Neoliberalism and Government Control over Multi-National and Trans-National Corporations - Literature review Example

Neoliberalism And Government Control Over Multi-National And Trans-National Corporations Student name: Student number: Tutor: Date: Introduction The concept of neoliberalism, as Gwynne (2014) highlights it, embodies the political and economic processes that come with deregulating and expanding the market economy by doing away with trade barriers (like tariffs and government subsidies), while simultaneously incorporating national policies that support the thriving of foreign investments. As a result, the state government reduce the tax rates with the view of competing with other countries for foreign investments (Larrea 2006). Goldfrank and Schrank (2009) also view it as a dominant social, political, and economic model where western-styled representative governments abandon their roles as proponents of the popular social actors or social sectors and instead represents the interests of capital to the detriment of the societal sectors. Although the term neoliberalism may appear to denote several ideological meanings, it actually consists of a set of policies designed to lay emphasis on economic rather than social and political reforms in the sphere of international policy (Johnson & Ryu 2010). For this reason, neoliberal reforms or policies are intended to accentuate the aspects of fiscal management, financial markets, trade, privatization of state-owned firms, with the view of creating economic conditions that allow for individual freedoms to trade (Gwynne 2014; Kus 2014). Essentially, therefore, it is clear that Neoliberalism embodies a political, economic concept that urges for the growth of policies that structure the society based on the framework of a free market economy. The neoliberal regime has, however, made multinational corporations (MNCs) too powerful to be controlled by governments. This essay discusses the various prevailing perspectives on neoliberalism and government control over the MNCs. An underlying argument is that neoliberalism has made the national governments to lose control over the MNCs, which have in turn led to deficient degrees of total demand and leading to chronic unemployment, coercive competition, as well as vicious international and domestic rules of doing business. National government lose control over domestic affairs According to the "the race to the bottom” perspective, the capital would increasingly gain the capacity to engage the communities, workers, as well as countries against each other since the MNCs command the regulations, the taxation rates, as well as wage concessions. Indeed, the main constituents of the neoliberal regime are well recognized, with examples including financial liberalization, privatization, greater flexibility of the labour market, and liberalization of trade and investment within the national borders (Gwynne 2014). Crotty et al. (1998) explain that in the modern-day "neoliberal" regime, the multinational companies make a race to the bottom since the neoliberalism contributes to deficient degrees of total demand. This leads to chronic unemployment, coercive competition, as well as vicious international and domestic rules of doing business, which as Garay (2007) suggests, weaken the potentially positive impacts of multinational corporations. In the event that the national governments do not satisfy these requirements, the MNCs threaten to move to other countries. Based on this view, the increase in the mobility of multinational corporations will benefit from the greater capital prospects while the communities and the labourers lose (Patroni & Poitas 2002). Put differently, those who benefit from the “race to the bottom” consist of workers who are highly skilled or educated in certain MNC professions, such as investment bankers and lawyers. On the other hand, the unemployed and unskilled workers are likely to lose. Basing on this perspective, several conundrums can be resolved. For instance, it helps to see the neoliberal regime as creating threats and spill-over effects of the MNCs, as well as why communities and workers are likely to be harmed despite the fact that a country, such as the United States, experiences both the outward and inward foreign direct investment flow, as it is a net mobility of capital, as well as the setbacks linked to the likely destructive impacts of gross mobility of capital within a certain setting (Kollbrunner 2006). In this case, the rise in MNC mobility is more likely to affect negatively the workers and societies compared to the situations where governments have controls over the MNCs (Ocampo 2010). In fact, Crotty and Dymski (1998) show that when governments maintain control over the MNCs, it can bargain for the communities and worker’s rights. This may ensure strengthened national institutions that campaign for better wages and reduction in income inequality. Additionally, the international labour supply patterns are not likely to remain “normal" since many nations that were initially insulated to a significant extent from the free market still experience stagnated processes of assimilating themselves into it. Examples include China, India, and Russia, which have high numbers of educated workforce that is low-priced compared to the Organization for Economic Cooperation and Development (OECD) countries, like Canada or the United States (Crotty et al., 1998). MNC gain better bargaining power on international front The neoliberal regime has given the MNC better bargaining power on the international front. As Crotty et al. (1998) explains it, the regime has shifted state