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Critically evaluate the claim that multinational corporations possess “structural power”.Are these arguments credible?

Neoclassical Business Model

The influence of multinational corporations over the public continues to attract varied criticisms from theorists. Some theorists advance the school of thought that these corporations possess structural powers. As such, they have become quasi-governmental agencies with considerable amount of power over societal activities and life in general. The proponents of this argument tend to cite the contribution of these organizations in defining politics, economy and social environment of a country (Roach, 2007). Many nations acknowledge the importance of multinational organizations in shaping economic and social growth. As such, they contribute towards changes in both social and economic spheres. Nevertheless, controversy over the power of multinational corporations resonates behind their contribution in policy development and changes in national economic, politics and social structure. The purpose of this essay is to critically evaluate the notion that multinational corporations possess structural power and to establish the truth of this notion.

The neoclassical business model encourages multinational corporations to conduct their businesses across the globe, thanks to globalization. Governments view these corporations in terms of their benefits to the society including raising living standards, creating employment opportunities, contributing to economic growth and social changes (Sandbu, 2010). Agreeably, the contributions of these firms have significant positive impact to the lives of the people. Nevertheless, their neoclassical business models tend to wield considerable power to the society including determining the nature of social and economic policies advanced by the host country. The international firms tend to influence the creation of international treaties. For instance, Transatlantic Trade and Investment Partnership is largely a creation of the neoclassical business model of the multinational corporations. The essence of influencing the creation of such treaties is to pave way for favorable environments for their business activities at the expense of the host nation and its people.

Multinational corporations lobby over policy decision across the globe which in turn influences the business activities of the host/member nations. In most instances, they lobby for policies that benefit the shareholders at the expense of the host nation. A case in point is the contribution of multinational corporations in lobbying policies that create and define international treaties. The opponents of the international treaties often cite the weaknesses that such pact creates to the participating countries (Prakash & Potoski, 2011). For instance, the treaties give the multinational organizations the power to sue sovereign governments when the national laws pose potential harm to the activities of the multinational organizations. In this case, the power wield by the multinational corporations tend to derelict the powers conferred in the sovereignty of a country. In the absence of the structural powers of the multinational organizations, national governments would be free to create national laws that control activities of companies. Presently, multinational corporations have instigated more than 560 cases against governments with a third of these claimants demanding at least $100 million in compensation.

Corporate Social Responsibility and Corporate Citizenship

Studies show that corporate influence at the United Nation is disproportionate. The world has held a number of conventions that in one way or the other touch on the activities of the multinational corporations. Since these conventions discuss issues touching on the affairs of multinational corporations, the recommendations and declarations of these meetings often fail at the implementation stage. For instance, the Kyoto Protocol against environment protection has failed at the implementation stage because of the structural powers of the multinational corporations (Birch, Peacock, Wellen, & Hossein et al. 2017). The declarations of this protocol on environmental protection sought to gag the multinational corporations from advancing activities that contribute environmental degradation.  In this case, the conflict of interest emerges when individual countries attempt to curtail activities of the multinational organizations.

Recent studies show that only 147 multinational corporations control 40% of the economic value of 43,000 companies (Wettsein, 2009). This means that the multinational companies wield a lot of power that directly define the economic, political, and social growth in the world. They determine the nature of growth that a country experiences. For instance, since they control large percentage of the economy, their fault has significant ripple in the economy. In 2007-2008, multinational corporations that engaged in the infamous housing bubbles in United States created the economic crisis that started in United States and spread across the globe. This example is an indication that multinational organizations tend to dictate the economy, politic and social environments across the globe. In this case, the choices of the multinational corporations with respect to their trading practices plunged the world into economic crises which in turn had far reaching effects transcending all spectrum including politics, economy, and social. The illegitimate power of the multinational firms created the problem and spread to affect the entire globe (Goldstein, & Pevehouse, 2008). It follows that practices of multinational companies do not only affect the host nations, but also have ripple effects to the entire globe.

The multinational corporations tend to propagate growth of inequality, environmental dilapidation and undermining of public services across the globe (Kicsi & Buta, 2012). The neoliberal economic model is the chief architect of economic decisions across the globe. It continues to be anathema to any activity of economic sharing between any two nations. The entry of multinational organizations into the local markets has both positive and negative impact to the growth of the host nation. The proponents of neoliberal economic model submit that multinational corporations have monetary power and other resources which make them compete in their own league. The premise of this argument is that local corporations are incapable of growing the local economic when left to compete in the same environment with the multinational corporations.

The undue advantages enjoyed by the multinational corporations tend to deny the local companies the chance to grow (Mouan, 2010). As a result, local firms fail to pick or even grow thus denying the host country the opportunity to grow its own businesses. The failure of local firms to pick and grow limit economic equality in that the multinational firms tend to invest proceeds of their businesses to back to the original country. It means that as they gain from the business, they tend to return the money back to the original country. This analogy tends to explain the sluggish economic and social development in most developing nations where majority of the companies are multinational firms.

