Threat of Multinational Corporations to State Sovereignty - Essay Example

Running Header: Multinational/Transnational Threatens Sovereignty Questioning If Multinational/Transnational Corporations Poses a Threat to State Sovereignty Name Institution 26 April 2006 Introduction The question if International Corporations poses a threat to State Sovereignty is currently a very hotly debated issue internationally. Governments, social organisations and regional leaders are increasingly troubled by the growing presence of multinational corporations, especially those in poor developing nations. Allegations against these profit seeking corporations include destructive competition and insidious plots to economically and politically manipulate entire economies. Maybe the worst charge is that multinational corporations are methodically eliminating domestic firms in order to exploit their monopoly powers, exporting high-wage jobs to low wage countries, perpetuating world poverty. 1 Are these valid concerns from local entities in countries world wide, or is this only the fear of change and the unknown future. It must be accepted that Global companies will influence states in some manner as there must be an interaction through contracts, agreement, trade or taxes. However, before it is possible to adequately evaluate if Multinationals pose a treat to states it may be of value to follow the events leading up to, and which are facilitating Globalization. Situational Overview The break-up of the Soviet Union ended the Cold War and this resulted in liberalization of many communistic countries, increasing acceleration of globalization. States became part of the global village, which resulted in people and entities questioning the idea of a state being a totally sovereign entity. Sovereignty is the ability of a government to have absolute authority over its own territory. Economic interdependence between states has meant that increasingly what happens somewhere in the world ultimately affects all the countries in the world. Thus, the role of politics has been overtaken by the role of economics.2 At the beginning of the 1990s, James Rosenau, one of the leading theorists of this trend, developed the idea that globalisation and ‘Tran nationalisation’ has led us into a period of global ‘turbulence’. While the state is not about to disappear, it no longer has a free hand and has lost control of events. Rosenau claimed that the inter-states system, once the central pivot of international affairs now coexists with a ‘multi-centred’ system; the determination of foreign policy has largely passed to non-state entities.3 As the world market today is realized ever more completely, it tends to deconstruct the boundaries of the nation-state. Robert Reich, former U.S secretary of labour celebrates the overcoming of national boundaries in the world market. He contends that ‘as almost every factor of production-money, technology, factories and equipment-moves effortlessly across borders, the very idea of a national economy is becoming meaningless.’ He adds that ‘in the future there will be no national products or technologies, no national corporations, no national industries. ’ Thus, with the decline of national boundaries, the world market is liberated from the kind of binary divisions that nation-states had opposed for many centuries before. Globalisation has made trade of goods and communications between countries much easier. For instance, jet aeroplanes transport passengers and cargo across any distance on the planet within a day. Electronic mass media broadcast messages to world audiences. Countless goods and services (such as Nissan cars and Club Med holidays) are supplied to consumers in global markets. The global financial order is now virtually universal, as seen by the influence of the World Bank and the International Monetary Fund. On the downside, state economies have become so interdependent on each other that if the stock market were to crash now as it did in 1929, the consequences would be felt throughout the whole world at a much greater speed. 2 Implications Waves of economic liberalization are not limited to the former socialist camp. Most developing countries that adopted an inward-looking development strategy have begun to opt for an outward-looking strategy following the lead of East Asian Newly Industrializing Countries (NICs). What is more interesting is that East Asian NICs, whose economic success is often attributed to the role of the developmental state, are engineering structural reforms in the direction of free-market principles of liberalization, deregulation, and rationalization. 4 Likewise, the state is losing its grip over national economic management, as they lost the ability to fully control their currency. For example, governments have to take note of interest rates internally but plan interest rates in relation to global interest rates. Critics of free trade also contend that it may lead to the destruction of a countrys native industry, environment and/or a loss of jobs. Critics of international investment contend that by accepting these financial schemes a country loses its economic sovereignty and may be forced to set policies that are contrary to its citizens interests or desires. Moreover, multinational companies that invest in a country may also acquire too much political and economic power in relation to its citizens. Finally, migration may lead to the exploitation of workers from a migrant country and the displacement of workers from a host country. Critics of globalization also contend that different economic systems that either augment or supplant globalization may maximize social welfare more efficiently and equitably.5 Supporters