Global political economy and the power of multinational corporations.

Author:Irogbe, Kema
Position:OTHER PAPERS - Report


There is no doubt today that multinational corporations (MNCs), also called transnational corporations, which are companies with their parent headquarters located in one country and subsidiary operations in a number of other countries (host countries), are the principal actors in global political economy. The MNCs view the world as a single entity. Their impact transcends all national boundaries. They make decisions not in terms of what is best for the home or host country of operations, but rather what is best for the corporations as a whole on an international basis. The basic principle on which these corporations operate is that they consider the entire world as their market. They organize production and marketing of products with little regard for national interest in order to maximize profits. The contention is that the poverty, of the peripheral world is not an inscrutable natural phenomenon; rather, it is largely, but not exclusively, the result of exploitative globalization of their economies into the capitalist system in which the MNCs remain the principal actors.

There has been no greater challenge to nation-states sovereignty since the middle of the 20th century than the threat of MNCs. Defenders of MNCs believe that they are the 'engine of development.' They argue that MNCs create jobs by hiring workers in the locality of plant operations thereby contributing towards employment. The proponents contend that MNCs transfer technology by sharing the formula of their products to the host countries of operation. It is further postulated that MNCs help to reduce inflation in the plant operations of host countries through increased productivity; and they even make war unthinkable in the sense that since these corporations from various countries invest in each other's country there would be less incentive to wage a war that could jeopardize the economic interest of all stakeholders. These claims and many others attributed to supporters of MNCs are fallacies. A body of evidence suggests that MNCs, whose goal is the maximization of profits, are not philanthropic institutions and they serve the interests of no one but themselves.

The profound hypocrisy and inherent exploitation of MNCs' globalization lies unveiled before our eyes, turning from their homes, where they assume some respectable forms, to the underdeveloped countries where they go uninhibited. The corporations undermine not only their parent countries, where they are headquartered, but cause even more damages to the peripheral world. Applying aggregate of empirical data and logical plausibility, it is argued in this paper that the unbridled operations of MNCs in the peripheral world undermine the sovereignty of the underdeveloped states, cause environmental degradation, contribute to poor nutrition standards, destroy labor unions, circumvent national and international laws, support repressive regimes, and do not assist in the transfer technology as defenders claim.


The dominance of U.S. foreign investment that shaped the post-World War II years was grounded in the overwhelming military and economic power of the U.S. As part of the coalescence of these developments, the MNCs remain on the global stage as an embodiment of capitalist enterprise. While the advocates of the need for foreign investment build their case on the assumption that the science and technology of the industrialized countries can only be transferred by foreign investors, who have a profit incentive to do so, that assumption has been proven false by history. The cases of former Soviet Union, China, to some extent, North Korea, and even the "Asian Tigers"--Singapore, Thailand, Hong Kong, and South Korea--are prime examples that formerly underdeveloped countries can actually obtain, exploit, and adapt modern science and technology without dependence on foreign investment. These countries achieved relative level of industrialization before the current influx of foreign investments. India and China, in addition to achieving industrial growth, are also engaged in space exploration without any direct foreign assistance. North Korea has successfully tested nuclear weapons and can now be considered as a member of that esoteric nuclear club even if the country may not be recognized as such by Western powers.

Indeed, there is more myth than reality to technology transfer by the advanced, industrialized countries to the underdeveloped areas. An underlying cause of the unemployment crises both in the parent and the host countries of MNCs rested in the particular industrialization process being utilized to bring about economic growth. It is the type of technology that is not capable of absorbing labor because it has been designed precisely to do just the opposite, i.e., to be labor saving and capital intensive. As a result of this dubious mechanism, Pedroleon Diaz has noted that the MNC drug companies use a technology in which only 3 to 4 percent of total cost is allocated to labor. (1) It is also important to note that unemployment is only one dimension of poverty; the other is income distribution. Technology is a key variable in explaining unequal income distribution in countries undergoing increasing industrialization based to a large degree on private ownership of the required technology, and in which there are no effective governmental programs for redistribution of wealth.


Some apologists for globalization contend that MNCs are so generous that they willingly transfer technology to their host countries (mostly the underdeveloped countries). That is a false premise. One of the most noted examples of this myth involved the Indian government and the Coca-Cola Corporation. In early 1980s, the Indian government demanded that if Coca-Cola wished to continue operating its subsidiary in India, it had to provide the country with the composition of the closely guarded secret formula for the cola syrup that Coca-Cola uses in its famous product. Coca-Cola declined and ended its operations. (2) Although the company had re-entered the Indian market since 1992 under a new term of agreement, common sense dictates that technology is never willingly transferred; it is stolen or self-acquired. What would have happened if Coca-Cola had shared the secret formula with India? The government of India would have then established a similar corporation to compete with Coca-Cola. That would have undermined Coca-Cola's goal of accentuating monopoly to achieve its bottom line: maximization of profits. More importantly, the relationships between the MNCs and the underdeveloped countries are usually asymmetric. The underdeveloped countries want to have joint ventures and thus attain equal ownership, but the corporations (like Coca-Cola in India) would prefer the host countries to play a subordinate role, or even no role at all.

The MNCs also quite often use secondhand technology when operating in the host countries. For example, a study conducted in 1972 by Constantine Vaitos found that the MNCs were bringing into Colombia not just secondhand technology, but that overvaluation of technology by the MNCs was a common practice. He discovered that a parent MNC was selling some goods to a subsidiary at prices that were 30 percent higher than those it was charging an independent Colombian firm for the identical items. (3) In another study, the valuation of machinery declared at $1.8 million was in fact overstated; the true figure was $1.2 million. Also, in the paper industry in Colombia, a MNC subsidiary applied for an import permit for used machinery which it claimed had a value in excess of $1 million. The government agency then asked for competitive bids internationally on new models of the same machinery. The MNC declared value for the used machinery was found to be 50 percent higher than bids received on the new machinery; in the same study, interviews were held with managers at subsidiaries of the corporation in the less developed countries who admitted that overvaluing technology by the parent companies was a common practice. (4) The fact is that the MNCs prefer to use secondhand technology in the host countries to minimize costs.

There is also the question of the appropriateness of the secondhand technology being transferred. Appropriate technology does not mean the latest or the most sophisticated. It means that the choice of technology should be a conscious one, considering the fact that it can affect the character and direction of development. Appropriate technologies should take into account the special nature of the unique problems in the area of plant operations, for example, disease and agricultural pests which are common in the peripheral world but almost virtually unknown in the industrialized countries where most research is concentrated. These marginalized countries need technologies that can help to conserve scarce materials and save imports of so many goods. The type of technology they need is one that is suited to the skills and management of the host countries of the MNCs. Unfortunately, the MNCs which control most technological developments are not willing to direct their research into areas which do not promise high returns to themselves. With their drive for profit maximization, the MNCs invest in what they want, hence there is a contradiction in the claim that MNCs are the 'engine of development' to the underdeveloped countries. It is therefore misleading to say that technology is being transferred. Technology is not actually being transferred to the underdeveloped countries, but rather secondhand technology is merely being used by MNCs in the peripheral world.


Another traditional argument in favor of MNCs expansion in the underdeveloped countries has been that they can make a significant contribution to raising the foreign exchange earnings for the underdeveloped countries through their...

To continue reading