The Active Role in Deciding the Future of The Nation for the Benefit of Multinational Corporations - Research Paper Example

THE ACTIVE ROLE IN DECIDING THE FUTURE OF THE NATION FOR THE BENEFIT OF US. MULTINATIONAL CORPORATIONS INTRODUCTION Also referredto as Multinational Enterprise (MNE), Multinational Corporation (MNC) is any corporation that operates in more than one country, either in the delivery of services or production. Even though used interchangeably with Transactional Corporation (TNC), there is a slight difference between them. Whereas the TNCs do not actually identify with any home nation, the MNCs are generally national companies having foreign subsidiaries. The Multinational Corporations, therefore, tend to have much more influence on both the local economies and the world as a whole1. Through the various estimates carried out in the different fields, the MNCs account for more than 25% of all production output and well above 30% of the world trading activities. Through their investment in the form of Foreign Direct Investment (FDI), there are increased opportunities for economic growth of the states they operate. This also comes in the kind of exchange of technology, managerial expertise as well as provision of capital. It is because of these benefits that any state would wish to have as many multinational corporations operating within the state as possible. The case may not be very fair for the developing nations that do not have much expertise and even technology. However, for the developed nations, there are increased benefits and even chances of having such corporations2. The superpowers, or other, the superior nations tend to have more advantage over the rest. As such, this paper tries to analyze the various ways in which United States of America sees to it that it enhances the operations of the multinational corporations operating in it3. How Multinational Corporations impact the local as well as the national economy As posted by Amacher and Pate, various domestic and local governments as well tend to be involved in a tussle to attract the various Multinational Corporation facilities. This is mainly done with the aim of ensuring increased employment opportunities, economic activities and revenues from the tax collected. It is because of these reasons that some political entities go to the extent of offering the various MNCs assistance from the government, tax reliefs, tax labor or environmental regulations and even subsidized infrastructure4. The multinational corporations, however, not only benefits the various governments in terms of economic growth, but they also manage to secure some power over the respective political entities. This, they mainly do through the control that they have over the intellectual and technical property. For instance, most equipment and infrastructural patents are held by Siemens A.G., software likewise held by Microsoft. Because of the patents, the multinational corporations have increased chances of exercising monopoly over the local economy. This may lead to a reduction in the chances of development of the local enterprises and even in keeping the costs of labor under check5. Influence on the global economy The multinational corporations play a very significant role in the economy of the world in the process known as economic globalization. This implies a process of raising the interdependence throughout the nations of the world in terms of economic growth and activities. This is mainly through an increased cross-border movement of the various goods, capital, and technology and services as well6. Through multinational corporations, globalization has immensely been increased through the establishment of a series of links between various countries in terms of economy. It is through the multinational corporations that the developed world have established different firms and factories in the countries that are still developing. This benefits the developing countries as there comes with it increased job opportunities7. The developed countries also gain they can acquire cheap labor and raw materials as well. The finished goods will then be moved to the developed nations to the readily available market. The competition by the various governments to attract Foreign Domestic Investment (FDI) has had an immense exaggeration in the recent past8. The question that arises is how possible it is for some governments to attract the multinational firms over the others. Most nations do this by reducing the levels of taxation. However, this has also led to the undesirable economic competition: the ‘Race to the Bottom Thesis’ (RBT), which is constantly on the increase. Because of this race, there has emerged an even more advanced strategy; political approach to the FDI. Since FDI entails a situation whereby the investors have a lasting stake in ownership in the host country, they are significantly affected by the activities of the governments of such nations9. As such, the decisions as to whether to invest or not in a foreign nation today are mostly determined by the perceived future economic conditions of the country. Because of this, the governments that may be ready to make commitments to the economic policies that are acceptable to the investors will have more inflows of FDI10. How United States Promotes its Multinational Corporations In the struggle to see to it that there are as many multinational corporations in the nation, virtually all the developed nations are involved. Indeed, even the US is not left out, rather; it plays a very significant role in seeing smooth operations of the multinational corporations. As a nation, several strategies have been laid down that help promote and encourage the various foreign domestic investments in the country. The different strategies for the government policies are as outlined below. Relatively stable policy system In as much as the multinationals tend to value the stability of system, the various institutions founded on democratic grounds give incentives to the governments in order to pursue changes that may be beneficial even to the multinational corporations. As such, there is usually the need for any government to see to it that the various political leaders see to it that in case of any change in policy, the multinationals should be put in the forefront. For a long time, the US has seen to it that it maintains the systems and policies that govern the operations of such corporations so as to ensure relative stability. As put across by Chang and Taylor, any policy change that may seem unfriendly to the various investors would most lead to the threatening of the political leaders11. This can be in the form of moves that may harm the economy of the nation or through pulling out the already existing investments. This is mainly fueled by the leadership system in place. The trick is that, for the nations that wish to reap from increased future Foreign Direct Investment, the voters must see to it that they elect the leaders with good international reputation. This will lead to increased chances of venturing into both the local and the broad avenues. The US is one nation that majors so much on this approach, as it is founded on a democratic system. Veto powers in the international corporations The veto powers, according to Colling and Clark, will define such institutions that have the ability of blocking or even stalling policy changes. As