of free trade point out that economic theories of comparative advantage suggest that free trade leads to a more efficient allocation of resources, with all countries involved in the trade benefiting. In general, this leads to lower prices, more employment and higher output. Libertarians and other proponents of laissez-faire capitalism say higher degrees of political and economic freedom in the form of democracy and capitalism in the developed world are both ends in themselves and also produce higher levels of material wealth. They see globalization as the beneficial spread of liberty and capitalism.5 Incidents Negatively Influenced Multinational Corporations Image Incidents such as the improper use in the Third World of baby milk formula manufactured by Nestle, the gas leak from a Union Carbide plant in Bhopal, India, and the alleged involvement of foreign firms in the overthrow of President Allende of Chile have been used to perpetuate the ugly image of Multinational Corporations (MNCs). The fact that some MNCs command assets worth more than the national income of their host countries also reinforces their fearful image. And indeed, there is evidence that some MNCs have paid bribes to government officials in order to get around obstacles erected against profitable operations of their enterprises. Several governments, especially in Latin America and Africa, have been receptive to the negative images and have adopted hostile policies towards MNCs 7. State Sovereignty Although a state’s sovereignty has clearly been diminished, the state remains being the most important actors in the world. For the moment there is little sign that globalisation is leading either to a centralized, sovereign world government, as idealist world federalists have long predicted. There are many problems and objections to a global federal government. First and arguably, most important, is the fact that there is a noteworthy absence of a common underlying culture to support a global international society that cuts across al the major cultures and civilizations. All, in all globalisation has ultimately meant that the nation-state does not have a monopoly of power anymore. That power has been transferred to the international realm like trans-national corporations and institutions (like the EU). However, it is extremely important that a political and economic equilibrium be established between the state and the international system. This will therefore ensure the processes of capitalist accumulation and the representation of a state’s population are met.2 Conclusion In Cranston’s essay “sovereignty,” he explained the concept which he believes is key to understanding international conflicts and which is “widely and unwisely thought in our time to mean only national sovereignty, with every nation supposedly supreme inside its own borders and acknowledging no master outside them.” Alan Cranston notes that since the end of the Cold War, there have been two powerful influences: the formation of new democratic states and globalization. The last quarter of the 20th century witnessed the greatest expansion of democracy in history, with 121 democracies in place at the end of 2001 (as compared to 1974 when there were only 39 democratic states). The sweeping forces of globalization have also drawn the world closer. Multinational corporations, by definition, transcend national sovereignty, and wield enormous influence over the economic profile of nations as they move funds and capital across the globe. However, according to Senator Cranston, neither democracies nor multinationals can solve many of the problems that arise from the unrestricted movement of goods and capital. Cranston analyzes a host of international problems, including ethnic conflicts in the Balkans and Rwanda, the threat of nuclear proliferation in Asia and the Middle East, and the environmental challenges facing the globe. Cranston points out that, “This leads to a fundamental question: are the many institutions we have created in our efforts to achieve a reasonable degree of order and progress and a maximum degree of freedom adequate in view of the magnitude and complexity of the unprecedented problems we face?” Moreover, “How should nations intervene when there is a threat of war or genocide?” Cranston points out that there is no generally acceptable way for the world community to decide where, whether and how to intervene and who should do it. 8 Reference Page 1. Gary M. Quinlivan. Multinational Corporations: Myths and Facts. Religion & Liberty Archive. Accessed: 26 April 2006. http://www.acton.org/publicat/randl/article.php?id=364 2. Alexandre Rotenberg. Globalisation: Does it pose a threat to the system of states? Accessed: 26 April 2006. http://www.planetpapers.com/Assets/4159.php 3. Samy Cohen. The State And The Challenge Of ‘New Actors’. Accessed: 26 April 2006. www.diplomatie.gouv.fr/en/IMG/pdf/0204-Cohen-GB-2.pdf 4. Chung-in Moon. Market Forces and Security. UNU. Accessed: 26 April 2006. http://www.unu.edu/unupress/marketforces.html 5. Wikipedia. Globalization. Updated: 25 April 2006. http://en.wikipedia.org/wiki/Globalization 6. Mark Amen. Cities in the global political economy: a place for Tampa Bay? 26 March 2002. Noarchive. Accessed: 26 April 2006. http://www.isanet.org/noarchive/amen.html Bottom of Form 7. James C. W. Ahiakpor. Multinational Corporations in the Third World: Predators or Allies in Economic Development? Religion and Liberty. Accessed: 26 April 2006. http://www.acton.org/publicat/randl/article.php?id=59 8. Alan Cranston. The Sovereignty Revolution. 2004. Stanford University Press. Accessed: 26 April 2006. http://www.sup.org/ancillary.cgi?isbn=080474761X&item=press%20release.htm Read More