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Are multinationals too powerful? What can be done about their power?

Accelerated process of Globalisation is one of the main features of twentieth century world politics and is "one of the most dramatic developments of the period and has more than just economical and industrial significance" . Professor Sakamoto has identified the globalisation of capitalism as the "…key element in the changing world order" . Accordingly, the notion of the nation state becomes less vivid, while new actors, such as multinational companies are being spotted on the international stage. Multinationals(MNCs) by their virtue are direct creations of globalisation, however, the humanity is still in doubt whether the sudden "mushrooming" of these institutions bodes good for the new global order or whether they are going to turn into 'mutant monsters' causing major economic disasters. Bill Emott argued that Multinationals do not dominate the world market and 'are not even global' , while others strongly feel that "multinationals are increasingly going global" and call them "powerful beasts" . This essay seeks to evaluate the power of multinationals in the world politics. In order to come up with an objective conclusions and evaluation of multinational corporations' powers, one must initially attempt to lay a stable foundation based on statistical and factual evidence, and also examine the benign and detrimental effects of the activities of these institutions.

Prior to engaging into further debate, one must define what multinationals and their aims are, and illustrate the reasons for their emergence. A multinational corporation is a cross-border "business enterprise that owns and controls income generating assets in more than one country" . In other words it is a firm, which is manufacturing and supplying its products in several countries. Some examples of these include Shell, General Motors, IBM and many more. The goal of these entities are primarily profits and growth. Bill Emmot calls MNCs 'creatures of market imperfection' . MNCs have emerged because of 'structural' and 'inherent' market imperfections, such as restrictions on imports, excise duties, subsidies, unstable exchange rates, distribution and marketing costs and have grown rapidly because of economies of scale and particularly due to their burst through national boundaries, customs and ideologies .

Before the evaluation of power of MNCs it is meaningful to define the notion of power. 'Power' on international arena has a multidimensional essence. A state might possess military, diplomatic, political, or economic powers. All of these refer to ability to influence the course of action in one way or another. Out of these aspects of power a multinational corporation is most likely to hold economic and probably a bit of political powers.

The primary target of promotional policies of multinationals is to create one customer culture, so that people around the globe purchase identical basket of goods: watch Hollywood films on Phillips television set, while smoking Marlboro and drinking Coke. During the 1970s largest number out of 7000 MNCs was based in USA. By the early 1990s there were 35000 multinationals, however USA still maintained its leadership . These companies aim at promoting same goods around the globe in order to create one identical consumer culture, which is very much influenced by that of American.

In 1993 Bill Emmott (in "The Economist", March 27th, 1993) used to argue that multinationals are not predominant (p.6) and are not even global (p.17 & p.19). However, it was difficult to find many more analysts of such cold-blooded temper. The power of multinationals as well as their predominance cannot be denied. The multinationals are powerful; the question, to be examined is - to what extent; and whether there are any limits to their power. The following facts serve as evidence and, most importantly, evaluation of MNC power. Of the world's 100 largest economic entities, 51 are multinational companies and 49 are nation states . Sales and net profit figures for some multinationals are higher than GNPs of developing countries, like for example the annual sales of Shell are roughly £68billion, which is two and half times the income of Nigeria's 110 million people . In 1989, more than 18 per cent of all share trading was in the shares of the major multinationals . In 1993 the combined assets of the top 300 MNCs would make up roughly a quarter of the worlds $20trillion productive assets and there was an accusation by Jack Behrman that several American companies could "buy out" some European countries . Coca-Cola advertisements are being shown 560 million times a day, everyday in 160 countries, while majority of world population does not know where Fiji is.

These facts and figures undoubtfully may lead to the conclusion that indeed the MNCs do possess distinctive economical superiority over some nation states, and therefore are too powerful for being just a firm with such cynical target as profit maximisation and not welfare of the citizens.

On the other hand, the 'power' of MNCs is judged mainly in terms of economic capabilities. The state still retains its sovereignty, something that multinationals do not have. That is why "...the smallness of the size of the state does not impair in any way its ability to lay down the conditions under which multinational corporations may establish subsidiaries within its borders, to restrict and regulate their operations when they are established, or to nationalise them" . The states still maintain their ability to have direct control and influence over their internal and political affairs.

