strength and Weakness of the Social Democratic Approach Social democracy makes one’s life easy at one’s workplace. It provides the voting right to the persons so that every one can fight for their own rights thus poverty and inequality can be diminished easily. It not only advocates for the declining inequalities between the social classes but also between the provinces or regions through regionalism approach. On the flip side it has to face lots of criticism too. It has been found that social democratic approach is too electric. Differences between Neo-Liberal Approach and Social Democratic Approach The purpose of undertaking this topic is to identify whether there is any space between the two discussed approaches. Both the approach is beneficial for the transnational corporations. The approaches differ significantly with regard to its features. Neoliberal approach can be linked with the globalization. With the changing approach of globalization, transnational corporations are also gradually increases. It provides openness to the business. It has a greater impact on the economy of any country as it is directly linked with the trade policy. The most important factor is that this approach increases the inequality of income. Here, lies the difference between both the approaches. Social democratic approach is mainly focused to minimize the gap between the poor and the rich. This approach basically deals with the electrical or stimulus part and tries to provide more benefits to the employees and their family. Thus, not only the employees feel themselves to be more valuable to the company but also they can enhance their social status. In a broad perspective, it helps the entire community at large. Neoliberal approach reduces tax in corporate perspective while the other contending approach reduces tax for social welfare. The first approach is business focused whereas the social democratic approach is focused towards the society. It would not be wrong to say that both the approaches have impacts on the transnational corporations but from different perspectives. Conclusion Neoliberals have gained advantage from the help of key state as well as global corporation which allows changing funds with response to changing environmental conditions. Neoliberalism leads to low corporate taxes. Neoliberal approach is based on inequality of the income. It has negatively affected large number of people through degradation of work, increased poverty and misuse of the environmental action. On the other hand, social democracy focuses on the right of the general public in order to reduce the violence’s that are taking place in many transnational companies. This approach helps to reduce the inequality that takes place in many multinational corporations. A transnational company is one that operates direct business activities in at least two countries. When transnational corporations operate in other countries, they must take individuals as well as the community into considerations with regards to social responsibility. There must be equality in the payment of wages and reward system. When the companies are globalised they possess many problems to the society as well as to other countries. Competition for the local industries increases; TNC’s brings along with it, its culture spoiling the culture of other country where it is operating. TNC’s also has certain advantages like it brings employment opportunities along with it and it helps to achieve economic growth which contributes to the GDP as well as national income of the country. References Katsiaficas, G. No Date. Neoliberasim. U.S. Involvement in the Gwangju Uprising. [Online] Available at: http://www.google.co.uk/url?sa=t&source=web&cd=2&ved=0CBkQFjAB&url=http%3A%2F%2Fwww.eroseffect.com%2Fpowerpoints%2F518_Institute_US-Gwangju.ppt.mov_files%2F518_Institute_US-Gwangju.ppt.mov.ppt&rct=j&q=PPT%20on%20what%20is%20neoliberal%20approach%20&ei=TRBZTOCHH8KwrAeppKnIDg&usg=AFQjCNFFfe9pMjvONEMNp77psTMOK-9Xyg&cad=rja [Accessed August 04, 2010]. Lots of Essay, No Date. Neoliberal Institutionalism: Strengths and Weaknesses. Neoliberal Institutionalism. [Online] Available at: http://www.lotsofessays.com/viewpaper/1694386.html [Accessed August 04, 2010]. Law Library - American Law and Legal Information, No Date.Transnational corporation. Home. [Online] Available at: http://law.jrank.org/pages/10859/Transnational-Corporation.html [Accessed August 04, 2010]. The Canadian Encyclopedia, No Date. Social Democracy. Article Contents. [Online] Available at: http://www.thecanadianencyclopedia.com/index.cfm?PgNm=TCE&Params=A1ARTA0007520 [Accessed August 04, 2010]. Transnational Institute, No Date. Violations of peoples’ rights by European TNCs. Home. [Online] Available at: http://www.tni.org/article/violations-peoples%E2%80%99-rights-european-tncs-cases-latin-america-presented-permanent-peoples%E2%80%99-t-0 [Accessed August 04, 2010]. Web Inter, 2005. Neoliberalism. Neoliberalism: Origins, Theory, Definition. [Online] Available at: http://web.inter.nl.net/users/Paul.Treanor/neoliberalism.html [Accessed August 04, 2010]. http://www.google.co.uk/url?sa=t&source=web&cd=2&ved=0CBkQFjAB&url=http%3A%2F%2Fwww.eroseffect.com%2Fpowerpoints%2F518_Institute_US-Gwangju.ppt.mov_files%2F518_Institute_US-Gwangju.ppt.mov.ppt&rct=j&q=PPT%20on%20what%20is%20neoliberal%20approach%20&ei=TRBZTOCHH8KwrAeppKnIDg&usg=AFQjCNFFfe9pMjvONEMNp77psTMOK-9Xyg&cad=rja Read More