Critique of Charges against the MNCs - Essay Example

Today’s charges against the MNC’s College December 2, 2007 Thesis I a. Dominate and control the private sector The Multi National Corporations enter into a host nation either through an Alliance or Acquisition or merger or Joint venture etc. In this manner, MNC’s dominated the local market and control the private sector in the country. The export power of MNC’s is a valuable lead for the domination of the private sector. It is estimated that between one-fourth and one-third of manufactured goods now moving in world trade are being shipped from one branch to another of the MNC’s; that is they are intra company shipments. The sales of foreign subsidiaries in the host countries in which they are located are three to four times as large as total world exports. b. Shape national and economic policies to their will The global liberalization has paved the way for fast expansion and growth of MNC’s. The value added of all foreign affiliates of MNC’s as a percentage of world GDP increased from about 5 percent in the beginning of the 1980’s to nearly 7 percent in 1990’s and to 15 percent in 2000’s. The dominance of MNC’s is very clear when the contribution towards a country is seen. The GDP of most of the nations is smaller than the value of the annual turnover of multinational giants like Ford and General Motors. This allows MNC’s to play a crucial role to shape national and economic policies to their benefits. c. Indeed entry of new firms and stifle free enterprise This is not acceptable as MNC’s induce competition among the existing firms and it encourages free enterprise through technology transfers. They work to equalize the cost of factors of production around the world.  When the MNC’s enter the host country, the local enterprises imitate the new technology brought by the MNC’s to improve their production efficiency; this is the direct technology spillover effect. The market competition pressure force the local firms to adopt more advanced technologies, which push the technological progress. d. Enrich the private sector and starve the public sector In some cases, countries rely on MNC’s for most of their projects. In this case, MNC’s will be a great boon to the Public Sector too. In the case of employee’s salaries, the private sector pays more compared to the public sector and the work practices in private sector are more innovative compared to the routine based work in most of the public sectors. In these ways, MNC’s enrich Private sector as entry barriers are minimal here and starve the public sector due to high political pressures. e. They are less efficient than small firms MNC’s are characterized by high levels of spending and mostly they are inefficient compare to the management of a small firm where each activity is accountable to the core and efficient methods are followed. f. Enlarge military spending for private profits MNC’s can evade or undermine national economic autonomy and control through their power and flexibility, and their activities may be inimical to the national interests of particular countries. This enlarges military spending for private profits g. Generate monopolies MNC’s break down domestic monopolies and increase the competition in the existing environment by adopting a separate foreign subsidiary. The competition leads to new opportunities and this in turn leads to the emerging of new firms in the market. In some case cases, MNC’s destroy competition when they acquire monopoly powers. Thesis II a. They destroy social pluralism by subjugating other institutions MNC’s sometimes give raise to cartel formation by subjugating other institutions in the industry. These sort of practices happen in the Cement Industry and Steel Industry whereby large MNC’s subjugate the existing players and form a single network, thereby control the pricing and promotion aspects in the field. b. They subvert and corrupt democratic institutions The MNC’s pay bribes in huge amounts to politicians and through their influence corrupt democratic institutions in tax related issues. The transfer pricing enables the MNC’s to avoid taxes by manipulating prices on intra-company transactions. c. They replace democracies with corporate oligarchies The tremendous power of the global corporations poses the risk that they may threaten the sovereignty of nations in which they do business. On political involvement, MNC’s have been accused for supporting repressive regimes; paying bribes to secure political influence; not respecting human rights; paying protection money to terrorist groups; and, destabilizing national governments of which they do not approve. d. They control public agencies established to regulate them Multinational corporations do not operate with immunity; they are heavily monitored both in the United States and abroad. From 1991 to 1998, according to the United Nations, there were 895 new foreign direct investment regulations enacted by more than sixty countries. Most of the MNC’s follow all the regulations in the host country. Besides, labor costs alone do not determine where multinational corporations base their affiliates; other variables–such as political stability, infrastructure, education levels, future