The power of  trans national corporations

Although trade, up and down the Nile River, existed as long as approximately 7,000 years ago, the appearance of trans national corporations (TNCs) incorporating control over foreign production units did not occur until the nineteenth century. However, there were some exceptional types of state-sponsored Dutch and English colonizing corporations, such as the East India Company, the Hudson’s Bay Company and the Royal African Company, which can be traced back to the 16th and 17th centuries. Nevertheless, it was the TNCs from the USA which led the way in spreading the message of development through capitalist free enterprise in the post second world war period and there are now some 91,000 of such TNCs with 950,000 subsidiaries worldwide (World Trade Organization (WTO), 2011), compared to the 7,000 of the early 1970s (World Investment Report (WIR) 2007). Whereas during the 1950’s and the 1960’s, Vernon (one of the world most respected TNCs scholar) in his famous work Sovereignty at Bay found that a hostile relationship often existed between an investing company and a host country in 1998 writing Hurricane’s Eye he explores some sorts of coexistence between sovereign economy and trans national corporate economy.
The rise of trans national corporate economy, particularly in the past few decades, not only challenges traditional sovereign states’ economy but in various ways it is exposing their limitations. This is not to say that only a small developing country like Bangladesh would be helpless to meet the demands of a TNC such as Unilever, but even wealthy countries such as Great Britain are certainly not immune when it comes to settling issues with major TNCs for instance Google or Starbucks. An NGO like Oxfam, a few years ago was able to force Starbucks to pay fair prices for the coffee beans it buys from Uganda’s poor farmers but, a few months previously, the UK nation state apparently was unable to pressurise Starbucks into paying its taxes. HSBC (one of the major global financial corporations) has been threatening to move its headquarter away from London if the UK’s regulation does not support its business as usual.    
Even if, by definition, TNCs are privately owned economic institutions, evidence suggests that they greatly influence both the home and host country’s political behaviour, especially in the case of a developing host nation. It  not only implies to the 16th century East India Company which entered India in the name of spice business and ended up occupying the entire subcontinent, but to the 1973 PepsiCo role in overthrowing and de facto killing of Allende, the first democratically elected president of Chile. Former Prime Minister of the UK, Tony Blair, in 2007 said that “Business gets involved in politics, not as partisans of a political party, but as an important actor in global debate.” However, given their resources, operational efficiencies, and capability in reaching even remote locations, there is a growing expectation that these corporations will expand their horizon to international development. In 2001, Kofi Annan (then UN Secretary General) inaugurating the UN Global Compact invited the transnational corporate economy to join the fight against global poverty. Moreover, in 2002 the United Nations abandoned its reliance exclusively on national governments in dealing with the disease of HIV/AIDS in developing countries, deciding rather to request for TNCs to take part in combating these growing threats.          
Being the chief beneficiary of globalization, the significance and richness of multinational corporations in the global economy is clearly evident compared to that of the sovereign-states economy. It is now scanning every corner of the planet for any opportunity to invest, as Vernon predicted in 1979. Foreign direct investment (FDI) by TNCs has accelerated faster than the growth in world trade and world output over the past 30 years. Forbes (2008) reveals that 2000 of the world’s leading companies’ asset value is estimated to be as much as $124 trillion US Dollars, compared to the size of the sovereign state economy of about $75 trillion. In addition, whilst WTO (2011) reported that the 200 largest TNCs employ 90 million people globally and control 71 per cent of world trade, the OECD (2001) found that TNCs employ one worker in every five in European manufacturing and one in every seven in US manufacturing. In 2013, global FDI inflows increased all major economic groupings – developed, developing, and transition economies – by 9 per cent to $1.45 trillion and FDI stock rose by also 9 per cent reaching $25.5 trillion (WIR, 2014).
Although 58 per cent of TNCs have less than 250 employees there are many giant corporations with yearly revenues bigger than many countries put together. Lieten (1999) explores that there are only seven developing countries (China, Brazil, Mexico, Argentina, Republic of Korea, India and Indonesia) which are bigger than that of the biggest TNC, General Motors (GM). GM is bigger than Thailand, Ford Motors is bigger than Saudi Arabia, Mitsubishi is bigger than South Africa, and if we combine Shell, Exxon and Toyota, they are by far bigger than for example Malaysia,
Egypt, Pakistan, Peru, and Bangladesh combined, Lieten added.
