Neoliberalism has been promoted across the globe by Western governments and institutions as the dominant model through which increasingly globalized capital moves. As we’ve discussed in lecture, Westernized countries have disproportionately benefited from these institutions, structures and policies because they have been the primary architects. Although these models have contributed to a rise in living standards for much of the globe, there exists an exhaustive amount of people and communities that face negative aspects of globalization—particularly exploitation and dispossession which can take on many different forms—and are actively resisting these forces which continue to dispossess them. So, what do MNCs, free markets and FDI mean for people in vulnerable communities? It’s been occasionally touched on in a few of our lectures, for example we recently discussed how difficult it is to extrapolate legitimate evidence that shows some rural communities in Latin America are facing questionable practices by MNCs who carry out extractive resource operations (Crawford, 2019). In Gerardo Munarriz (2008) article, he also touched on important points of Western institutions and Eurocentric models of International Law and their implications for some of the most vulnerable communities existing today. Institutions such as the World Bank and international legal frameworks have assisted in the expansion of MNCs (particularly mining companies) into rural indigenous communities within Latin America, without proper consideration or consultation with these communities, ultimately resulting in a dispossession of their land and resources which are essential to their way of life (Munarriz, 2018). Although it wasn’t the primary focus of Munarriz’s article or our discussions, I was prompted to consider how these vulnerable communities take on MNCs and the neoliberal policies that accelerate the destruction of their community, heritage and livelihood; Furthermore, what does this dispossession and resistance look like first hand?

Although there are many examples of Canadian mining companies in particular engaging in questionable tactics to secure natural resources in Latin America, the case of a rural farming community in Azacualpa, Honduras provides a recent example that has been somewhat well documented. In brief, the community has long been facing the exhumation of bodies from a centuries-old community cemetery by Minerales de Occidente (MINOSA), a gold mining subsidiary of Aura Minerals (Canadian), who is expanding its open pit operations into the cemetery (Geis, 2018). The community has expressed discontent and cited that MINOSA has been involved in cutting cash bribes with single members of families in exchange for their consent to exhume bodies (Geis, 2018). Most notably, Geis’ article points to an attempt by the community to make use of the Honduran legal system in order to have their claims and concerns heard, hopefully preventing the further exhumation of bodies. However, struggles with the legal process have been apparent and community organizers mentioned that judicial officials have failed to have a clear understanding of the problems (Russel, 2018). In response, the community has continued to engage in acts of physical resistance by occupying the cemetery to prevent further exhumations.  In this case and many others, it’s apparent that property rights of MNCs have trumped the generational claims communities hold to the land and resources, creating serious tensions. People are willing to put their lives on the line to protect what’s sacred to them. The fate of the cemetery and community is still uncertain. However, considering the forces and policies that stand in support of Aura minerals, it’s likely that this community may see the excavation of the entire cemetery so that Aura minerals can access gold deposits below it.

The Azacualpa case gives a clearer example of the exhaustive struggles that vulnerable communities go through when resisting forces of globalization and the expansion of a mining MNC that stand as a threat to their community, heritage and way of life. In the Azacualpa case, the impacts faced by the expansion of the mine have gone as far as to disrupt the ancestors of families who are meant to be laying in their final resting places.

Crawford, R. (2019, March 28). Retrieved from Political Science 372A.

Geis, H  (2018, May 28) Honduran villagers take legal action to stop mining from digging up graves for gold. 2018 The Guardian. Retrieved Oct. 30, 2018: (https://www.theguardian.com/environment/2018/may/28/honduran-villagers-take-legal-action-to-stop-mining-firm-digging-up-graves-for-gold)

Munarriz, G. 2008. Rhetoric and reality: The world bank development policies, mining    corporations, and indigenous communities in latin america. International Community     Law Review 10 (4): 431-43.