such, the organizations tend to have a very high impact on the multinational corporation operations. Inasmuch as the veto powers may be advantageous, the challenge is that they have challenges. Just like the banking arrangements, they tend to be very complex, and only founded on biases towards status quo. Such a system does not actually provide a conducive environment for the operation by the multinationals. US has a well-founded institution called the Federal Political Institution, which is set in place to help in ensuring the veto powers are put under check. Through this, the nation can enhance the operations of the multinational corporations. Such institutions, according to the definition by Smith and Meiskins12, are those that allow the representation of the regional organizations at the national level. Impact of the international monetary fund (IMF) There International Monetary Fund (IMF) also has, to a large extent. Some impacts of the foreign direct investments of the nation. Under this, the countries that are in the economic crisis may get into agreements with the IMF, which will then provide it with capital as well as set the economic policies of the future. With IMF, the various investment decisions decided upon by the government are substantially regulated by the organization. Often misunderstood are the intentions of the IMF, and some may think that it encourages economic stability, which will encourage operations of the multinational corporations. This is, however, not the case, rather; they do not promote the stability of the various policies, and instead, promote those that do not encourage the multinational corporation. The US has been able to overcome the challenge of reduced operations in the nation through its cut on ties with the IMF13. Challenges In as much as the US tries so much to put in places several strategies that may help in the fostering of a good relationship with other nations, there have been challenges. This is mostly grounded in the nation’s operations in international affairs. For example, the activities of the Defense Forces (Pentagon) of the nation and its Corporate Media have played a major drawback to the international relations of the government. This has immensely impacted the operations of the multinational corporations within the country. The operations of the Defense Forces (Pentagon) For several years, following the various expeditions carried out by the US; wars, military conquests, sanctions and occupations, the multinational corporations of the nation lost the favorable sites for investment. Of all the areas, the places that the government failed on where the exploitation of the varied natural resources such as gas and oil in the foreign nations. This included such nations as South Africa, the Persian Gulf, and the Middle East. At such times, the country faced extreme political enmity and opposition by the nations in which they had declared war or set out to establish peace. In fact, this even lead to a breach in the business operations that was undertaken with the affected nations. At such times, the multinationals tried their best to set peace with the foreign nations for the sake of the operations of the corporations that had already grounded root in them. Besides, there is little evidence of the opposition of the multinational corporations of the nation against the wars in Afghanistan, Iraq, Libya, and Syria, amongst others. Not even did the largest oil companies make an attempt to mobilize their lobbyist and influence the mass media with the aim of ensuring a peaceful penetration14. The three major oil companies of the US as well did not actually make an effort to engage in any form of congressional lobbying. They did not exert pressure on the administration of the then Bush and later Obama to organize a peaceful conflict resolution15. The decisions made by the office of the United States Department of Defense (Pentagon), have been very detrimental in the promotion of the operations of the Multinational Corporations of the nation. Taxation The government imposes taxes on both the domestic and foreign businesses that operate within the nation as well as those serving abroad. More often than note, the corporations have to make payments on income to the host nations as well. On the highest scale, the corporate tax on income at the national level is usually at 35 percent, which rises to about 39 percent in the case combined with the local and state corporate taxes. This, as postulated by Shah, is far much higher than that charged by any other member state amongst the 35 members of Organization for Economic Co-operation and Development (OECD). As at 2011, the average rates of taxation on corporations by the other nations apart from US was about 19 percent16. Inasmuch as the system in US is more of global than territorial, there are two significant differences that arise from its tax system and the world. For one, there would be a consensus on the rate of taxation on all corporations regardless of their physical locations. In case the US was to have the same system, there would never be limits on the credit that firms are granted for the approximate tax that is paid abroad17. This would not take into account whether the taxes get to exceed the liability of the domestic tax on such income. Secondly, there are chances of corporations deferring the taxes of the US on the income that is earned abroad until the income is remitted by their subsidiaries. This will lead to the US being escaped by some foreign income taxation. As such, such taxation features of the US significantly affect the decisions by the US multinational corporations as to whether and how to invest abroad and at home. In the current tax system, the US firms are granted incentives for locating their facilities of production in such nations that charge low taxes as a means of reduction in their home tax liability18. However, the various responses to the system of taxation tend drastically to reduce the economic efficiency of the nation. This leads to firms not allocating the various resources to the various uses that may ensure maximum productivity. This comes with a reduction in the productivity in terms of both the loss of income by the US shareholders and potential employees19. Conclusion From the foregoing discussions, it is very evident that the US, though having high potential to increase its base of Multinational Corporation, there still are challenge that it faces as a nation. These, amongst others, include its reduced international relations, the media coverage of the country and even the rates of taxation that the government imposes on the various businesses in the international trade. However, as see, the multinational corporations are very vital to the development of the nation and economic advancement. Though the promotion of the US may be linked to the multinational corporations, the operations of the government do not seem to support them fully, either consciously or subconsciously. An effort is, however, currently made by the nation to enhance the international relations and corporations. This may be seen from the case of reduction in taxes on the foreign investors to encourage the foreign direct investment. Bibliography Amacher, R. & Pate, J. (2012). Principles of Macroeconomics. San Diego, CA: Bridgepoint Education, Inc. Almanac of Policy Issues. 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