The national sovereign economy has created supranational institutions such as World Bank, the IMF, and WTO, apart from many other regional organizations to deal with trans national challenges. Even these institutions are unable to match the rising power of TNCs. With 160 member states, the WTO’s aim is to help producers of goods and services, and exporters and importers, conduct their business internationally. The World Bank devotes its resources (about $30 billion a year annual loans) to alleviating poverty and improving living standards in developing countries.
However, how the promises and the reality of these international organizations match up in the global economy is debatable. Although Rajan (former chief economist of IMF now chairman of the Reserve Bank of India) acknowledges that the value of the World Bank and IMF has eroded
over time, he insists that both continue to contribute to international development by providing soft loans to developing countries.
When the national sovereign economy is compromising with transnational corporate economy, when supranational institutions are weakening (among others factors by the usual appointment of IMF chief as always being from a European country, and Word Bank boss from the USA, which displeases many countries including China, thus leading to the creations of AIIB as an alternative), and when the UN is slow to decides on issues such as climate change, global poverty and civil war, then who is next to take to the stage? Could the rise of non-states actors – TNCs, NGOs, global civil society (GCS) – capable to tackle all of these problems? In this line of thought, the issue of global governance has concerned many prominent academics from both sides of Atlantic. The influential Birkbeck professor Daniele Archibugi with the collaborations of his other internationally recognised colleagues, not only insisted in establishing a truly global governance system, but also that in order to reap the benefits, an increase in democratic values should be encouraged both in individual nations and in international organizations (‘democratic
dividends’, in their terms).
As the corporate economy can penetrate deep into isolated locations in a host country, its influence is also greater compared to either international institutions or nation-states. A poor consumer even in a remote Bangladeshi village knows about the Unilever products Lux, Fair & Lovely, Sun Silk, and Head & Shoulders, but is very unlikely to have heard about the WTO, IMF or World Bank. And there is evidence suggesting that many countries including Ireland, South Korea, Hong Kong and Singapore, greatly benefited from effective utilization of the trans national corporate economy.  

The writer is a postgraduate student at Birkbeck, University of London. Email: [email protected].    

The power of trans national corporations

Although trade, up and down the Nile River, existed as long as approximately 7,000 years ago, the appearance of trans national corporations (TNCs) incorporating control over foreign production units did not occur until the nineteenth century. However, there were some exceptional types of state-sponsored Dutch and English colonizing corporations, such as the East India Company, the Hudsons Bay Company and the Royal African Company, which can be traced back to the 16th and 17th centuries. Nevertheless, it was the TNCs from the USA which led the way in spreading the message of development through capitalist free enterprise in the post second world war period and there are now some 91,000 of such TNCs with 950,000 subsidiaries worldwide (World Trade Organization (WTO), 2011), compared to the 7,000 of the early 1970s (World Investment Report (WIR) 2007). Whereas during the 1950s and the 1960s, Vernon (one of the world most respected TNCs scholar) in his famous work Sovereignty at Bay found that a hostile relationship often existed between an investing company and a host country in 1998 writing Hurricanes Eye he explores some sorts of coexistence between sovereign economy and trans national corporate economy. The rise of trans national corporate economy, particularly in the past few decades, not only challenges traditional sovereign states economy but in various ways it is exposing their limitations. This is not to say that only a small developing country like Bangladesh would be helpless to meet the demands of a TNC such as Unilever, but even wealthy countries such as Great Britain are certainly not immune when it comes to settling issues with major TNCs for instance Google or Starbucks. An NGO like Oxfam, a few years ago was able to force Starbucks to pay fair prices for the coffee beans it buys from Ugandas poor farmers but, a few months previously, the UK nation state apparently was unable to pressurise Starbucks into paying its taxes. HSBC (one of the major global financial corporations) has been threatening to move its headquarter away from London if the UKs regulation does not support its business as usual. Even if, by definition, TNCs are privately owned economic institutions, evidence suggests that they greatly influence both the home and host countrys political behaviour, especially in the case of a developing host nation. It not only implies to the 16th century East India Company which entered India in the name of spice business and ended up occupying the entire subcontinent, but to the 1973 PepsiCo role in overthrowing and de facto killing