Russel, G & Rights Action (2018, September 2) No to aura minerals destruction of azacualpa  cemetery. [Blog] retrieved from: https://mailchi.mp/rightsaction/no-to-aura-minerals-destruction-of-azacualpa-cemetery?fbclid=IwAR0LwdjLiKMZjDS9eoVD7-KJDE-0pSy22aZrZ0CGkcYWSyDGtiyAZHx7TZ0

The topics of ‘state capitalism’ and ‘state owned enterprises’ (SOEs) have occasionally been brought up in lecture, but in those few incidences they were dismissed shortly after only a brief mention. This seems to be partially because SOEs haven’t entirely fit our definitional criteria for what is considered a ‘multinational corporation;’ and second to that, they provide unique and complicated cases which could easily be the focus of an entire week’s worth of lectures and material—so it’s likely time is also a factor. That is to say, I haven’t found that SOEs are being dismissed as unimportant, rather they have been nudged to the sidelines for the sake of convenience and haven’t been given the attention they deserve. In giving SOEs further consideration, it’s apparent that unique challenges emerge from their presence and I believe they should be discussed more frequently in relation to the impacts they have on states and security, as well as the issues they create in relation to MNCs and the global markets through which they operate.

Countries that use state capitalism (e.g. China, India and Russia) and operate SOEs have very real implications for MNCs who are based in home countries that rely on free markets to determine their outcomes. When placed in a global playing field together, these differing economic ideologies begin to develop many tensions in relation to the state, security and what has primarily been considered a liberalized global economy in which MNCs operate. For example, SOEs coming from China are heavily subsidized by the government which grants them flexibility and perks that privately owned MNCs don’t experience. Due to these large subsidies, SOEs are able to outbid privately owned MNCs by paying above market prices for contracts in the global marketplace, which can result in an artificial increase in the global price of commodities (Bremmer, Pg. 136). State subsidization also allows SOEs to do business in countries that have precarious political climates and other concerning factors that make it too risky for privately owned MNCs to invest. Chinese SOEs in particular will engage in FDI in countries that are being sanctioned by the West, which means that Western MNCs aren’t able to access these markets yet some SOEs are (Bremmer, Pg. 136). This example may also have implications for global security because Western efforts to curb malicious behaviour by states in the international community are then disrupted by FDI from SOEs, which, in some cases, clearly follows a different set of rules and is able to bypass sanctions.

What does it then look like for MNCs who rely on market forces to determine their outcomes when they engage in FDI in a country that operates under a state capitalist model? MNCs attempting to take advantage of the growing Chinese market have faced many unique challenges when operating in a host country that uses state capitalism. Within China, MNCs have experienced a more stringent use of anti-trust and anti-corruption laws by the Chinese government (Tse & Pan, 2014) who unfairly targets foreign MNCs in order to give a competitive advantage to its own SOEs (Tabeta, 2018). So, SOEs not only expand into the global market and disrupt forces which determine the outcomes of most MNCs, but when MNCs attempt to operate within countries that use state capitalism they— quite obviously—face even tougher challenges in their operations.

Security concerns for states also arise over the geopolitical nature of SOEs which comes from the close ties they have to their home countries. China’s BRI (Belt and Road Initiative) and the 16+1 initiative provide wonderful examples of projects involving billions in FDI by Chinese SOEs (Xinyu, 2018) that has grabbed the attention of many Western countries, some of which stand directly in the path of the project. Through government funding and state-owned banks, SOEs are able to take on risky infrastructure projects and investment in struggling European countries (primarily in Eastern Europe) that may not seem economically viable in the eyes of Western institutions such as the World Bank; In addition to this, the 16+1 initiative is then developing cultural and political ties with Eastern European states while also leveraging BRI infrastructure projects into some Eastern European countries. Many analysts have seen this as a divide and conquer strategy by China that seeks to fracture the EU (Godement, 2018). So, in this case, through SOEs and state-owned banks we see politically motivated FDI leading to genuine concerns for the stability and security of the EU. Another recent example has been the case of Huawei. Huawei is not necessarily an SOE, but due to the fact that China has a history of state capitalism, in which corporations are closely tied to the state, security concerns have arisen for countries now considering whether or not to allow Huawei to have access to their telecommunications networks. This is due to concerns of spying and information gathering that could potentially be carried out by the Chinese government through Huawei.

