Critically discuss the view:
The multinationals (MNCs) hold power over national governments
Instructions: Word count: 1000 (+/- 10%), excluding references and text citations.
Number of references: around 10 (including both academic and non-academic).It is a provocative statement- you do not have to agree (or disagree) with it. The point is to critically discuss the above.
The role of national governments might have been reduced at the expense of MNCs. But to what extent?
Some governments make the most of globalization and exercise their power over weaker states and/or MNCs.
The demise of the nation-state and growing importance of MNCs:
National governments can no longer manage their domestic economies, because they are subject to forces that shape the international economy ( i.e. MNCs).
The demise of the nation state is much exaggerated:
Single global economy does not exist. State does shape the international economy and does affect MNCs’ activities.
Essay structure:
Introduction: Should mainly provide an outline of the structure of your essay. Identify the themes (or one theme) which will be explored,
Main body: Critically evaluate the chosen themes. Address the exact task and focus on the topic. Bring relevant literature and examples to support your arguments.
Conclusion: Restate your focus by emphasis on the key points, drawing together the threads of your work. A basic conclusion refers back to the main points, linking them to the exact task to prove that you have addressed it exactly. For example, ‘This essay has looked at the issues of… and found…’ DO NOT include any new information/evidence because you are ‘summing up’.
Solution
The Multinationals (MNCs) Hold Power over National Governments
Introduction
The question of power held by multinational corporations (MNCs) over the national government is one that is highly debatable, with different individuals taking on different sides of the subject. Nevertheless, it is evident that MNCs are the major players in the political economy of the world. As such, they consider the world as a single entity, with their influence being felt across national boundaries. These companies do not make their decisions on the basis of what is best for the host country or their country of origin, but based upon the goals and objectives of the company and the international environment at large. Considering the entire globe as their market, such organizations organize their marketing and production operations with less regard for the interests of the nations from which they operate, so long as they maximize profits. The sovereignty of most nations and states is highly threatened by MNCs in view of the fact that they are the propagators of development. This paper seeks to review the impact of MNCs on the global platform and their resultant power of national governments.
The Power of MNCs over National Governments
Inarguably, MNCs are at the core of development for most countries, both the developed, which are mainly their countries of origin, and the developing in which they establish their subsidiaries. It is argued that these companies create jobs in their countries of operation by hiring workers, an aspect that results in their positive contribution towards the host nation’s employment initiatives (George, 2010, p. 76). In addition, MNCs share technology with their host nations through sharing product development approaches and insourcing some of the activities that cannot be handled by the local companies, within their scope. They also contribute positively towards the reduction of inflation, by increasing productivity, an aspect that allows for the high demand for certain products to be met (Subrata & Liang, 2012, p. 206). As much as one would embrace such postulations about MNCs as an indication of philanthropy towards their host countries, it is important to note that these organizations mainly aim at maximizing their profit and hence do business with only their interest at heart.
The Power of Political Donations
The goals and influence of MNCs is the source of their power against national governments. One of the ways through which MNCs gain their power is through directly lobbying the governments and making political donations (Stephen, 2007, p. 121). Most of the large corporations make large amounts of donations towards political campaign in view of securing their status within the host country. If the people they sponsor through political campaigns assume office, they believe that they owe these companies favors and hence ensure that the interests of such corporations are catered for through manipulation of public policy. Case in point, back in 2002, Samsung Electronics Group was engulfed in a political scandal in which they were said to have made donations in billions towards the presidential campaign of Roh Moo-hyun (Sousa, et al., 2009, p. 117). Such an approach ensures that the involved MNCs are safeguarded form any political inference that may be detrimental for their operations, even if it is at the expense of the hoist country. For instance, MNCs may receive tax subsidies and reduced minimum wage in exchange for the financial support that they grant top officials in government, an aspect that leaves the companies with reduced costs of operation and increased production, while leaves the local workers with low payment and thus impaired economic development (Joel, 2011, p. 12).
