Critical Assessment of the Changing Relationships between Transnational Corporations and Nation States

Critical Assessment of the Changing Relationships between Transnational Corporations and Nation States

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• The growth of the global economy

According to Al-Rodham and Stoudmann[1] , the term globalization is not a single concept which can be covered under a particular time frame. In addition, it is difficult to expound upon the term with certainty so as to apply to all individuals in all situations. Globalization entails economic integration, that is, policy transfer across borders, knowledge transmission, cultural stability, and power relations, reproductions and discourses[2]. Globalization is a concept which has been defined differently overtime, from political, social and/or economic points of view. Basing on their opinion and knowledge of globalization with regard its nature today, Al-Rhodam and Stoudmann[3] define globalization as a process which comprises of the causes, course and effects of trans-cultural and transnational integration of human and non-human activities. This implies that communities of people are consistently changing and experiencing change.

Globalization may be categorized into economic globalization, cultural globalization, and political globalization[4]. Economic globalization majorly involves rapid extension of international trade, capital market flows and foreign direct investment[5].

Technological developments are regarded the major drivers of most globalization processes. Technology can be described in terms of five major concepts: possession, instruments, knowledge, production, and change[6]. Developments in telecommunications and data processing capacities enable the coordination of research, marketing, and production operations across the globe[7]. Millions of households are now in possession of computers[8].  Computers have drastically evolved in their roles as they are no longer a reserved tool for business organizations and states, but also a household electronic appliance for information processing and retrieval, communication, entertainment and education. The Internet has ensured that information is shared around the globe twenty-four hours a day. Many businesses have exploited the internet to market their services and products around the world. Furthermore, text messaging, voice mail, and mobile phones ensure instantaneous communications across countries and states.

Changes in transport technological have also played an important role in globalization due to the fact that they have caused a drastic transformation in air, sea, rail, and road travel. Air transport has expanded trade and tourism across continents, as it has now become faster and more affordable. Innovations in the transport sector usually encompass communication and information technology.

Due to innovations in technology, entrepreneurs, particularly multinational corporations (MNCs) have fully exploited more free markets to spread production processes across the globe[9]. The decline in transport costs and the Internet have significantly impacted on the volume of trade, economic transactions and financial flows through the reduction of the methods and time of delivery and payment of products and services.

• The nature and purpose of the nation state

Most scholars contend that globalization culturally, economically, and politically undermines the autonomy of nation states. Globalization virtually causes all nation-states to be part of a larger series of global transformations and global flows. Communications, people, capital, goods, and weapons, in addition to beliefs, fashions, pollutants and crime move very fast across the territorial boundaries. This has become an entirely interrelated global order. Nevertheless, globalization is still incomplete. Whereas the world economy is globalized, society, politics, regulation, and law are still mostly national, with a slow emergence of bounds imposed by Westphalian or modern international states system[10].

As a reaction to economic globalization, many national states are rapidly coming together through memberships in transnational organizations with common political aspects[11]. Examples of such transnational organizations include: the North Atlantic Treaty Organization (NATO), the United Nations (UN), and the European Union (EU)[12]. Though membership of these organizations has some benefits to nation states, it is also possible to lead to partial transfer of sovereignty from the nation state to the organization. For instance, EU law now has precedence over UK law in Britain.

There has been too much criticism than praise of globalization in developing countries[13]. Singapore, which was ranked the second most globalized country in the world in 2012 has signed Free Trade Agreements and introduced many multinational corporations into the domestic economy[14]. This is among developing countries that have really managed to be at the top in globalization. Nonetheless, there are concerns with regard to the impact of globalization in eroding the Singaporean identity, by overlooking national natural resources and the country’s culture. This is the same problem that Somali, which is ranked among the failed countries in globalization, faces. Somali receives international support from organizations such as the IMF and the World Bank on certain conditions which the country is supposed to comply with[15]. Due to overreliance on external relief, the country has failed to exploit its natural resources. The culture of Somali has also been eroded, leading to security problems in the country that has destabilized its proper functioning. Thus, the international and regional agreements also impact on the sovereignty of a country.
1.2. The nature and purpose of the TNC

Transnational Corporations (TNCs) are businesses whose operations are carried out in two or more countries[16]. TNCs have an unquestionable level of influence or power around the globe[17]. Consequently, they have attained and exhibited their capability in respect of influencing the direction of economic and political policies both domestically and internationally.