market potential, taxes, and governmental regulations–are more decisive. The experience curve of the MNC’s makes them exploit the regulatory mechanisms and they even play a major role in bringing amendments to regulations. e. They have bought the support of universities by gifts, grants and R&D contracts Evidence supplied by the World Bank and United Nations strongly suggests that multinational corporations are a key factor in the large improvement in welfare that has occurred in developing countries over the last forty years mainly through their support from Universities. Most MNC’s leave their research and development to the Universities. Thesis III a. MNC’s repress individual expression MNC’s like 3M give great focus to individual innovations and take these ideas to develop and market products. In, this manner, a lot of respect is given to individual ideas and there will be high level of worker satisfaction. This develops employee commitment and involvement. b. They offer no psychological satisfaction to workers and strip them of their individuality In some MNC’s like manufacturing concerns, where routine work is carried out, the satisfaction level of employees will be very low. There will be no individuality in their work practices. Employees themselves become machines and their level of thinking itself is suppressed to a great level. This usually happens with lower level employees. c. They emphasize status and material gains, ignoring other values The MNC’s have been criticized for their business strategies and practices in the host countries. They undermine local cultures and traditions, change the consumption habits for their benefit against the long term interests of the local community, promote conspicuous consumption, dump harmful products in the developing countries etc. d. They rule employees autocratically without democratic participation MNC’s adopt equal opportunity in treating their employees. Employees are given high self esteem and the work culture is very good. There is a high level of democratic participation in low and middle level employees and more emphasis is given to team work rather than individuals. But, still in most of the MNC’s, employees have a minor or no role in the decisions made by the top management. Thesis IV a. They overproduce and prematurely exhaust natural resources The MNC’s cause fast depletion of some of the non-renewable natural resources in the host country by over production. The MNC’s pollute the environment; not paying compensation for the environmental damages; causing harmful changes in the living conditions; and, paying little regard to the risks of accidents causing major environmental catastrophes. These are some of the direct effects of exhausting the natural resources. b. They exploit resource of poor nations The MNC’s technology is designed for world wide profit maximization not the development of poor countries, in particular employment needs and relative factor scarcities in these poor nations. Ultimately most of the MNC’s are commercial business enterprises and their main focus will be on profits. In general, it is asserted that the MNC’s technologies are not adapted to the consumption needs, size of domestic markets, resource availabilities etc., exploiting the resources of the host nation. c. They seek only to maximize output without regard to long-term side-effects The technology of MNC’s are mainly focused on improving the production and producing more products without considering the long-term side-effects like affecting the water table and depleting the ozone layer through the pollution caused by them. d. They extract a heavy cost for pollution and ugliness Many industries such as the energy and fossil fuels industry leave many environmental problems in their wake. Because international lending schemes are tied with “reforms” that include cutting back on regulatory and safety measures such as health, education and the environment, problems can arise without many resources available to deal with them. While large corporations are able to profit, the costs from environmental and other damage have to be borne by the local population. The entry of MNC’s triggers urbanization which leads to construction of huge buildings and traffic congestion. This eventually leads to pollution and the emergence of new diseases. e. They frustrate and pervert good urban planning Traffic Congestion and water stagnation during rainy seasons are good examples to support this thesis. MNC’s established their concerns and change the urban planning. The main reason for this is the public sector which is responsible for a country’s infrastructure are not fast enough to the changes brought out by MNC’s. Reference: 1. Cherunilam, Francis, “Business Environment”, Himalaya Publishing House, 2003, Fourteenth Edition, Pg. 615-626. 2. Gary M. Quinlivan, “Multinational Corporations: Myths and Facts”, R&L, Volume 10 3. Anup Shah, Corporations,http://www.globalissues.org/TradeRelated/Corporations.asp. 4. Thomas J. Long Business & Economics Library, “Impact of Multi National Corporations”, http://www.lib.berkeley.edu/BUSI/electres.html 5. Corcoran, Rhonda, “Multi National Corporations and the third world impact”, 2004, Pg. 134-142. Read More