Unique challenges come from these entities that can move like MNCs yet sometimes carry politically motivated objectives that pose real threats and uncertainty to states. The tensions and challenges created by SOEs and state capitalism continue to be quite relevant when considering the operation of MNCs and states in the contemporary political and economic climate. Although SOEs and other aspects of state capitalism have flown under the radar over the duration of the course, I find that the challenges provided by SOEs and state capitalism are quite intriguing and may be deserving of slightly more attention and discussion.

References:

Bremmer, Ian. 2010. The end of the free market: Who wins the war between states and corporations?. New York: Portfolio.

Godement, F. “Tump cannot bring Europe and China together.” July 6, 2019 European Council on foreign relations. Available:    https://www.ecfr.eu/article/commentary_trump_cannot_bring_europe_and_china_together

Tabeta, S. China’s decade-old antitrust law still vexes foreign companies. August 2, 2018. Nikkei Asian Review. Available at: https://asia.nikkei.com/Economy/China-s-decade-old-antitrust-law-still-vexes-foreign-companies

Tse, E and Pan, P. Is the golden age for multinationals in China over? August 28, 2014. The South China Morning Post. Available at: https://www.scmp.com/comment/article/1581467/golden-age-over-multinationals-china

Xinyu, T. Centeral SOEs managing over 3,000 projects under BRI. November 12, 2018 China Daily. Available at: http://www.chinadaily.com.cn/a/201811/12/WS5be9103ea310eff30328812f.html

In class, we covered the discussions between horizontally and vertically integrated MNC’s, but I wanted to take a special look at a conglomerate that recently grew enormously in size due to a recent acquisition.

The Walt Disney Company recently acquired 20th Century Fox, including their film and television studies, various stakes in different international networks and the streaming service Hulu. While some politicians have praised the merger, others have come out staunchly against it, stating that “threatens to put control of even more television, movie, and news content into the hands of a single media giant” (Variety, 2017). Disney’s acquisition of this company has resulted in their status as the largest media conglomerate in the world.

Disney’s status as a media mogul is a hot topic of conversation and a clear example of the ability for MNCs to internalize competition rather than directly conflict with them (Spero and Hart, 1997). Aside from 21st Century Fox’s status as a rival, it also held notable items that would’ve strengthened Disney’s future media plans. With the recent jump toward streaming services, Disney required a large repertoire that would draw consumers from standards like Hulu and Netflix, before the acquisition, Disney branded media would’ve barely sweetened the deal. Now, Fox television, ABC, and Disney television all are under the control of a single corporation, with significant discretion for their ability to restrict or permit what can be shown. Disney+, a recently announced streaming service designed to be a competitor to Netflix, will receive a significant boost in content from this acquisition, borrowing greatly from Hulu’s library of family oriented content. When supplemented with various additions of original content, Disney+ will be a strong competitor in streaming services, an arena that are previously seen as difficult for media companies to rival tech companies like Netflix.

Disney’s ability now to influence media in the United States and beyond is potentially problematic given their ability to influence or steer industry forces based on what interests are held. With over 39% in theatrical market share forecasted for following their merger, smaller films and directors may begin to be crowded out of the market, as the sheer size of their operations strangle existing studios (Variety, 2017). Theatres already feel the significant burden that is accommodating Disney films however their retaining of studies such as Fox Searchlight point to the inclusion of smaller directors in these larger corporations.

Disney began as “Laugh-O-Gram”, however with their substantial marketshare and limited debts, they’re laughing now.

References

Spero, Joan, and Jeffery Hart. The Multinational Corporation and the Issue of Management. New York, NY: St. Martin’s, 1997.

