Influence of Corporation on Global Economy - Literature review Example

ARE CORPORATIONS TOO POWERFUL AND PRESENTING AS A THREAT TO GLOBAL ECONOMIES, CIVIL SOCIETIES, AND THE ENVIRONMENT? Name Course Supervisor Date Executive Summary Corporation are legal entity distinct from their owners and this corporation enjoy responsibilities and rights similar to an individual. Their method of capital accumulation which is mostly shares give corporation ability to grow and take advantage of the market to spill over to other countries. Therefore corporate grow to have huge financial muscle giving them means to dominate market and influence various government. Corporates have great influence on the global environment, economy and the duty of civil activists. However, due to their ambitious strategy to maximize profit, this companies sometimes are forced to influence their way through unscrupulous means. Though the corporation create employment, create necessary competition and contribute to the national tax revenues, they continue to be a great threat especially to the developing countries’ economies. However, in some cases this corporate society avoid the corporate tax and further create financial instability due to the debt they owe external financial institution. At the same time corporates have failed to fight environmental implications of their emissions which in most cases have damaging effect on the environment. Unfortunately, most corporates never auger well with the civil right activist who are points men on issue related to environmental degradation and human right issues. The following report therefore look at the threat and the implication of the enormous growth of corporations. Introduction Corporation are defined as a company or basically a group of individuals mandated to act as a single entity and within the legal boundaries. They can either be profit oriented or not and corporation are at times allowed to issue stock. In America, the term corporation is used to refer to the mega companies with serious influence on the economy. Corporations enjoys the benefit of access to financial resources and that allow them to extensively grow to the desired level. Due to globalization, this corporate entities have dominated the international market and continue to take control of various economies. Following the influence major corporation are known to have, the paper will look into the Threats Corporation have in areas like global economy, civil society and environment. Key words: Globalization, corporation and civil society Influence of corporation on global economy The volatile global economy continue to receive great influence from the major global corporate in terms of the amount of cash they keep in circulation. Among the Ten challenges facing the global economy are the global imbalance, global corporation and global poverty. Therefore the corporation have positively and negatively influence the global economy and most of the economic menace such as global imbalance are as a result of the corporation domination of the global economy. Currently according to (Bosworth et al., 2007) statistics shows that nearly 3 billion people in the world live below $2 per day and a record 30,000 children passing on everyday as a result of poverty related problems. Civil Societies therefore need to form have international solidarity to help them work together during special problems. According to (Kapfer, 2016) multinational corporation are known to avoid corporate tax even after benefiting from the large scale business they did in several countries. Multinationals due to their financial strength and domination of the economy are able to manipulate their way through the system and one trick most companies use is shifting of profit from low tax-jurisdiction. The problem is experienced in the UK where multinationals use tricks like taxable profit reduction by taking a debt since the interest payable on loan are never taxed. The multinationals use tricks like royalties transfer pricing, greater debt and transfer pricing (Bosworth et al., 2007). A good case study happened in the United Kingdom when Starbucks in June 2013 agreed that in the past and at some point they had listened to their customers and escaped deductions totaling to £10 million they were liable for in form of corporate tax and a further £10 million in 2014. Starbucks therefore took advantage of the rules to significantly lower its corporate tax to minimum and continued to pay off customers voluntarily to divert consumer boycott. Acharya et al (2015) is concerned that the corporate debt in the emerging economies like India and Brazil is a foundation to serious financial instability. The statement is evidenced during a period between 1999 and 2007 when international borrowing balance sheets of the emerging economies grew substantially to a value much higher. The emerging economies strategies to shift from debt funding to equity funding protected such countries from the 2009 global crisis. However, the shift of the strategy play and emerging economies accumulation of external debt since 2010 may cause financial instability especially at a time dollar funding is getting tightened and some countries experiencing macroeconomic slowdown. Such a shift in the dollar funding subsequently lead to drop in micro-financial potential in emerging nation leading to decline in account balance and rise in foreign debts (Kapfer, 2016:Caprara and Nelson, 2013). Therefore reversal of financial flows create chaos and serious instability in emerging countries with high current account deficit. The external debts exposes the corporates to risk such as maturity, currency, and roll-over and speculative risks. In a situation risk to this non-financial corporate happens, the global financial health will be affected and that shock has to be transmitted to other financial systems directly or indirectly. A possible ugly experience can occur when large corporations are denied bond market and in that case forced to turn to banks. This automatically result to small enterprises being denied loans and possible developing crisis. Financial institutions operating in such condition must face risks such as: funding being less than investment, the