At the same time, MNCs are a major source of foreign investment, which is believed to bring higher growth rates for the developing countries. Therefore these states are being advised by the United Nations, and indeed do a lot to attract MNCs . This is why particularly developing countries are heavily dependant upon them economically. Because of Third World's financial dependency on FDI , the MNCs have gained a small share in the political power as well. Since the developing countries need to seduce the multinationals, governments are automatically made to follow those policies that will favour these firms and will create suitable financial as well as legal environments for them. Also due to high corruption records in the developing states, multinationals are able and sometimes do obtain various favourable changes . Nevertheless, as it has been correctly pointed out by Susan Strange: "Financial markets could not exist without governments, and are subject to whatever rules and restrictions that states may impose upon them" . Thus, one may notice the interdependency that exists between the states and MNCs; this makes the model appear to be fairly balanced.

The activities of MNCs have both benign and harmful effects on the states where they chose to operate in. The wealth distribution among the world population is already extremely uneven. The process of globalisation and the MNCs' activities have contributed a lot into quickening the capitalist process of making rich richer and poor poorer. According to Barnet and Cavanagh two thirds of the population is unable to buy the products of multinationals . Multinationals can bring positive benefits, such as investment and jobs. However, in many cases MNCs are exploiting the cheap local labour in the developing countries. Moreover they do cause considerable damage to environment

Considering statistics mentioned in the beginning of this essay and the above conclusion that the MNCs are too powerful, one must imagine what the new global order would be once the right of a state to lay restrictions and regulations upon multinationals, has been limited or entirely withdrawn. There have been rumours on many (see bibliography) of Internet pages as well as limited official statements as for example in Irish Times, about Multilateral Agreement on Investment (MAI). This is a treaty intended to remove government regulations on foreign investment and discriminating policies against MNCs, such as requirements that the latter employ local labour. MAI has secretly been negotiated among 29 states of the First World for the last three years. Once the agreements have been reached and accepted among the above mentioned states, the developing countries will have no choice but to ratify MAI, or else it will be denied the foreign investment from the multinational corporations. It was due to be signed in April 1998, however the campaign led by WDM (World Development Movement ) reached postponement till spring of 1999.

Whether the agreement is reached or not, the statement made by Robert Barnet referring to MNCs, that "...these institutions we normally think of as economic rather than political, private rather than public, are becoming the world empires of the twenty-first century" is becoming more and more likely. While one may now question Holsti's argument that "the days of the state do not seem to be numbered" .

So far we have observed that the multinational corporations do indeed possess an immense economical power. Due to the developing countries interests in MNCs, the latter have gained some indirect influence upon the policies that a state may pursue. The multinational corporations are growing and their powers both economic and political are accumulating as well. These institutions do not aim at providing public goods and definitely are not concerned about the welfare of citizens of the developing state where they have a subsidiary. The primary aim of multinational corporations is to maximise profits and keep the shareholders as well as the board of directors satisfied. This is why the fact that MNCs are becoming too powerful and are gaining more power then some nation states, while the latter is loosing it, must not be taken for granted. A firm must not have more power than a state; or else the humanity will head towards such consequences as more uneven wealth distribution, more famines and thus human losses. This is why the power of multinationals should be reduced or at least stopped from accumulating.

There is no easy formula to tackle this problem. There are many legal aspects to be dealt with. The multinationals have a very strong lobby as well. The great powers (home of most of the multinationals) are in favour of seeing the MNCs being very powerful, as these generate 'income from abroad' figures in their national accounts. Therefore reduction of MNC power is extremely difficult if not completely impossible. As a starting point one must seek an answer as how to stop multinationals from gaining any further power.

The first thing to do is to make sure that the Multilateral Agreement on Investment is not passed. There must be a very strong public opposition to this, which requires improved communication facilities. Secondly, the states should impose very strict rules and restrictions on MNCs. However this should be done on a unitary basis, so that the MNCs do not withdraw their investments to those countries which will offer them optimally lowest level of regulations.

If these two targets are reached, the power of multinationals will likely be stopped from further acceleration and probably, though not very likely, it will decline as well.

The multinational corporations should not be wiped of from the international arena, as these organisations are vital for the economic growth of the developing world. Moreover, due to large economies of scale MNCs would probably be able to deliver their products at relatively low prices to those who can afford them.

As it has been mentioned previously, multinational corporations are the result of market imperfections. These institutions are not necessarily bad; the developing economies acquire higher growth rates because of the foreign investment provided by MNCs. However, due to the virtue of their goals and sudden boost of their power, the humanity cannot possibly afford possibly afford to nominate these institutions with the responsibility to be one of the key actors on the international arena. The activities of these institutions have both positive and negative impacts on world economies, environment and society. Since they do not care about these, they may do a lot of damage if the right measures, such as following policies to reduce their power, are not undertaken at the right time. Since the multinationals are undermining the sovereignty and thus the rights of a nation state by gaining too much power, probably the most effective way to loosen the position of MNCs is by strengthening the status of the nation state. Bibliography:

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