Specifically, a TNC combines aspects of global, Multinational and International companies by working with international institutions, which have given them a go ahead to fully take advantage of any country that they deem favorable for their businesses[18]. For instance, the World Trade Organization has allowed TNCs to pursue ‘free trade’ without taking into consideration such issues as human rights.
1.3. The relationship between the state and the TNC

The widespread approach to the creation and sustenance of economic growth in the current global atmosphere is attributed to the implementation of free-market principles[19]. On the face value, TNCs fiercely advocate for the free market system on grounds that it contests the control of market operations by governments, encourages the concept of free trade and stirs up a constructive implication with its seeming relationship to the growth of democracy. It is contended that in the pretext of promoting the advantages of the free market system, TNCs have attained significant influence in the global society, which has undermined democracy, exploited developing countries, and devastated the natural world[20].
TNCs seek to make money and grow market share. This conflict with the conventional efforts of effectively allocating human and natural resources in a way that benefits the entire society. Consequently, the conventional purpose has been ignored as most countries allow TNCs to grow in size, and develop into very dominant economic players, creating jobs (just a few of them) and boosting national income. This makes them to become very powerful and drive away potential critics.

In third world countries, the objective of TNCs is to ensure maximization of their profits through the reduction of the cost related to input such as raw materials and labor. Research shows that 80% of the countries in the third world are left out, hurt, and/or marginalized by the operations of TNCs.

Economic globalization involves the development of massive TNCs beyond the regulation of national governments[21]. TNCs with lifestyles, logos and brands outline a ‘global culture’ which undermines national culture[22]. TNCs such as Starbucks, Google and Amazon are capable of moving investment and production across the globe toward places which have favorable conditions[23]. Nation states from an individual perspective are not able to regulate the operations of TNCs and have therefore lost a considerable amount of power upon their own economies. Furthermore, several TNCs are more powerful than many governments[24]. This makes it easy for them to politically influence their countries. Accordingly, there are high chances that the TNCs will influence the passage of laws which favor their own interests rather than the interests of the country as a whole.

TNCs are reported to have devised more sophisticated ways of avoiding taxes in the recent years. As such, prominent companies such do not pay any taxes on their huge international profits[25]. In early 2013, protesters in the United Kingdom (UK) attacked Starbucks branches on grounds that the company evades taxes. Most Internet and computer companies based in America are accused of not paying taxes there, on their profits made overseas. This has been noted to also have a considerable impact on developing countries. This is an issue that has not been resolved as to how to handle such TNCs[26].

1.4. Influences affecting the actions of the State and the TNC

Since the World War II, Brenton-Woods institutions like the World Bank, The International Monetary Fund (IMF), and the World Trade Organization (WTO) have made efforts in reconstructing the international economy through “liberal market-oriented global capitalism” as a result of the influence of the industrialized states[27]. These institutions have pressurized developing countries into liberalizing their economies through the application of force and sanctions to make these countries get committed to trade liberalization and deregulation. International institutions focus on promoting equality in economic growth in respect of their members. They have however been criticized for putting too much force on developing countries by setting certain conditions which are perceived as agents for undermining the sovereignty of such countries.

It is contended that TNCs have influenced the World Trade of Organization (WTO) so that it issued a policy statement which declared that ‘free trade’ should not be interfered by environmental concerns and human rights. This is due the influential power that TNCs have amassed overtime. The IMF and the World Bank have also been criticized for the use of the money given to them by TNCs to loan third world countries, which has given TNCs a chance to fully exploit these countries[28].

Civil society encompasses the set of organizations, behaviors, and institutions located between the family, the business world, and the state. Particularly, it involves non-profit and voluntary organizations of varied kinds[29]. Civil society organizations (CSOs) are increasingly playing a significant role in recognizing and dealing with global and transnational issues by mediating between political regulation and societal interests. CSOs and networks relate to TNCs in governance and development comprises of an important force for regulatory change. CSOs aim at providing checks and balances on the increasing and unprecedented size and power of TNCs so that they may not undermine human rights and other ethical issues. Whereas the minority elites advocate for more regressive monetarist and neoliberal policies, others including mainstream CSOs are advocating for collective will in the bid to restore global rules for  accountability and transparency which aim at promoting human security for all, protecting biodiversity and the survival of natural evolution, and promoting sustainable development, as well as an environmentally sound economic growth.

In the contemporary global society, global corporations are required to issue reports on corporate social responsibility (CSR)[30]. In addition, the public requires businesses of all types to visibly indicate their CSR initiatives. CSR is used by most businesses in promoting various policies, increasing employee loyalty, generating bran equity and burnishing their image. This has led to a majority belief that CSR is a win-win situation for both the public and corporations.

However, there is a significant disagreement between CSR advocates and free trade advocates with regard to the nature of corporate social responsibility for global companies[31]. According to CSR activists, though profit is significant, there is need for a greater purpose to the existence of corporate companies in the same way as to that of humanity. Accordingly, CSR activists advocate for the adoption of socially responsible policies on human rights, environmental, and labor issues, though special issues may arise that the companies may be required to handle such as rainforest conservation, technology transfer, women’s rights and animal rights. Free trade advocates propose that corporate social responsibility should on entail the maximization of return-rates to the general shareholders in accordance with the law. With the increasing sensitivity to environmental and social issues by the general public and consumers, corporations need to seriously look into their societal role as expectations of them enlarge. This has a possibility of increasing their goodwill in the global society and reducing the need for strict state regulations[32].