issued liability differs from the currency revenue, fickle investment and finally risk due to speculation activities. According to (Acharya et al., 2015) obtaining official foreign aid will bad for the obtaining nations since the government feel less obligated to work towards achieving accountability and trust since they don’t feel liable as they would have been if the source of the project money was tax revenue. The dependence on foreign donation for development only reduce the desire for such countries to institute policies and most likely incompetent infrastructure that attract no private capital (Kaleck and Saage-Maaß, 2008). Moreover, ODA are known to siphon the local resources and most of the cash is consumed by the receiving government instead of being invested. Influence of corporation on civil activists Civil society are institution or group of people who have special interest on the people by the people. Sarwar (2012) believe corporates due to their power have in some instances left deep impact on the lives of some societies and people. Corporation are known to be more powerful than the state and in many occasions, they put their profitability interest before anyone or anything else. Out of the world top100 economies, 51 are Multinational Corporation and this corporations dominate the economy, politics and culture of this countries they are located in. Tiwana (2015) point out that there is so much interference in the civic space in the fundamental areas such as freedom of expression, freedom of association and peaceful assembly. The trend is creating so much concerned among civil society groups such as national and international NGOs, social movements, philanthropic groups, trade unions, activists and public spirited journalist. Moreover, the statistics released by civil society watch group indicated that the interference and substantial threats was experienced in 96 countries in 2014 alone. Large Corporation in their quest to dominate the globe have in the past applied unscrupulous means to silence the civic groups. In most cases this corporation liaises with the government of the day or basically powerful politicians to frustrate the civil society. Oxfam international claimed in the past that the wealthy 1 percent will own 99 percent of the globe by 2016 (Tiwana, 2015). This financial might give this business power to endanger the life of civil activists and civil society groups at the fore front of exposing such decadence such as corruption and environmental degradation. The irony is the law enforcer trusted to oversee such a course are also involved in attacking the civil society in some countries (Schwab, 2013). A good case study is in Brazil where 29 environmental activists were butchered in 2014. In another case, the Canada Centre right government have in the past involved in monitoring and intimidation of indigenous human right activist who were opposed to the building of a commercial project in an area they considered ecologically fragile. The problem in countries like Laos, Kenya, Honduras, Bolivia, Cambodia, democratic republic of Congo, Peru and Philippines who have weak institution faces such challenges. Industries in the mining, agriculture and housing have been at the forefront fighting for law enforcement agencies to follow up unscrupulous businesses and ensure they work within the law Nike is the world largest apparel retailer. It has about 28,000 employees and bring in an income of about $15 billion annually. The funny thing about Nike is that none of the 28,000 workers is involved in shoe making with most of their production facilities located in struggling countries like Indonesia and Vietnam to help them take advantage of the low labor cost. This is a clear indication of such corporation taking advantage of the countries with less restriction. According to (Tiwana, 2015) Nike has failed to adhere to its own codes of conduct regarding wages, working condition and overtime for workers. They even went further to violate the right of workers in 1997 when audit report revealed Nike exposed workers to dangerous hazardous chemicals in the Vietnam workshop while at the same time and at low wages forcing them to work long hours. Cases of sexual harassment was also reported with significant amount of verbal humiliation. In china factory the workers work 84 hours a week and get paid as little as 25 cents per hour and relatively poor working condition. Workers trying to form civil group were dismissed and in September 1999 a letter was sent by 45 human right activist lobbying for abuses and financial exploitation to stop. The decline in the Labor Union power signify that the power of corporations continue to grow. Influence of corporation on environment. The environment is one sensitive areas where serious attention has to be accorded especially after the realization of the global warming due to the depletion of ozone layer. According to the report covered by the guardian on 18th February 2010, the top global firms such as the multinationals already caused the world $2.2 trillion of environmental damage. Unfortunately no one is forced to pay for the kind of the environmental distortion they cause especially to the fisheries, freshwater and fertile soil. Most government unfortunately continue to support such companies and the subsidies accorded only allow companies from harmful areas likes transport, agriculture and energy. According to (Jowit, 2010) a significant percentage of the profit of such companies need to be fined. The contribution of human on the environment can no longer be denied. Choucri (2010) point out that the corporation are the major economic players and that exposes them to global environment as a producers, managers or distributor. The corporation are known to engage in very polluting and hazardous operations. Consensus on environmental misuse is emerging though and according to (Choucri, 2010) the international community is a ware and is working on ways of creating more resistance to companies whose activities is a menace to the biosphere. The effect of this corporation is visible in Eastern Europe where serious need of environmental cleaning due to the influence of pollution is evidenced. The multinationals