Corporations and Nations: Power Imbalance in the Extractive Sector

• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: http://doi.org/10.1111/ajes.12209
• Author: Evaristus Oshionebo

Corporations and Nations: Power Imbalance

in the Extractive Sector

By EVARISTUS OSHIONEBO*

ABSTRACT. This article examines the nature and significance of the

power imbalance between developing countries and transnational

corporations (TNCs) in the natural resource sector. It situates this

power imbalance within the context of global economic realities,

including the high profitability of extractive TNCs; rampant poverty in

developing countries; dependence of many developing countries on

the extractive sector for economic sustenance; and lack of regulatory

expertise on the part of developing countries. The article suggests two

potential avenues for addressing this power imbalance. First, it

advocates for the recognition of TNCs as “subjects” of international law,

thus paving way for the imposition of some international law duties on

TNCs. Secondly, the article argues that civil society groups should be

empowered to participate actively in the regulatory process and that an

empowered civil society could potentially counterbalance the power of

TNCs and other corporations.

Introduction

Developing countries endowed with natural resources lack the

technology and expertise to exploit these resources. Hence they rely

largely on transnational corporations (TNCs) to exploit their natural

resources. However, TNCs in the extractive sector are often more

financially powerful than host developing countries, hence the

inability of these countries to regulate and control the operations of

TNCs. As of the year 2000, more than half of the world’s largest

*Associate Professor of Law, University of Calgary, Canada; Ph.D., Osgoode Hall

Law School, York University, Toronto. Some of the views expressed in this article are

discussed in detail in my earlier work, Regulating Transnational Corporations in

Domestic and International Regimes: An African Case Study (2009, University of

Toronto Press).

American Journal of Economics and Sociology, Vol. 77, No. 2 (March, 2018).

DOI: 10.1111/ajes.12209

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C2018 American Journal of Economics and Sociology, Inc.

economies were TNCs while the combined sales of the top 200 cor-

porations in the world were larger than the combined economies of

all countries minus the 10 largest economies (Cavanagh and

Anderson 2000). Moreover, the sales of each of the top five corpora-

tions were bigger than the gross domestic product of 182 countries

(Cavanagh and Anderson 2000).

The financial power of TNCs has increased exponentially in the last

decade due largely to economic globalization. The U.N. Conference on

Trade and Development (UNCTAD 2016: 3–6) reports, for example,

that, in 2015, the volume of global foreign direct investment was

US$1.76 trillion and that TNCs from the developed economies invested

US$1.1 trillion abroad.

The global financial power of TNCs is especially apparent in the

extractive sector where TNCs such as ExxonMobil, Chevron, Shell, and

British Petroleum possess more financial resources than the developing

countries in which they operate and generate a significant portion of

their profits (Williams 2004: 458). While the recent decline in commod-

ity prices has adversely impacted the profitability of extractive TNCs,

most of these TNCs remain highly profitable. Unlike extractive TNCs,

host developing countries are often poor and ill-governed. The reality,

then, is that the economic power of TNCs often dwarfs the power of

host developingcountries (Stephens 2002: 57).

The power of TNCs could be beneficial to society if it were used to

advance common economic goals. There are cases in which TNCs aid

economic development through the infusion of capital into developing

economies and through job creation. TNCs are actively involved in the

development of new technologies and, in some cases, TNCs transfer

such technologies to developing countries (Roach 2007: 20). The prob-

lem, however, is that corporate power is often deployed primarily to

advance the selfish objective of private wealth maximization. Regretta-

bly, in the pursuit of that goal, corporations in the extractive sector

quite often externalize the adverse impacts of their activities by pollut-

ing the environment in which they operate. Moreover, in attempting to

maximize profits, TNCs often use their power and influence to gain

special benefits and avoid meeting the normal obligations of an entity

that makes use of public services and infrastructure. For example,

“corporations exert political influence to obtain subsidies, reduce their

The American Journal of Economics and Sociology420