Another argument advanced against the structural power of multinational corporations is that they tend to exploit natural resources at the local level, but the benefits go to the developed nations. Africa and some parts of Asia tend to experience this inequality created by the multinational corporations. The activities of these corporations tend to benefit the original countries than the host country. For example, some multinational companies operating in Africa tend to exploit the natural resources in these locations and transport them to their original countries. Whenever multinational win local tender, they tend to deny the local firms the chance to grow. Expectedly, the disparity in resources between the local and international firms tends to give the latter the chance to prevail over the local ones.

Studies show that local firms need government protection to grow in markets dominated by the multinational corporations (Sangle, 2010). Unfortunately, many governments fail to protect the local firms because of the illegitimate powers of the multinational firms. They tend to advance their interests by lobbying policies from international trade organizations which in turn give them the power to control businesses in the host nations. The proponents of protection of local firms advance the argument that these organizations lack the power to compete with multinational corporations (Prakash & Potoski, 2007). For instance, in turn of resources, the multinational firms have adequate resources whereas the many local start-up organizations operate on strangled budgets. As such, they are incapable of competing in a level ground with the multinational corporations.

The multinational firms permeate inequality in that they tend to kill the growth of start-up businesses. The artisan industries and local start-up firms fail to grow because of the presence of multinationals present undue competition advantages. Borrowing from the principle of economies of scale, the multinational firms tend to order or produce products in bulk thus attaining economies of scale whereas local firms lack the resources to handle or produce in bulk. This disparity has significant effect on price determination. In most instances, whenever cost of production is low, the product price would also be low. However, price setting often favor multinationals because they tend to exploit opportunities that allow them to produce at low cost and sell at low price (Geppert  & Dorrenbacher, 2012). In such environment, the competing local firms tend to suffer because they have to set prices that would compensate the cost associated with production and product handling.

The ever-growing presence of multinational corporations tends to gag the rise and growth of the local firms. This trend tends to propagate inequality because the move concentrates economic growth with multinational firms instead of spreading it to many people. While the multinational firms operate in many destinations and control massive wealth, they benefit a few people. Studies reveal that start-up firms tend to employ many people and inflict significant positive benefit to the economy than multinational corporations (Fuchs, 2007). The latter control massive wealth, but employs a small population compared to small and medium sized businesses. It follows that countries should encourage small and medium sized corporations at the expense of the multinational firms.

Entry of multinational corporations into the international markets contributes to erosion of state power. The proponents of this argument posit that this transformation leads to a reconstruction of national power around the consolidation of internal and external relations. The transformation from nation-state to global community tends to infringe or erode the power of nation-state to control business activities within the national borders (Kramer, 2006). In essence, the presence of multinational firms within the national borders erodes the state role. For instance, some multinational firms use their structural power to evade standardization of products. This move tends to injure the nation-state power which in turn favors the growth of multinational firms at the expense of the local organizations. Some theorists posit that the multinational firms leverage on the international treaties to exploit opportunities presented in the international borders (Falkner, 2007). For example, some multinational corporations produce their products outside the national borders and enjoy economies of scale by importing low cost products. This development contributes to the death of local firms because in competitive markets, pricing often determines product performance (Einsiedel, 2009). In most instances, customers would go for cheap products, thus denying the local firms the chance of selling their products whose prices are slightly high than their rivals.

The proponents of the notion that multinational corporations have structural power note that these firms control world’s largest economies. A survey on the economic might of the world largest multinational corporations reveal that they control more than a half of world’s economic activities. A company such as Toyota is bigger than the economy of Norway whereas Ford is bigger the economy of South Africa. Further studies reveal that sales of first 200 multinational corporations are higher than the GDP of 182 countries of the globe. This situation tends to make the concept of globalization injurious to developing nations while favoring the existence of the multinational organizations. Largely, multinational corporations thrives in an environment that favor globalization.

The presence of multinational corporations tends to constrict the markets of the nation-state corporations. Studies reveal that firms tend to compete for markets and large corporations often wield large control of markets because of their resources (Wall, 2012). Based on this argument, governments must protect nation-state corporations if they are to grow. The multinational firms have resources which they can mobilize to constrict the markets of the local firms. Studies reveal that whereas the multinational corporations create global village, they give birth to global economic apartheid in the sense that real production networks, capitals and consumptions they generate only benefit 1/3 of the world’s population (Lydenberg, 2007). This observation is stunning in the sense that multinational corporations control the economy of the globe, but benefit a small fraction of the world’s population. Arguably, this could explain the expanding inequality across the globe despite the growing presence of globalization and expansion of multinational activities in new destinations. The activities and effects of the multinational corporations tend to contrast the expectation of the world in the sense that instead of limiting inequality, it propagates the same.

Studies reveal that multinational corporations tend to draw a lot of influence tactics whenever conflicts arise in the international sphere. The influence described in seminal organizational behavior includes coalition building, rational persuasion and inspirational appeals (Cherunilam, 2010). In most instances, the multinational companies use these tactics to influence political actions intended to influence their activities within the international borders. For instance, policies encouraging subsidies and tax holidays tend to give these corporations a chance of making abnormal profits at the expense of the host nation. In this case, the tax exemption tends to deny the host nation important revenue which would in turn contribute towards economic and social development of the respective country. In some instances, these corporations use their headquarters to influence policies in host nations which favor their activities at the expense of corporate obligations to global justice.

