In 2017, Tim Cook, the CEO of one of the worlds biggest MNCs, explicitly demonstrated his power in relation to the US government. He made comments about how Apple keeps large amounts of its profits in overseas tax havens and he will refuse to bring that money back into the US until they lower the tax rate. People are not allowed to do this. But, because Apple is a large and important American MNC, they are able to use loopholes to defer paying taxes. If an American citizen were to publicly announce doing the same exact thing they would likely be persecuted but Apple is allowed to do as they wish, while simultaneously sounding as if they are almost threatening the US government. Cook didn’t just remark that Apple wouldn’t bring the money into the US, but that that Apple wouldn’t bring the money into the US until the US lowered the tax rate on the money. Meaning that if the US wants this money brought back into their economy they will have to cooperate.

In a situation such as this one, it is clear to see the incredibly power of this particular MNC, but it is certainly not an anomaly. The lenient tax policies, lax restraints on capital flow, and overall economic policy of the US has made it incredibly easy for Apple to become a powerful MNC, but rather than be grateful to their home country and bring their profits home, Apple strategically keeps as much money as possible away from the US. This is possible because they are not on a level bargaining field. Apple can do nearly whatever it wants without the US interfering because all in all, the US needs Apple more than Apple needs the US. At this point in Apple’s maturity it could easily be headquartered somewhere else in the world if it felt the US was no longer the best choice. If the US were to lose Apple there would not much they could do except try to coerce them back with more favorable policies. In light of this, it would be easy to adopt the dependency theory. However, it is important to consider that though many American government officials are heavily influenced by MNC wishes, they do not cave to their every demand. On the whole, having a large amount of American MNC activity overseas is still in America’s best interest, even if every MNC is not working in direct tandem with the government. The sheer presence and power of Apple as a corporation does a lot to support traditional American state hegemony, and it does inevitably produce millions of tax dollars for the US government.  

It has become clear from the onset of this course that there is much debate within political science on the importance of MNCs. I for one usually find my beliefs and arguments aligning with that of realists. However, in the case of Multi-National Corporations there is a clear lacking within the realist perspective. This is a hole that Gilpin has seemed to fill from my point of view. Gilpin begins by crediting MNCs as the powerful economic actors which they are and describes the dangers that can befall a nation which does not keep them in mind. By exporting jobs and hollowing out industries, Gilpin argues that MNCs must be taken into account. However, unlike other theorists who believe MNCs should be left to their own devices, Gilpin believes the state must play a strong role in controlling these actors. I found this train of thought quite interesting because it still assumes nation states as the all powerful and supreme actors on the global stage but also recognizes the threat to national sovereignty which MNCs pose. Gilpin proposes constraints such as taxes and trade regulations be put on these companies so that the United States can remain in control of their economic future.

This prompted me to think about the national control which China maintains over their nationalized corporations. Although Gilpin is not proposing for nationalized or socialist enterprises, the aspect of control is shared between both cases. I wonder if a world which is increasingly globalized and economically interconnected, the US may adopt these strategies. Because MNCs are able to move freely from one state to another, the nationalization of industries may become necessary to ensure sovereign economics for a state. Without any sort of constraints or restrictions placed upon nations and their economic back bone, corporations could leave nation states stranded with no source of jobs or taxes. This to me is ironic because the free market capitalist system which has been supported by the US for so long may bite them in the back. with a market so free and with increased mobility, the US may be forced to take on aspects of the socialist policies which they have fought for so long. I would argue the only reason Americans and other western governments supported a free market is because at the time they benefited from it. If these key actors cease to gain the same benefits from a truly fluid global economy, would they also cease to support its functioning. We may already be seeing this in the mercantilist type policies of trump.

Aisha Dos Santos

Reading Juliette Bennetts piece on “Multinational Corporations, Social Responsibility and Conflict” describes the ways in which MNCs should not replace or usurp governments and the way that they function within a state, but MNCs often work with NGOs and governments use their skills to promote stability in a state. But Bennett argues that MNCs can also be a vital force for corruption, but this corruption is not solely placed upon the shoulders of MNC firms because corruption is a vestige of a state lacking a transparent, honest, and accountable institutions and governmental apparatuses. When governments tend to lose grip on order this leads to the decay of accountable and democratic institutions within a state. This then leads to the possibility of the private sector engaging in policy dialogue or in civic institutional dialogue. But with the consistent increase in globalization, their needs to be greater economic inclusion and social justice in its operations, or violent conflict in institutionally weak countries will continue to reoccur (Bennett, 2002, p. 410).

