On the Path of Greater Well-being: The Relationship between MNCs and States

“My friends, the simple matter of fact is this: If we cannot make globalization work   for all, in the end it will work for none”

                                                                             Kofi Annan


Kofi Annan’s statement exemplifies the complexity of globalization and the multifaceted relationship between state and MNCs that ensues from it. From a liberal standpoint, multinational corporations and governments have a positive and beneficiary relationship that enables both entities to advance and prosper. While MNCs increase revenues by expanding into other countries and different markets, states benefit from the influx of new technologies, information systems and products. New jobs are created and countries profit from the political and social stimulation. However, it is also important to note that there are some problems that MNCs create or abuse. For example, there have been numerous criticisms that many companies take advantage of the low environmental and human rights standards that some less developed or developing countries have. In this essay, I will examine the different relationships that MNCs have with states and explore the various economic, political, and social influences they have on each other. Arguing from a liberal perspective, I will show that the increasing power of MNCs change the structure of IPE and the roles of governments in positive ways.

The world and relationships between different international players have been changing rapidly over the past decades. These transformations are largely attributable to the process of globalization and the many influences it has on states and other global organizations. Maak states that “of the 100 largest economies in the world, 51 are now global corporations, only 49 are countries”, which is “of eminent political relevance” (361). These multinational firms thus, are increasingly playing a more important role within nation-states and their responsibilities are growingly becoming more complex and versatile. As restated by Maak “Ulrich Beck argues [that] the threat to nation states is no longer of an invasion but of the non-invasion (or withdrawal) of investors or MNCs” (361). This is due to the fact that the involvement of MNCs in global economies has shown to have certain advantages. As the globe and the distance between different actors are shrinking “there is no longer an ‘out there’, we can no longer draw the line between ‘us’ and ‘them’ ” (Maak 362). Throughout this process, multinational corporations are put under greater scrutiny. As emerging leaders, their actions and plans are critically evaluated. One of the great freedoms that MNCs enjoy is the fact that they are not directly tied to a certain government and its laws and regulations. Transnational corporations are somewhat free to do as they wish in many ways. De Bettignies and Lepineux explain that “they enjoy, so to speak, a privilege of extraterritoriality”, which means that “whereas governments can certainly compel domestic companies to contribute to the national common good, especially through taxes, social and environmental regulations, they cannot do much to influence the ethical behaviour of MNCs when operating abroad” (157). Therefore, there has been a large amount of criticism and opposition to the expansion of firms beyond their borders and into different countries. The anti-globalization movement is fuelled with accusations of human rights violations, economic exploitation and environmental degradation. Many feel uneasy about the growing interdependence and co-operation between states and multinational corporations, and what influences this rapport has on others. However, more changes are imminent and it is important to reap the benefits of them, while trying to minimize disadvantages.

When looking at globalization in terms of social implications, many recent alterations in societies and communities are evident. De Bettignies and Lepineux argue that “the current historical stage is marked by the waning of the role of government; it reveals a transition from a declining social contract wherein the State was predominantly responsible for the common good toward an emerging social contract characterized by a co-responsibility of multiple agents in this respect” (159). Whether a firm chooses to expand its enterprises in terms of foreign direct or portfolio investments, the host nation is always affected by the new interloper. Portfolio investments inject capital and funds into another country, which in turn helps support local businesses, as well as create jobs. The corporation can have an impact onto other economies and its people while remaining within its own borders. Foreign direct investments, however, require an actual presence of the MNC within another country, which seems to have an even greater influence on others around. Under this notion, Maak states that “MNCs as cosmopolitical corporations have some responsibility in contributing to an institutional scheme which is conducive to global social justice” and are, therefore, “expected to use, their power and resources to act as ‘agents of world benefit’” (367). Their responsibilities have somewhat developed into the responsibilities that states used to have and still ought to have nowadays. Simply stated, multinational corporations are responsible for the well-being of the people around them. De Bettignies and Lepineux go onward to explain that a firms survival and success is actually reliant on the common good “because this is a condition of their perpetuation, insofar as the very possibility for a corporation to pursue its private goods originates in the concern for society’s common good” (177). If individuals in a given state are unhappy or unhealthy, they are not going to be strong consumers or reliable workers, which are the two groups of people that any firm is strictly dependent upon. Nonetheless, there is criticism that outlines the bad social practices of corporations on an international scale. The charges that have been put forward by critics are that multinational corporations set up sweatshops in less developed countries, in order to exploit the workforce that are inextricably dependent on the miniscule wages that they receive while working under horrendous safety conditions. Bhagwati, however, argues that these firms actually pay competitive wages that are reflective of local standards, and that many companies strive to improve the state of their factories (216). He, furthermore, argues that the charges about human rights violations are unjustified because corporations merely follow the criterions that are set forth by the state in that particular country (217). Nonetheless, as mentioned above, happy and satisfied workers are simply going to be more effective. De Bettignies and Lepineux argue that “the common good is not automatically attained when all agents pursue their own interest; voluntary cooperation between economic agents […] is often required to reach efficient social outcomes” (160). MNCs increasingly understand this matter as is evident in some recent proceedings. For example, Danone and the Grameen Bank have grouped together in order to produce and distribute fortified dairy products at very low prices to malnourished children in Bangladesh (Maak 367). On another occasion, the CEOs of Reebok, Levi Strauss & Co. And Phillips Van Heusen Corp. sent a joint letter to the President of the People’s Republic of China to address the concerns that they had about the cruel and unethical punishment of workers that attempted to create work unions within some factories (Bennett 401). Karp expands this sense of responsibility that corporations ought to have by stating that they reach beyond the laws of a host nation. He explains that “any sovereign that authorizes human rights violations to occur within its borders is not acting with legitimate authority” and that “if a sovereign state’s law demands these actions to be performed, then moral agents have a duty to ignore the legal rules […] when determining what they ought to do” (105). Under this argument, MNCs have an immense duty that sometimes reaches above the jurisdiction of the state to treat people ethically and fairly, even if the host state does not require it. Therefore, as the roles and responsibilities of MNCs are expanding, their awareness of their new positions is growing and increasingly reflecting positively in their social policies in host states.

