Comparative economic systems and analysis

Accounting and Economics

The Power of Transnational Corporations

W]ith the exception of a handful of nation-states, multinationals are alone in possessing the size, technology, and economic reach necessary to influence human affairs on a global basis.'"

Fowler)

Fowler presents impressive statistics in support of this opinion, and there is no doubt these have multiplied, perhaps exponentially since this article was written in 1995. Fowler cites the recent proliferation of global free trade agreements as responsible for the recent reluctance in attempts by nations to control the TNCs. The United Nations even abandoned the plan to develop a code of conduct for TNCs, which it had pursued for fifteen years, because the control of TNCs is an unattainable goal. They simply have far too much power, and enforcing any code would have to be agreed upon by all the member states. Getting the member nations to agree upon even the smallest rule with attached consequences is a major undertaking, so the creation of an entire code of conduct is an unrealistic fantasy. Therefore, the United Nations and the member states have decided to focus their efforts on lesser, but more realistic goals.

Actually controlling Transnational Corporations is considered impossible by many analysts. However, a large measure control can be achieved by controlling the environments, (business, economic, legislative and political), within which they do business. These are factors which can be controlled by the member states. They do not even have to agree upon a particular set of rules or consequences to have an impact, but only have to share one which is well thought out and logically supported with proof of its benefits to the state.

Beyond this, few states have the means to control TNCs beyond allowing or disallowing them. China has come as close as any member state, perhaps, because of its ability to apply its rules to its own corporations immediately upon making any decision. It is the nature of the absolute power of the state in certain areas. This factor has inhibited investment in China until they can establish a more constant rule of law. Corporations have gotten around this since China joined the WTO by negotiating binding agreements with the state. While there are other states with absolute power, none can approach the economic power of the PRC. That TNCs negotiate directly with the host countries without the need to go through their own government's state department or some other political power is indicative of the actual power these TNCs wield.

Even in China, TNCs are powerful enough to gain many concessions, especially since many made their original inroads into this huge market by establishing joint ventures with Chinese corporations. This is no longer absolutely required by the PRC, but the most powerful TNCs already have joint ventures there.

The absolute unvarnished truth is that TNCs bring hard currency, jobs and expertise to the host countries. In exchange they often get low labor costs, preferential tax treatment and concessions on things like transportation access and land availability and zoning. That this exchange is probably more benefit to the TNCs is a cold fact of life. They have "wants," while the host countries have "needs." Once the economic development of a host country reaches a higher level, they will be in a position to renegotiate. However, many parts of the world have more people than they have resources, so this may never happen in these places. Such countries will always be in a less powerful position.

Anyone who does not believe that transnational corporations are the movers and shakers of international global trade only has to look at the world stock exchanges. When deals are made with TNCs, the partners or joint venture companies will enjoy a surge in their economic value. The recipient host countries will often see their own global credit rating go up as a result of a deal with a respected TNC.

In truth, globalization is a complex network of nations, corporations, international organizations and enterprises local to the various countries which contribute to the global economy. Ietto-Gillies describes it as much more than just involving trade.

Globalisation is a complex phenomenon which covers much more than the strictly economic sphere. 'Globalization is political, technological and cultural, as well as, economic' (Giddens, 1999:2)."

Ietto-Gillies 161)

He also cites TNCs as the driving force behind the process. In fact, the process of globalization is a reorganization of political power and a new division of labor on an international scale. The functionalist theory for sociological development predicted this phenomena, since it serves to make things work and to establish and maintain international stability. While national governments have honed their negotiating skills to a superior level, their interests are often ideological in nature, and people simply cannot eat ideology. So the power has moved to the corporations and the interference of politically or ideologically motivates entities is minimized in the interest of global economic development.