The firms of two large MNCs Odebrecht and Petrobras, that are currently operating within many Latin American countries exemplify this need for transparency in government when engaging with the private sector. The Petrobras and Odebrecht scandals have embroiled business elites and politicians across Latin America, culminating in hundreds of arrests, and billions of dollars in bribes paid (Sabados, 2018). Executives from both Petrobras and Odebrecht, including the latter’s former chief executive, Marcelo Odebrecht, were sentenced to jail time. In April 2017, a U.S. federal court ordered Odebrecht to pay $2.6 billion in fines to authorities in Brazil, Switzerland, and the United States. The company had previously admitted to paying out hundreds of millions of dollars in bribes to officials in twelve countries. Facing financial losses that stem in part from the probe, the two companies have laid off more than one hundred thousand employees (Labrador & Felter, 2018). By October 2018 Lava Jato had resulted in more than two hundred convictions for crimes including corruption, abuse of the international financial system, drug trafficking, and money laundering. More than a dozen other corporations and multiple foreign leaders have also been implicated in Lava Jato (Labrador & Felter, 2018). This displays the ways in which states and heads of their government have the tendency to engage in clientelistic practices with corporate executives of MNCs through politically corrupt practices in the form of political bribery. Bennett’s article displays the way that MNCs have a reach that can exercise and operate across borders, should bear the responsibility for the effects of their operations on local environments.

Works Cited

Bennett, Juliette. 2002. “Multinational Corporations, Social Responsibility, and Conflict”.

(New York: Journal of International Affairs). P. 393-410.

Labrador, Rocio Cara, Felter, Cara. (2018). “Brazil’s Corruption Fallout”. (Council on

Foreign Relations).

Sabados, Katarina. (2018). “Brazil: Petrobras CEO Guilty in Odebrecht Corruption Case”

(OCCRP: Organized Crime and Corruption Reporting Project).

Aisha Dos Santos

POLI 372A

Susan Strange’s “Rethinking Structural Change in the International Political Economy: States, Firms, and Diplomacy” made me reflect upon the ways in which differing domains of studies in international business and international relations have tried to study the structural changes of the world economy, but they have neglected to realize that structural changes have moved beyond the spheres of finance and domestic production. These structural changes account for why we are beginning to see multinational corporations affecting the diplomacy between the state and other competing states. States are now competing with other states over multinational corporation firms because they realize that due to the internationalization of production it has acted as a catalyst towards the industrialization of the developing world. Developing countries now want to industrialize at rates that catch up with already developed countries. This exemplifies the ways in which realist state-centric theories have come to dominate the lens through which behaviors within the international system are coming to be studied, but with this rapid globalization of industrialization in the world’s economy and the emergence of MNCs, these phenomenon are really displaying the gaps that these theories have not been able to fully rationalize .

What I have gained from this reading is that social scientists have a tendency to use empirical data and scientific tools to study states and the global political economy. Social scientists desperately need to broaden their research focus towards ways that recognize the ways in which new technologies have increased the globalization of production, and this internationalization has led to industries being produced in states around the world. This can be attributed to trade and tariff barriers being gradually struck down, the mobility of capital increases, and the lowering costs of transborder transport of goods/services. Social scientists need to become more aware of this activity occurring in the free market, and the ways competition amongst producers has lowered costs to consumers in both the developed and underdeveloped world. This has offered a variety of goods and services and this competition in the market has gradually increased the income of workers. Therefore,, states are beginning to see the benefits resulting from this industrialization even in traditionally socialist states. These factors have contributed to states forging diplomatic relations not only between states themselves, but have widened their diplomacy towards firms, because states are realizing that capitalizing and persuading a firm to locate in their home state is an advantageous venture. This changing of diplomatic arrangements displays the way that states that are no longer the main power drivers in the international economic and political system. I think this can be attributed to the breaking down of regulations and economic barriers, and this increased competition in the free market has made alliances between states and firms attractive, due to a payoff that benefits both parties. It seems that they need each other, whether they agree to it or not, due to the nature of globalization and the liberalization of international finance.