government’s bargaining powers, as well as intensified viciously unproductive competition among nations and their regions for capital. Current studies have overpoweringly suggested that greater levels of demand, better infrastructure, as well as greater levels of human capital and skills attract MNCs (Zweig 2008; Morrison 2014). However, the processes of FDI, as well as the capital mobility in a typical neo-liberal regime weaken the potential of greater levels of demand, better infrastructure, as well as greater levels of human capital and skills to attract MNCs (Lösche 2009; Wikan 2015). Indeed, Crotty et al. (1998) explains that within the neo-liberal regime, the nations that participate in international trade may find it disparagingly difficult to provide MNCs with what will keep them motivated within a certain country. Therefore, in due course, MNCs may be constrained from getting the anticipated levels of demand, better infrastructure as foreign investors had anticipated. An example includes the massive inflow of MNCs into the Mexican economy, which ruins the economy (Portes & Hoffman 2003). National government lose control over mobility of capital and costs of transactions Some economists like Crotty et al. (1998) have attempted to provide explanations for the unpredictable growth of MNCs in the neoliberal regime. One of the predominant explanations has been the radical reduction in the cost of communications and transactions due to the proliferation of the computer technology. According to Crotty et al. (1998), while it may be justified to argue that computer technology had reduced the cost of transacting business internationally because of the reduced costs of communicating among the subsidiaries of an MNC, such an explanation has failed to come to grips with the reality that some factors were also at play. For instance, at the start and into the middle of the 20th century, the world had already realised many advancements in technology and its potential to bring about an exceedingly integrated multinational capital market. In which case, the remarkable increase in capital mobility starting from the 1960s cannot be purely explained away by the advancements in technology. In fact, what appears to have changed in the current neoliberal regime, as Crotty et al. (1998) attempt to explain, is the shifts in the "enforcement structure," or what he explains as the international and domestic legal institutions and the regulations that bring about the property rights and improve the privileges brought about by the MNCs. An example of this was experienced in the period between 1964 and 1994 in the world trade, when international institutions, such as the IMF promoted neoliberalism in Latin America. Table 1: Pointers to escalation of global economic activity, 1964-1994 (Crotty et al. 1998) For instance, between 1991 and 1996, significant changes in Latin American economies, such as Mexico, changed their regulatory regimes to support liberalization. However, this was mostly stimulated by the elimination of some regulations and provision of incentives (Biles 2009). According to Crotty et al. (1998), the enforcement structures were mostly encouraged by bilateral investment treaties (BITs) that were brought about to protect and promote investment. For instance, by 1997, Crotty et al. (1998) indicate that nearly 1,330 treaties involved 162 countries, which indicated a remarkable increase in just five years. National governments lack control over competitions in the free market The neoliberal regime has brought about a competitive regime. The issue of competition within the free market has been analysed by Crotty et al. (1998). The researchers argued that neoliberal regime had brought about an out-of-control competition among multinational companies within their national borders. This had led to increased demand and lastly changed the rules of doing business. Crotty (1993) reviewed the notion of competitive regime during the neoliberal regime in the North, where industries capitalized on the rapid market growth, as well as where competition on an international scale generates substantial profits and revenues. According to Crotty (1993), companies would amass capital without the slightest of concern whether the national aggregate demand would plummet, or even where imports were likely to divert the customers to foreign goods, and lastly, where the new capital would have premature death because of coercive competition. Crotty et al. (1998) also opine that in a government-controlled regime such experiences are unlikely, as imports are restricted in preference to the locally produced goods. Again, because of the government’s interference in the free market, there are not events of coercive competitions that could lead to premature death of capital. Still, the government-controlled regime would have limited foreign investment and growth of productivity. In this view, neoliberal regime induces a higher rate of MNC investment leading to better growth in productivity and greater levels of employment. For this reason, stronger real wage growth would result (Cox 2012). Essentially, the spread of neo-liberal regime in turn leads to the spread of coercive competition. For instance, in a Crotty’s et al. (1998) study of the impacts of neoliberalism on labour relations, the researcher highlighted that in countries that embraced neoliberalism such as Mexico, the government regulations and the rules governing recruitment were relaxed, as the MNCs were given greater discretion over employment. This is in contrast to countries that had government-controlled trade practices. Unlike these countries, those that embraced