of Allende, the first democratically elected president of Chile. Former Prime Minister of the UK, Tony Blair, in 2007 said that Business gets involved in politics, not as partisans of a political party, but as an important actor in global debate. However, given their resources, operational efficiencies, and capability in reaching even remote locations, there is a growing expectation that these corporations will expand their horizon to international development. In 2001, Kofi Annan (then UN Secretary General) inaugurating the UN Global Compact invited the transnational corporate economy to join the fight against global poverty. Moreover, in 2002 the United Nations abandoned its reliance exclusively on national governments in dealing with the disease of HIV/AIDS in developing countries, deciding rather to request for TNCs to take part in combating these growing threats. Being the chief beneficiary of globalization, the significance and richness of multinational corporations in the global economy is clearly evident compared to that of the sovereign-states economy. It is now scanning every corner of the planet for any opportunity to invest, as Vernon predicted in 1979. Foreign direct investment (FDI) by TNCs has accelerated faster than the growth in world trade and world output over the past 30 years. Forbes (2008) reveals that 2000 of the worlds leading companies asset value is estimated to be as much as $124 trillion US Dollars, compared to the size of the sovereign state economy of about $75 trillion. In addition, whilst WTO (2011) reported that the 200 largest TNCs employ 90 million people globally and control 71 per cent of world trade, the OECD (2001) found that TNCs employ one worker in every five in European manufacturing and one in every seven in US manufacturing. In 2013, global FDI inflows increased all major economic groupings developed, developing, and transition economies by 9 per cent to $1.45 trillion and FDI stock rose by also 9 per cent reaching $25.5 trillion (WIR, 2014). Although 58 per cent of TNCs have less than 250 employees there are many giant corporations with yearly revenues bigger than many countries put together. Lieten (1999) explores that there are only seven developing countries (China, Brazil, Mexico, Argentina, Republic of Korea, India and Indonesia) which are bigger than that of the biggest TNC, General Motors (GM). GM is bigger than Thailand, Ford Motors is bigger than Saudi Arabia, Mitsubishi is bigger than South Africa, and if we combine Shell, Exxon and Toyota, they are by far bigger than for example Malaysia, Egypt, Pakistan, Peru, and Bangladesh combined, Lieten added. The national sovereign economy has created supranational institutions such as World Bank, the IMF, and WTO, apart from many other regional organizations to deal with trans national challenges. Even these institutions are unable to match the rising power of TNCs. With 160 member states, the WTOs aim is to help producers of goods and services, and exporters and importers, conduct their business internationally. The World Bank devotes its resources (about $30 billion a year annual loans) to alleviating poverty and improving living standards in developing countries. However, how the promises and the reality of these international organizations match up in the global economy is debatable. Although Rajan (former chief economist of IMF now chairman of the Reserve Bank of India) acknowledges that the value of the World Bank and IMF has eroded over time, he insists that both continue to contribute to international development by providing soft loans to developing countries. When the national sovereign economy is compromising with transnational corporate economy, when supranational institutions are weakening (among others factors by the usual appointment of IMF chief as always being from a European country, and Word Bank boss from the USA, which displeases many countries including China, thus leading to the creations of AIIB as an alternative), and when the UN is slow to decides on issues such as climate change, global poverty and civil war, then who is next to take to the stage? Could the rise of non-states actors TNCs, NGOs, global civil society (GCS) capable to tackle all of these problems? In this line of thought, the issue of global governance has concerned many prominent academics from both sides of Atlantic. The influential Birkbeck professor Daniele Archibugi with the collaborations of his other internationally recognised colleagues, not only insisted in establishing a truly global governance system, but also that in order to reap the benefits, an increase in democratic values should be encouraged both in individual nations and in international organizations (democratic dividends, in their terms). As the corporate economy can penetrate deep into isolated locations in a host country, its influence is also greater compared to either international institutions or nation-states. A poor consumer even in a remote Bangladeshi village knows about the Unilever products Lux, Fair Lovely, Sun Silk, and Head Shoulders, but is very unlikely to have heard about the WTO, IMF or World Bank. And there is evidence suggesting that many countries including Ireland, South Korea, Hong Kong and Singapore, greatly benefited from effective utilization of the trans national corporate economy. The writer is a postgraduate student at Birkbeck, University of London. Email: [email protected].