and big corporation have in the used their political influence to go around the environmental restrictions. Fortunately most government, public interest groups and international organizations are pushing such companies to have environmental strategy to adapt to the restriction and meet global requirements. For instances, the chemical industries have to be forced to have better ways of disposing hazardous material, oil industry to better handle the oils spills and finally the construction industry improving on landfill handling. Choucri (2010) believes no matter the resistance and high end corporation put in place to go around the environmental restriction, at long last they will have to adhere to the said protocols to remain competitive. Companies have to be good risk assessors and give response to environmental contingencies enough priority. According to (Shah, 2002) the corporates actions and influence causes serious harm to the global environment. The report released by United Nation Environmental Program (UNEP) in 2002 pointed out that the gap between the effort to make companies and business integrate environmental factors in their business strategies and decision was worsening. Multinational ambitions to extract oil has led to their involvement in encouraging the military to harass everyone who protested about the environmental implications the project had. The issue has practically escalated into war with the locals kidnapping foreigners and the military harassing and sometimes killing locals. Shah (2002) point out a hypothesis that most corporation will not bother watch the discharge and the subsequent environmental implication especially if the company was located in foreign land. However, sometimes the companies have no real bad intentions but only chooses the option to remain in competition. Politics on the other hand have not favored the people especially in issue regarding environment and in the past many government have resolved to decisions that favor profitability of the multinational rather than environmental protection. The United States treasury secretary Lawrence summers even categorically stated in 1991 that the World Bank should support migration of environmentally dangerous companies to under populated countries especially in Africa. The cases of such industrial shift to countries with less environmental restrictions is common because this corporates have the financial power to influence decisions in such countries. Therefore corporates have the ability to lobby for policies that favor their priorities which is high profitability and low cost of production. Unfortunately though this corporation have done the world much harm, it is ironical to point out that they hold the key to solution for improving environmental purity. This is because this corporation have the financial muscle to lobby for more result oriented research focus at finding long term solution to such environmental concern such pollution. Struggling counties more often than not use two methods namely direct foreign investment and official development aid to usher in development. The option are mostly used by developing nations which possible increase in tax revenue enabling the involved governments to execute their policy. Unfortunately economic of developing countries which experienced challenges in integrating with the international market normally fail to grow as expected. Lan Pritchett a former World Bank strategies once claimed that most part of such aids are never used for development with his report showing GDP growth among only eleven countries from the possible 108. The worry is that 16 countries even experience negative GDP growth rate Conclusion Corporation especially the multinational have grown in both size and power in the since the beginning of intense globalization. Corporation have dominate the world business and their financial influence is limitless. Corporation such as general motors, DaimlerChrysler, Royal Dutch, IBM and Sony are much bigger than countries like Denmark, Poland, Venezuela, Singapore and Pakistan respectively. The revenue drawn from top 200 largest corporations globally have a GDP equal to 27.5 percent of the global gross domestic product. Moreover, 29 of the top 100 largest economies are companies. Such data quantify the magnitude of the financial power this corporation possess and considering their immense hunger for profitability at all cost, their influence on environment, economics and civil society is beyond words. Generally the economics influence of this corporation is both positive and negative. Realistically, corporation continue to contribute to economies through taxation, employment creation and involvement in community reshaping. However much of their influence is also negative especially due to their ability to dominate market and force budding companies to disappear. At the same time they exploit developing countries by failing to meet the expectation in terms of wages, salaries and working hours. Economic imbalance is common with some areas completely enjoying the fruit of labor of other countries. Funnily this corporations, have failed to adhere to their own environmental restriction regarding environmental condition (Mayer and jebe, 2010). Corporation at the slightest opportunity continue to use their financial and political influence to frustrate civil right activists and ensure they get their way without interference. In extreme case, the corporation have liaised with politicians and government official to harm civil right activist. Therefore corporation is a real threat and are gaining too much power due to their financial muscle. Reference Acharya, V., Panizza, U., Cecchetti, S., Gregorio, J. and Lane, P. (2015). Corporate debt in the emerging economies. [Online] 3(2), pp.2-56. Available at: https://www.brookings.edu/wp-content/uploads/2016/07/CIEPR2015toWeb.pdf [Accessed 4 Oct. 2016]. Bosworth, B., Brainard, L., Blair, P., McKibbin, W. and Rogoff, K. (2007). Top Ten Global Economic Challenges: An Assessment of Global Risks and Priorities MORE. [Online] 3(2), pp.45-56. 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Available at: http://www.rightingfinance.org/?p=1321 [Accessed 5 Oct. 2016]. Read More