neoliberalism experienced a decline in union activities and employee resurgence (Cook 2004; Eckstein 2006). National governments lose control over AD to the MNCs Because of neoliberalism, the national governments have lost control over the national aggregate demand (AD) to the MNCs. As Crotty (2000) attempts to show, the persistently weak AD is a primary aspect of the neoliberalism globally. An underlying assumption is that the forces that seek to increase aggregate demand within the new regime have weak legal structures even as they increase pressures on corporations to reduce the costs by cutting the workforce. Hence, high levels of unemployment in addition to sustained weakening of the national institutions is likely to happen, which have the overall effect of stagnating wage growth, as well as increasing income inequality (Samim & Jenatabadi 2014). Then again, insufficient aggregate demand growth is the chief contributor to the slow rate of global growth. In turn, the slow growth of demand had deepened competition with the major industries. This has led to a shift in the strategies used by MNCs that aggravate demand deficiency. Indeed, Crotty (2000) also shows that under the neoliberal regime, there is a slow global growth in aggregate demand. As Crotty et al. (1998) explain, aggregate demand slackened since the close of the Golden Age. Crotty et al. (1998) provide an example of Europe where the growth of the real GDP has slackened since 1973 compared to the previous two decades. For instance, Mishel et al. (1999) surveyed 19 developed nations that rose speedily during the early 1970s but experienced sluggish real compensation growth, which plummeted to around 1.2 percent annually between 1979 and 1989, and further to 0.7 percent between 1989 and 1996. One reason for this, according to Crotty et al. (1998), is due to the rise of employment rates as a result of neoliberal regimes. A similar argument is provided by Crotty (2000) in his analysis that export demand and consumption becomes problematic within the neoliberal regime due to heightened competition for MNCs by different countries. Such a neoliberal cycle has eliminated government control over the AD, and in turn slowed global growth. National government lose control over Tax competition and enforcement The neo-liberal forces also contribute to the shifts in the rules that govern international regulations. In turn, this has a significant impact on comparative bargaining power between the national governments and the MNCs. This cannot be said of the government-controlled regimes, as rules and regulations governing trade do not apply beyond the national borders (Mrak 2000). Therefore, unlike the government-controlled regimes, the neoliberal regimes bring about intricate problems with coordination, specifically for national governments that look to tax and control MNCs to ensure the benefit of the community. Crotty et al. (1998) provides an example of the late 1970s when some national government, both within the North America and the South America set up various controls and conditions on how MNCs should enter and operate within their national market. The existence of international investment agreements and bilateral agreements also limit what the state governments can do, unlike in scenarios where government-control subsists. Therefore, in neoliberal regimes, governments are restricted from taking policies off the bargaining platform (Chow 2001). For instance, in addition to making performance requirements like domestic content rules within the international market redundant, the bilateral agreement lessens the scope of industrial policies. Even as the nations seeking to negotiate these treaties may lack interest in practicing the industrial policies, these treaties will tend to limit the influence of state governments. Conclusion Neoliberalism has made the national governments lose control of the MNCs. In the modern-day "neoliberal" regime, the multinational companies make a race to the bottom since the neoliberalism contributes to deficient degrees of total demand. This leads to chronic unemployment, coercive competition, as well as vicious international and domestic rules of doing business. These weaken the potentially positive impacts of multinational corporations. The MNC have increasingly gained the capacity to engage the communities, workers, as well as countries against each other since they command the regulations, the taxation rates, as well as wage concessions. The neoliberal regime has given the MNC better bargaining power on the international front. It has shifted state government’s bargaining power, as well as intensified viciously unproductive competition among nations and their regions for capital. National government have also lost control over the mobility of capital and costs of transactions. National governments also lack control over competitions in the free market. The neoliberal regime has brought about an out-of-control competition among multinational companies within their national borders. Again, because of neoliberalism, the national governments have lost control over the national aggregate demand (AD) to the MNCs. Hence, high levels of unemployment in addition to sustained weakening of the national institutions is likely to happen, which have the overall effect of stagnating wage growth, as well as increasing income inequality. The neo-liberal forces also contribute to the shifts in the rules that govern international regulations. In turn, this has a significant impact on comparative bargaining power between the national governments and the MNCs. 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