The relationship between states and multinational corporations is also extremely complex when analyzing the economic aspects of their rapport. Bennett states that it was not an accident that the World Trade Center and the Pentagon have been attacked simultaneously because the “pillars of business and government are now tied together as the symbol of a growing link between the public and the private sector” (393). This tight relationship bears a number of origins and reasons. Primarily, MNCs seek to expand their business ventures into other countries in order to use natural resources, the labour force, or take advantage of rules and regulations that make their endeavour easier or more profitable (Aldaeaj 15). On the other side, “MNCs can bring host countries important resources that are not easily acquired otherwise” (Oatley 184). Some of the most important ones are technology transfers and the modernizations of industries. The firm in question will train workers, so that they can acquire new skills or knowledge. Even if a worker decides to leave the firm, he or she will still possess these and can use them later on, so that the overall economy benefits from it. Natsuda has completed extensive research on the relationship and its effects of the Japanese government, Japanese MNCs and Southeast Asian economies. He argues that institutional arrangements between states can be beneficial for economic development in less advanced countries (121). Japan has successfully created a ‘regional deliberation council’, “which aims to pursue Japanese-style industrial development” in Southeast Asian countries (Natsuda 120). This exemplifies the economic success, in which one business model or business management model from a first world country has aided the development in another country. However, others draw attention to the negative aspects of close, economic relationships between poorer states and more wealthy corporations. The Dependency Theory, for example, states that “advanced capitalist states either underdevelop LDCs or prevent them from achieving genuine autonomous development” (Cohn 108). In addition, Cohn explains that “although LDCs may have been undeveloped in the past, they became underdeveloped as a result of their involvement with core countries” (109). Oatley also forms the criticism that “an MNC might consume scarce local savings, replace local firms, refuse to transfer technology, and repatriate all of its earning” (187). Once again, just like with social issues, corporations have to be held responsible for their actions and must be held liable even if they are dealing with less powerful host states, so that the benefits of globalization greatly outweigh the disadvantages. Thus, the connection between MNCs and states remains very complex, as power struggles and differing interests continue to compete with another.

The social and economic aspects of this relationship are inextricably linked and intertwined with the political, which ultimately overarches the other two aspects of the MNC-state rapport. Their understanding with each other greatly depends on the amount of power each international player has. Maak states that “the smaller or weaker the states, the less able those states are to impose their own agenda on the MNCs” (362). On the other side, small corporations have little leverage when it comes to discussing and setting up conditions for their investments. Governments control almost all aspects of any foreign business venture (Aldaeaj 14). However, when looking at the earlier mentioned statistic that 51 out of the world’s richest 100 economies are corporations, it becomes evident that most often than not, MNCs create the reality of their agreements. Under certain circumstances, corporations ought to assume the responsibilities of a government (Maak 369). Karp argues, for example, that “burdened societies […] shift the focus by considering some of the ways in which TNCs are more state-like than individual-like in certain political contexts, due to their enhanced power, capacity, autonomy and agency, vis-a-vis the host states in which they operate” (114). I am uncertain as to what degree this is realistic and can be realized. For example, should corporations have their own armies, which guarantee the safety and well-being of workers in war-torn or dangerous countries? Can each corporation have their own regulations that are just as enforceable as laws? Bennett sums it up best when he argues that “MNCs cannot and should not replace governments as the primary actors in international peacekeeping […] however, multinational corporations working in partnerships with government, NGOs and civil society can use their business skills and financial leverage to promote regional stability” (396). Nowadays, more than ever, corporations are assumed and expected to carry more responsibilities due to their increasing power and leverage when compared to some governments. Thus, on a political level, the rapport between MNCs and governments remain dynamic.

In conclusion, MNCs have an interesting and very complex relationship with states that is always developing and changing. As we have examined above, the main aspects of this dynamic involve social, economic and political aspects. Corporations are growingly intruding into all aspects of our lives. Their leverage and influence that they have enable them to sway their home and host governments in their favour. While these firms are reaping the benefits of their powerful positions, it is also very important that they also assume the responsibilities of being some of the greatest international leaders. De Bettignies and Lepineux sum it up best by saying that “whereas the issue of the common good was traditionally the prerogative of the state, this is not true anymore: other actors, such as corporations, NGOs, or civic constituencies, are becoming co-responsible with the state for seeking the common good” (175). Notwithstanding this comment, we also have to keep in mind that globalization and the expansion of MNCs has to work for all, just like Annan stated. Therefore, from a liberal perspective the relationship between states and corporations can be extremely beneficial for all players around.


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