Johnson, T. (2017, December 15). Disney-Fox Deal Lands at Uncertain Time for Antitrust Enforcement. Retrieved March 17, 2019, from https://variety.com/2017/politics/news/disney-fox-deal-antitrust-enforcement-1202637338/

In December 1st 2018, Meng Wanzhou was arrested in Vancouver International Airport. She was the Chief Financial Officer of Huawei, a Chinese multinational corporation specialized in telecommunications technology and consumer electronics. Last year, Huawei is now world’s second largest smartphone manufacturer, only behind Samsung. Its annual revenue has reached $108 billion, and it is now considered as one of the most important MNCs in the world.  Its name is means “Chinese achievement”. Located in Shenzhen, the “Silicon Valley of China”, Huawei is now one of the key leaders in research, innovation, and technology development. China is now widely perceived as a rising power. Graham Allison recently published the book ““Destined for War: Can America and China Escape Thucydides’s Trap?”, suggesting that a rising power challenges the established power, tensions escalate into physical collusion. And China is challenging the United States as the rising power. Many media outlets and literature suggest the same, as many are mesmerised by the impressive economic growth and technological development of China in recent year. China has also launched ambitious programs such as the Belt and Road Initiative, constructing infrastructure and economic ties in order to expand its sphere of influence. China has also invested heavily in African , providing packages of loans and infrastructure. Yet, some of China’s strategies has been widely criticized. Its “debt-trap diplomacy”, for example, is considered as a threat to sovereignty of poorer and weaker states.

The rise of MNCs are also subject to criticism for their geopolitical purposes. The rise and expansion of numerous powerful MNCs have followed the ambitious rise of Chinese on the global stage. This includes high-tech companies like Huawei. However, this is problematic for many Western states, because since China is a centralized “communist” state , the MNCs have extensive links with the Chinese Communist Party and the Chinese state. Therefore, there are numerous security concerns regarding cybersecurity. For example, its 5G technology could be used to unable unauthorized surveillance of consumers by the Chinese authorities. USA, UK, Japan and Australia banned this technology from their territory. Meng Wanzhou was even arrested because of security concerns. Yet, is the “cybersecurity” argument just an excuse for protectionism? From a mercantilist view, it can be interpreted as a move to protect Silicon Valley’s market share by “bullying” Huawei. Is the war of 5G technology the new containment? If we apply realism to this question, then the answer would be yes. 

Nonetheless, this has not stopped Huawei’s momentum as the rising tech titan. Huawei’s profits increased by 25% last year despite US efforts to curtail its business operations. Its 5G technology is very innovative, giving Huawei an important competitive advantage. Huawei is also expanding in developing countries. Huawei has built 70% of Africa’s 4G network. Its 5G technology is reaching markets as far as Paraguay, my home country (its inception was just last week). But most importantly, Huawei surpassed Apple in December last year in term of smartphone sales. This is symbolic because it means that R&D made in Shenzhen, supported by Beijing, is eclipsing Silicon Valley. Now, China is using MNCs like Huawei as instruments of rising hegemony. As Gilpin explained the instrumentalization of MNCs for American Hegemony, Huawei’s large market share could give China a strong position in the world. Huawei can also serve to spread Confucian values and Chinese worldview. High-tech industries could also be used as a tool for soft power: attraction as national power. Attractive, innovative technology made in China constructs the image of China as a global leader in science and technology. With its large market share, China would be able spread its rules and standards around the world. In addition, Chinese control of telecommunications networks give the Chinese state the capability to control consumers’ daily life (e.g. surveillance) . I believe that Huawei is an instrument in the construction of China’s global order as the alternative to current US-led liberal order.

