Role of Global Regulatory Environment - Essay Example

The Role of Global Regulatory Environment and Governance on the Location and Effects of Multinational Enterprises (MNEs) Introduction Multinational enterprises (MNEs) are a varied boon. It is the primary medium in the current global economic system for production of goods and services and technology transfer that transcend national frontiers. However, it is also the vehicle by which extensive environmental and social disorder can be created when issues of capital build up bump into material provisioning. The MNE, in different ways, may contribute to social abuse shown in the exploitation of hard labour, unfair practices rooted in class, gender, and race, the prohibition of active political and workplace involvement, and in practices that destroy environmental sustainability and biodiversity. Social economics puts emphasis on the dichotomous characteristic of the MNE, elaborated in the expression ‘making goods versus making money’ (Mcclintock 1999, 507) to examine the ways wherein clashes between these objectives may bring about social injustice. Usually this social disorder arouses collective action to remedy the inequality or discrimination, effectively mitigating the social harm of the MNE’s operations (Jones 2005). In this essay the role of global regulatory environment and governance on the location and impact of multinational enterprises is outlined. MNEs’ international investment and production is far-reaching. In 1997, roughly 53,000 MNEs and their foreign partners had an amassed direct foreign investment stock assessed at more than $3 trillion whilst the foreign partners’ international sales drew near to an approximated $9 trillion (Mcclintock 1999, 507). Global production has increased at a more rapid pace than global trade as suggested by sales of the foreign partners of MNEs increasing more rapidly than actual DFI investment and world exports as a share of international GDP surpassing increase in the proportion of imports and exports to GDP (Luo 2005). This globalisation of production has expanded the shared interdependence of regional and national markets. The Role of Global Regulatory Environment and Governance on the Location and Impact of MNEs Due to the fact that transaction outlays may remain elevated in global exchange due to the incapability of attempts between private groups, such as corporate codes of conduct, or the government to achieve a ‘greater success’ in the interest of the general public, trials in supranational arbitration of conflicts have heightened (Kim, Prescott & Kim 2005). Two primary rationales for the growth of this governance are the integrative and technological necessities of contemporary life. The global technology transfer creates the demand for regulation and standardisation in numerous economic areas (Denis & McConnell 2003). The second main rationale, the integrative requirement, originates from the necessity to more securely implant the global economy within political and social affairs (Denis & McConnell 2003). Polanyi stated that a self-sufficient economic system viewed natural resources, labour, and efficient group as ‘imaginary commodities’ and that the larger society functions to safeguard these essential components to guarantee social provisioning (Alpey, Budur, Ener & Talug 2005). As a result, global regulatory environment and governance may be needed to provide efficient defence to the environment, occupations, and lives of the people. At the global stage, opportunism may be exploited by either the MNE or national government or both due to the nonexistence of an external, overarching control (Alpey et al. 2005). The MNE by its core global feature can participate in investment flight. The nation state could also be cunning, taking part in hostage-taking by, for instance, threatening to confiscate MNE properties (Luo 2005). States and MNEs may also conspire where it is in their motive to violate environmental and labour regulations. As an outcome of this opportunistic risk, a number of attempts in standardizing FDI or launching investment policies have been pioneered at the supranational stage in the past decades with the purpose of reducing the transaction outlays related to such investment (Luo 2005). The European Union (EU), aside from merely developing a solitary market within its member states, has also created organisations that support market transaction, arbitrate conflicts, and provide environmental and social protection (Mcclintock 1999). It has responded to place responsibilities on MNEs to operate in the social interest by implementing antitrust guidelines; enhanced the competitiveness of businesses to monitor possible market control by big corporations (Mcclintock 1999); and, by means of judicial assessment and treaty law, lessened the effect of MNEs on the regions, consumers, labour, and environment (Jones 2005). The EU has also developed a cluster of labour policies at the global stage in the structure of the Social Charter espoused as component of processes to set up the Single Market in 1992 (Mcclintock 1999). Alongside the expansion to the global stage of representative democracy, an economic budget, a judicial structure, a European Central Bank and a general currency, the EU has progressed further along the trail to the attainment of social principles of social equality, freedom, security, and social justice than any other current effort in regional integration (Mcclintock 1999). Scaperlanda has recommended the creation of an international association for MNEs to standardise multinational enterprises and arbitrate investment conflicts (Jones 2005). This international organisation would promote the implementation and distribution of innovative technologies by MNEs as well as giving supervision of MNEs to restrict rent-seeking to the detriment of the interest of the general public (Jones 2005). Graham (1994) has proposed the fundamental components of a global investment policy should comprise: “the right of transparency of rules, the right of