The Power of International Mobility
On the other hand, Multinational hold the power of International Mobility. This means that, operating from the global environment, these companies are able to transfer their resources from nation to nation in response to what environment best suits their policy. When MNCs become more mobile, they increase in their ability to seek new contractors or relocate their production due to any changes that may occur in national regulations in line with environmental quality, minimum wages, or workplace standards (Mayrhofer, 2012, p. 152). In most cases, MNCs do not compromise on such issues given that they have an option of entering into another market within a different country, in which they are less strict regulations (Jasjit, 2007, p. 766). As such, most national governments, being more concerned about losing tax revenues and employers for their large population of the unemployed persons, become less apt to establish or implement regulations that may be deemed stricter, and, in some cases, they even repeal the regulations that exist (Eicher, et al., 2009, p. 223). These means that such national governments surrender their power to the MNCs. Most nations thus compete with each other in establishing the lowest standards in view of attracting MNCs.
Such accommodations come with various concessions, most of which the national countries are aware of but willing to compromise. These concessions may include but not limited to abusing of human rights, environmental damages, and other consequences that may be detrimental to the social environment (Justin, 2009, p. 151; Stefania, 2011, p. 167). Case in point, back in the 1980s, Malaysia attracted semiconductor MNCs by imposing no taxation on any earnings made by such companies within the country for a period of up to ten years and ensuring that unions are not established by electronic workers. This is a move that granted such multinationals power over the national government, such that they were only willing to stay on the promised terms and would easily relocate their operations to another country if the terms were to change. As such, MNCs aim to reduce their tax burden through establishing their operations within national boundaries that are accommodative and passing through those that tend to be highly regulative and strict.
Conclusion
It is clear that multinational corporations hold
greater power over national governments, an aspect that ensures that their interest
are well served while those of their host countries are less considered.
Contrary to the popular view that the interest of MNCs is to facilitate
development and to bring a new experience of their products and services into
their host countries, these companies are only interested in maximizing their
profit and so use political influence as one of the approaches through which
they meet such an interest. These company’s use political donations and direct
lobbying to ensure that the top government officials offer them support and
protect their interest in the political dimension. In addition, these companies
use their power of international mobility to threaten national governments of
relocating to a new country if strict regulations are established. Such a trend
is likely to persist with the increase in the economic power of such companies
and hence their influence on the economy of the host countries.
References
Eicher, T., Mutti, J. H. & Turnovsky, M. H., 2009. International Economics. 7th ed. London: Routledge.
George, R., 2010. Globalization: a basic text. Malden, MA: Wiley-Blackwell.
Jasjit, S., 2007. International Business Studies. Asymmetry of Knowledge Spillovers between MNCs and Host Country Firms. Journal of International Business Studies, 38(5), pp. 764-786.
Joel, S., 2011. The taxation of multinational corporations. Norwell; Dordrecht: Kluwer Academic Publishers.
Justin, T., 2009. Multinational Corporations and Social Responsibility in Emerging Markets. Opportunities and Challenges for Research and Practice. Journal of Business Ethics, 86(2), pp. 151-153.
Mayrhofer, U., 2012. Management of Multinational Companies: A French Perspective. 2nd ed. Hampshire: Palgrave Macmillan.
Sousa, L. d., Larmour, P. & Hindess, B., 2009. Governments, NGOs and Anti-corruption: The New Integrity Warriors. London: Routledge.
Stefania, M., 2011. The Role of Expatriates in MNCs Knowledge Mobilization. Bingley, U.K.: Emerald.
Stephen, C., 2007. Multinational corporations and foreign direct investment: Avoiding simplicity, embracing complexity. New York: Oxford University Press.
Subrata, C. & Liang, W., 2012. The Long-Term Sustenance of Sustainability Practices in MNCs. A Dynamic Capabilities Perspective of the Role of R&D and Internationalization. Journal of Business Ethics, 110(2), pp. 205-217.