The principles defining corporate activities in the global sphere demands that multinational corporations should engage in activities that benefit the society. Nevertheless, some of these multinational corporations tend to dodge the concept of corporate obligations through engaging in practices that injure human rights or global justice. Unfortunately, the host nations fail to apply stringent measures against them because of their structural powers that they use to protect their activities. In most instances, the host countries tend to forgo the chance to grow when multinational companies use their power to influence political actions that injure the growth of local firms (Dambischi, 2004). For instance, when a country grants multinational firms the opportunity to conduct businesses with the government, the benefits of such a deal goes to a few people. This denies the host nation a chance to build corporate activities of their local firms.

Conclusion

The multinational corporations tend to possess structural power. The activities of these corporations in the international borders tend to justify this notion. The multinational corporations lobby international treaties which in most cases benefit their activities at the expense of the local firms. They use their power to sue governments and seek compensation in situations where nation-state attempts to clip their power. As such, the structural power of the multinational corporations erodes the sovereign power of the nation-state which in turn injures economic and social activities. The structural power of multinational corporations is evident through their lobbying and rejection of policies aimed to protect the environment and human rights. Further, multinational corporations control over 40% of the world economy giving the greater power to determine most economic and political decisions affecting the world.

References

 Anderson, S. & Cavanagh, J., Top 200: The Rise of Global Corporate Power, Global Policy Forum, https://www.globalpolicy.org/component/content/article/221/47211.html 7.

Birch, K., Peacock, M., Wellen, R., & Hossein, C. et al. (2017). Business and Society: A Critical Introduction. London: Zed Books.

Cherunilam F., (2010), International Business: Text and Cases, 5th edition, New Delhi: PHI learning Private Limited.

Dambischi, A., (2004), Corpora?iile Multina?ionale în procesul globaliz?rii economiei , tez? de doctorat, ASE Bucure?ti

Einsiedel, F. E. (2009). Emerging Technologies: From Hindsight to Foresight. London: UBC Press.

Falkner, R. (2007). Business Power and Conflict in International Environmental Politics. London: Springer.

Fuchs, D., (2007). Business Power in Global Governance. New York: Lynne Rienner.

Geppert, M. & Dorrenbacher, C., (2012). Politics and Power in the Multinational Corporation: The Role of Institutions, Interest and Identities. Cambridge: Cambridge University Press.

Goldstein, J., S., & Pevehouse, J., C. , (2008). Rela?ii interna?ionale, Editura Polirom, Ia?i

Harrod, J. W. J., Multinational Corporations. Global Transformations and World Futures: Knowledge, Economy and Society 1.

Kicsi, R., & Buta, S., (2012). Multinational Corporations in The Architecture Of Global Economy. The USV Annals of Economic and Public Administration 12(2)(16).

Kramer, A. E. (2006). Shell bows to Kremlin pressure on Sakhalin.  International Herald Tribune. Retrieved from https://www.nytimes.com/2006/12/11/business/ worldbusiness/11iht-shell.3864505.html

Lydenberg, S. (2007). Universal Investors and Socially Responsible Investors: A Tale Of Emerging Affinities. Corporate Governance: An International Review 15(3): 467–477.

Mouan, L. C. (2010). Exploring the Potential Benefits of Asian Participation in The Extractive Industries Transparency Initiative: The Case of China. Business Strategy and the Environment 19, 367–376.

Potoski, M. & A. Prakash. (2009). A Club Theory Approach To Voluntary Programs.” In: M. Potoski and A. Prakash (eds.), Voluntary Programs: A Club Theory Perspective. Cambridge, MA: MIT Press.

Prakash, A. & M. Potoski. (2007). Collective Action Through Voluntary Environmental Programs: A Club Theory Perspective. The Policy Studies Journal 35: 773–792.

Prakash, A. & M. Potoski. (2011). Voluntary Environmental Programs: A Comparative Perspective. Journal of Policy Analysis and Management 31(1): 123–138.

Roach, B., (2007). Corporate Power in a Global Economy, A GDAE Teaching Module on Social and Environmental Issues in Economics, Global Development And Environment Institute, Tufts University.

Sandbu, M. (2010). Voluntary Transparency Scheme Faces Scrutiny. Financial Times 3. Retrieved from https:// www.ft.com/cms/s/0/dd252206-78da-11df-a312-00144feabdc0.html#axzz2BYt6AEp1.

Sangle, S. (2010). Critical Success Factors For Corporate Social Responsibility: A Public Sector Perspective. Corporate Social Responsibility and Environmental Management 17: 205–214.

Wall S. ?.a., (2012), International Business, London: Pearson Education Limited.

Wettsein, F., (2009). Multinational Corporations and Global Justice: Human Rights Obligations of a Quasi-Governmental Institution. Stanford: Stanford Scholarship Online.

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