 

References

Al-Rodhan R.F. Nayef &Stoudmann Gerard. “Definitions of Globalization: A Comprehensive Overview and a Proposed Definition.” Geneva Centre for Security Policy: Program on the Geopolitical Implications of Globalization and Transnational Security. 2006.

Nur Yusuf Ahmed. “Reviving the Somali Economy: Business Regulation and Development Opportunities Associated with Globalization.” Bidhaan, vo. 7.

Acs J. Zoltan & Preston Lee. Tehnology, and Globalization: Introduction to a special issue on small and medium-sized enterprises in the global economy. Small Business Economics, 1997, 9(1):1-6.

Amaldas Marystella. The Management of Globalization in Singapore: Twentieth Century Lessons for the Early Decades of the New Century. Journal of Alternative Perspectives in the Social Sciences. (2009). Vol 1, No 3, 982-1002.

Milovanonic Goran, Barac Nada, & Andjelkovic Alexandra. “Corporate Social Responsibility in the Globalization Era.” Economics and Organization, 2009, 6(2):89-104.

Henn, Marcus. Tax Havens and the Taxation of Transnational Corporations. International Policy Analysis. June 2013.

Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

Wolf. “Will the Nation-State Survive Globalization?”; David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005); Holton, Globalization and the Nation-State, 69.

[1] “Definitions of Globalization: A Comprehensive Overview and a Proposed Definition.” Geneva Centre for Security Policy: Program on the Geopolitical Implications of Globalization and Transnational Security, 2006.

[2] Ibid.

[3] Ibid.

[4] Wolf. “Will the Nation-State Survive Globalization?”; David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005); Holton, Globalization and the Nation-State, 69.

[5] Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[6] Wolf. “Will the Nation-State Survive Globalization?”; David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005); Holton, Globalization and the Nation-State, 69.

[7] Acs J. Zoltan & Preston Lee. Tehnology, and Globalization: Introduction to a special issue on small and medium-sized enterprises in the global economy. Small Business Economics, 1997, 9(1):1-6.

[8] Ibid.

[9] Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[10] Acs J. Zoltan & Preston Lee. Tehnology, and Globalization: Introduction to a special issue on small and medium-sized enterprises in the global economy. Small Business Economics, 1997, 9(1):1-6.

[11] Ibid.

[12] Wolf. “Will the Nation-State Survive Globalization?”; David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005); Holton, Globalization and the Nation-State, 69.

[13] Nur Yusuf Ahmed. “Reviving the Somali Economy: Business Regulation and Development Opportunities Associated with Globalization.” Bidhaan, vo. 7.

[14] Amaldas Marystella. The Management of Globalization in Singapore: Twentieth Century Lessons for the Early Decades of the New Century. Journal of Alternative Perspectives in the Social Sciences. (2009). Vol 1, No 3, 982-1002.

[15] Nur Yusuf Ahmed. “Reviving the Somali Economy: Business Regulation and Development Opportunities Associated with Globalization.” Bidhaan, vo. 7.

[16] Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[17] Ibid.

[18]Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[19] Wolf. “Will the Nation-State Survive Globalization?”; David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005); Holton, Globalization and the Nation-State, 69.

[20] Wolf. “Will the Nation-State Survive Globalization?”; David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005); Holton, Globalization and the Nation-State, 69.

[21] Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[22] Ibid.

[23] Henn, Marcus. Tax Havens and the Taxation of Transnational Corporations. International Policy Analysis. June 2013.

[24] Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[25] Henn, Marcus. Tax Havens and the Taxation of Transnational Corporations. International Policy Analysis. June 2013.

[26] Ibid.

[27] Hobson Jr. Ira. The Unseen World of Transnational Corporations’ Powers. Accessed on October 26, 2013 from: http://www.neumann.edu/academics/divisions/business/journal/Review_SP06/pdf/transnational_corporations.pdf

[28] Ibid.

[29] Acs J. Zoltan & Preston Lee. Tehnology, and Globalization: Introduction to a special issue on small and medium-sized enterprises in the global economy. Small Business Economics, 1997, 9(1):1-6.

[30] Milovanonic Goran, Barac Nada, & Andjelkovic Alexandra. “Corporate Social Responsibility in the Globalization Era.” Economics and Organization, 2009, 6(2):89-104.

[31] Ibid.

[32]Milovanonic Goran, Barac Nada, & Andjelkovic Alexandra. “Corporate Social Responsibility in the Globalization Era.” Economics and Organization, 2009, 6(2):89-104.

 

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