We live in a world today that is somewhat dominated by capitalism and consumerism, and so we rely heavily on MNCs and the products they produce to go by our daily lives, with products such as gas, food products, clothing, etc. Looking at the top 25 MNCs that are more powerful than many countries, mentioned according to Foreign Policy, you see Walmart as the top company. I personally visit Walmart at least twice weekly because of its convenient location and prices, and I suspect thousands of others do so too. So how is it that an MNC or a company, that is a retailer, becomes stronger, or more powerful, than several other countries? Would such a scary phenomena change the world indefinitely?

Parag Khanna makes an interesting argument that sovereignty and government laws are not the only thing that matters anymore, but we are mostly more controlled by supply and demand, which indicates that the power of globalization and capitalism has shifted power from countries to MNCs. And the reason is, because of that, some MNCs, such as Apple and Walmart, are worth more than some countries. For example, Khanna mentions that “the cash that Apple has on hand exceeds the GDPs of two-thirds of the world’s countries” (Khanna, 2016). Moreover, MNCs do not only gain power because of its consumers, but because of their political agenda. For example, Google, in 2017, spent around US$18 million lobbying politicians and lawmakers, which got them to be the number one lobbyer in the world (Green, 2018). Therefore, it is not exactly just an economic factor that strengthens MNCs, but political ones as well.

My question here is, should we be worried about such a phenomena? Is it okay for us to be living somewhere and know that MNCs have more power than such country? Are MNCs taking over the world? Again, I raise the importance of the rise of globalization, and how it is affecting all of us daily. Globalization has paved the way for capitalism, and the rise of capitalism has made it very easy for MNCs to climb the ladder of power. Corporations are becoming more central players in global affairs, and are getting more involved politically, rather than just economically. If MNCs are able to lobby politicians, and one company can have more money than the GDP of two-thirds of the world combined, then they have enough power to take over the world. MNCs are already becoming stateless, so is it possible that at one point, us – citizens – become stateless, or have our laws put by MNCs?

References:

Green, A. (2018, September 18). Are multinationals now more powerful than the nation state?). ‘ Retrieved from https://www.spectator.com.au/2018/09/are-multinationals-now-more-powerful-than-the-nation-state/

Khanna, P., & Francis, D. (2016, March 15). These 25 Companies Are More Powerful Than Many Countries. Retrieved from https://foreignpolicy.com/2016/03/15/these-25-companies-are-more-powerful-than-many-countries-multinational-corporate-wealth-power/

On March 10, 2019, Ethiopian Airlines Flight 302 crashed six minutes after takeoff near Addis Ababa, killing 157 people. It was one of the deadliest aircraft accident in 2019. Similar accident happened last year in October, when Lion Air Flight 610 crashed after takeoff near Jakarta, Indonesia. In both cases, the aircraft models were from the Boeing 737 MAX lineup, manufactured by The Boeing Company. Investigations have concluded that since both accidents had numerous similarities, the failure of the automatic safety system is believed to be the cause of the crashes. After the accident, more than 50 countries ban the 737 MAX models. Boeing’s stock price plunged dramatically because of lost of confidence from investors. Numerous airlines, including Garuda and American Airlines, have cancelled orders. The loss of orders is estimated to be $57 billions.

Unsurprisingly, the winner of this case is Airbus SA, Boeing’s European rival. On Monday March 25, China announced the order of 300 A 320 model aircrafts during Xi Jinping’s visit in France. Vietnam Bamboo Airlines also ordered A 321 models, a new blow to Boeing. This is a political problem because the government is blamed for the oversight of this technological deficiency. Moreover, As the 737 accidents because international, it is a geopolitical game from a realist perspective. The the commercial aircraft market is dominated by just two companies: Boeing (USA) and Airbus (France, EU). After the defeat of the WWII, Japan was banned from aircraft manufacturing, and Fuji Industries, one of the main aircraft manufacturer during the war, turned to automobile production. Since then US companies (Boeing) has dominated  the industry, and Airbus emerged as its largest competitor following a series of mergers of European manufacturers. In recent years, Chinese, Brazilian and Indian firms are challenging this US-EU duopoly, but their technology is not advanced enough compared to Boeing and Airbus. However, this incident shows the weakening of technological competitive advantage of Boeing and USA. According to Robert Gilpin, economic actors and politics are interdependent. After the emergence of powerful american MNCs, public authorities realized that they could be used for the benefit of the national interest. Since then, US MNCs have become the cornerstone of US power.