establishment, the right of national treatment, the right to standard international treatment regarding expropriation and the use of non-distortive investment policy measures (pp. 9-21).” Productive and practical working guidelines for an organisation for MNEs indicate that nation states and MNEs should not merely suppose a cluster of rights but also be supposed to carry out specific obligations as component of the investment policy (Bauwhede 2009). For example, if MNEs have the privilege of national treatment then they have an obligation to the host country to conform to state laws and to not ask for any special treatment. Other obligations they could sensibly be supposed to satisfy include evading limiting trade customs and transfer pricing as well as to initiate information dissemination (Bauwhede 2009). Nation states acquire obligations when MNEs are given privileges such as national treatment. MNEs and nation states should also have an obligation to abide by recognised international environmental and labour standards. This means that the organisation for MNEs would have to manage its operations with other international organisations given with these obligations (Jones 2005). MNEs themselves should acquire the obligation to offer ‘due processes’ and transparency in carrying out its operations. Parties aside from nation states and MNEs, non-governmental organisations for instance, should also be allowed to bring dispute to the organisation for MNE if an international round-table is to be offered that enhances and widens involvement (Jones 2005). Such an organisation for MNEs could lessen the transaction outlays related to FDI and global production by mitigating the possibility of evading by both host countries and MNEs (Kim et al. 2005). It may lessen the negative selection difficulty of nation states handing out investment privileges to MNEs, such as tax holidays, that can spiral into a bidding battle for new FDI (Jones 2005). An organisation for MNEs might also mitigate the transaction outlays related to moral risk in situations where MNE properties are confiscated, MNEs take part in investment flight, or MNEs fall short in conforming to international environmental and labour policies (Mcclintock 1999). Evidently, an organisation for MNEs would necessitate financial support, position in enforcement authorities, and international law in order to be successful (Jones 2005). The organisation for MNEs could be set up as a United Nations agency. An appellate stipulation could be integrated within its contract, allowing disputants to petition the decisions of organisations for MNEs to the International Court of Justice (Mcclintock 1999). The rulings of organisations for MNEs and investment policy should be implemented. Gordon recommends that the formation of a UN charter for MNEs may offer successful machinery to tie MNEs to the policy (Mcclintock 1999). The cluster of obligations and rights associated with the policy may be represented in the UN corporate agreement of MNEs (Luo 2005). Should an MNE decline to abide by a ruling of an organisation for MNEs, it may confront invalidation of its UN corporate agreement or several portions thereof, lessening its capacity to take part in legal international business (Luo 2005). With regard to financial support, Gordon suggests the UN be allowed to impose a business income tax on international revenues (Mcclintock 1999). This would have the beneficial consequence of detaching regulatory activities of organisations for MNEs from the whims of national government subsidy of the UN and portions of the rent-seeking effect individual countries may attempt to wield on the organisations for MNEs. Conclusions MNEs serve a primary function in current global production and trade. In the capital accumulation process which spurs their operations they have the capability to generate social disorder in different ways. Various nation states have attempted throughout the twentieth century with diverse means to lessen this disorder through international accords and national laws controlling MNE activities. Public collaboration between MNEs and external community groups could be a way to put into effect some extent of socially responsible operations of MNEs as a substitute to depending on either economies or redistributive state policies as organisation means. Corporate codes of conduct provide several opportunities; yet, they have innate limitations due to self-centredness with opportunism and bounded rationality. Because these methods and nation state attempts may not be completely successful in attaining satisfactory norms of social equality and justice, the expansion of regulatory command over MNES to the global stage seems a favourable supplement to attempts in public participation and cooperation. References Alpey, G., Budur, M., Ener, H. & Talug, C., 2005. Comparing board-level governance at MNEs and local firms: lessons from Turkey. Journal of International Management, 11(1), pp. 67-86. Bauwhede, H.V., 2009. On the relation between corporate governance compliance and operating performance. Accounting and Business Research, 39(5), pp. 497-513. Denis, D.K. & McConnell, J.J., 2003. International corporate governance. Journal of Financial and Quantitative Analysis, 38(1), pp. 1-36. Graham, E.M., 1994. Towards an Asian-Pacific Investment Code. Transnational Corporations, 3(2), pp. 1-27. Jones, G., 2005. Multinationals and Global Capitalism: From the Nineteenth to the Twenty-First Century. Oxford: Oxford University Press. Kim, B., Prescott, J.E., & Kim, S.M., 2005. Differentiated governance of foreign subsidiaries in transnational corporations: an agency theory perspective. Journal of International Management, 11(1), pp. 43-66. Mcclintock, B., 1999. The Multinational Corporation and Social Justice: Experiments in Supranational Governance. Review of Social Economy, 57(4), p. 507. Luo, Y., 2005. How does globalisation affect corporate governance and accountability? A perspective from MNEs. Journal of International Management, 11(1), pp. 19-41. Read More