The strength of Boeing reflected US power in many ways.  In aeronautics, Boeing has dominated the market. Since Boeing’s home country is the USA, its competitive advantages are also mainly American: R&D by educated Americans, collaboration for R&D with American universities and research institutes, government subsidies, and high standards of US regulations that enabled the development of sophisticated technology. Many airlines and governments around the world depended on American technology and regulations. In other words,  their aircrafts were assembled in Seattle, regulated by Washington, using scientific knowledge from Cambridge, Massachusetts. Boeing also produces military technology, and thus numerous military units around the world depend on its technology. This also means that Boeing plays an important role in controlling the supply of weapons, especially in areas of conflict like Saudi Arabia (Boeing technology is used in the war with Yemen). Boeing was therefore a symbol of US hegemony. Likewise, as explained by Gilpin, Boeing is a MNC that controlled a significant portion of the market share and maintained the strong position of USA in the world.

Nevertheless, the rising safety concerns regarding Boeing can be the physical manifestation of the decline of US hegemony. This is because, US technology and regulations are losing trust from companies and states in the US and abroad. The US Government’s response were subject to numerous criticisms because it basically stated that the 737 models were safe and therefore there were no deficiencies. According to several media outlets, Boeing has received $64 billion in subsidies. Boeing is also an important provider of military aircraft. It is believed that, for this reason, the government showed defensive attitude toward Boeing. In addition, the Federal Aviation Administration (FAA) did not deliver certification to the aircrafts because of high cost ($1.8 billion). Moreover, some skepticism toward Boeing’s technology arose after the failure of the anti-stall system. As a result, many companies turned to Airbus for their narrow-body models. Boeing is in crisis as it is losing its dominant position in the market share. US is losing its legitimacy as the global leader in aviation and technology. China’s manufacturers are getting a boost after Boeing fallout. It is also a chance for non-American firms such as Bombardier (Canada), Embraer (Brazil) and Mitsubishi (Japan) to boost their market share in order to fill in the supply-demand gap. Is this the end of US-led international order of aviation and technology? I believe that it is certainly a signal that US hegemony is in decline. I speculate that in the following decade, US power will continue to decline, and many incidents similar to this one will happen. It is the eclipse of omnipresent American dominance.

References:

Robert Gilpin (1975) “The American Strategy of Direct Investment,” chapters 5 and 6 from US Power and The Multinational Corporation.

In class we discussed Raymond Vernon and his theory of the obsolescing bargain model. This model provides a theoretical framework in which countries and MNCs go through an initial bargain stage. In this stage the MNCs are able to often negotiate positive terms for themselves and are able invest their foreign capital into the domestic markets of other countries. At the initial time of this dealing, MNCs often hold most of the bargaining power as they are in the position of power due to their mobility to invest in other countries if needed. However, once an MNC has decided to begin the process of foreign direct investment in another country, this capital will turn into sunk costs such as factories, farms and ports. Because these sunk costs are not as mobile as the MNCs, this can leave the MNC more vulnerable as they build a sort of reliance on their host nation. These sunk costs act as a sort of hostage allowing countries to raise taxes and tariffs which were once lowered to attract foreign direct investment and the bargaining power of the MNC obsolesces.

One piece of evidence supporting the Obsolescing bargain model is all the countries, especially in Latin America, who began nationalizing their natural resources and seizing the sunk costs of MNCs. However, weaker states who had foreign investment set up manufacturing infrastructure within their country had much worse results when attempting to nationalize industry. Even in countries like Chile where they successfully nationalized markets such as copper, the MNCs were able to dictate market conditions so that Chile had a hard time bringing their copper to market as MNCs controlled key marketing channels. Among other reasons, countries no longer believe the OBM to be an accurate model which is evident in the fact that most countries no longer restrict FDI. Susan Strange once said that “the only thing worse than being exploited by MNCs is not being exploited by MNCs” and that has certainly become the case. In present day bargaining usually takes place at a home/host state level so that bilateral investment agreements can ensure liberalized trade going forward. Export processing zones also show the lengths to which certain countries will go to attract foreign direct investment and MNCs. Although this model has obsolesced, it does highlight the downside of having no actual territory to call your own. Although mobility allows for the changing of environment when needed, it also means that MNCs are always ‘visitors’ and may have to be concerned about the safety of their sunk investments. One way around this is attempting to create trade agreements which are beneficial both to MNCs and their host states so that the hosts feel no reason to confiscate sunk capital.

The process of internalization is strategic, it serves as an efficient method for corporations to maintain dominance within a market. Internalization of the market is buying up competition instead of risking to compete with them. It poses as an alternate solution to competing. A key example of internalization is when a corporation has competition in the same market, but the competitor has some sort of advantage; such as technological advancements. Instead of the dominant firm attempting to create its own technology similar to the competitor, the firm can simply buy up the competition. This will not only reduce the competition, but it will also provide the firm with access to the competitor’s advantage. This internalization is consistent with the OLI model; which is a liberal theory that is a possible explanation for why MNCs go international. Dunning views markets as spontaneous, natural and imperfect regarding property knowledge. OLI theorizes that corporations have incentives to internalize the market. This incentive is due to the profit maximizing motives. For example, its more efficient to buy up competition and their technology instead of attempting to create the technology. OLI has three requirements of MNCs; 1) MNCs must own specialized knowledge. 2) Foreign investment must be more advantageous than home markets and 3) Export and licensing agreements must be less attractive than FDI. This OLI model is complimented by Spero and Hart’s oligopoly theory which claims that firms move aboard to exploit the monopoly power they possess through factors such as unique production, control of technology etc. it should be noted that both of these models focus on competitive advantage or core competence strategy. The knowledge, skills and resources that corporations possess provide them with a competitive advantage compared to others. A key factor that increases competitive advantage is the division of labour which is when production is spilt up into various specific activities and carried out by affiliates in different locations. A location which is best suited to that particular production or service, thus providing a competitive advantage. A key success of the division of labour is illustrated by international subcontracting. The offshore sub-contracting by firms is an example this. Finally, the internalization process is likely to reduce exports and licensing. As illustrated by the requirements of OLI, internalization is successful if licensing and exports are less advantageous. Therefore, it is evident that internalization will result in the reduction of these other methods. Internalization proves to be an efficient model, however, with technology continuously expanding, internalization has become too costly or difficult. Due to this, corporations should conduct cost-benefit analysis of all three models (OLI, PCM, GRP) in order to determine which model is best and if they should even go international.

The Multilateral Agreement on Investment (MAI) was being negotiated to “facilitate international investment by ensuring that host governments treat all foreign and domestic firms similarly” (Kobrin, 1998). This agreement faced harsh scrutiny as it was largely beneficial to one side (the affluent world). These negotiations were conducted by OECD countries whose mandate is to pursue the economic growth of its member states; all but three who are countries from the Global North. This in itself is an issue because that means the MAI is being discussed by and will likely only benefit the OECD members, thus the Global North. Critics of the MAI claimed it would immensely empower corporations, even to the point where they could use their “sovereign power to govern countries” (Kobrin, 1998). The MAI was considered a “major and immediate threat to democracy, sovereignty, the environment, human rights and economic development” (Kobrin, 1998, p.98). The main concerns the public had regarding the MAI focused on “treating foreign firms as national, extending benefits to foreign investors, bans on performance requirements exportation clause and the right of corporations to sue governments” (Kobrin, 1998, p.102). The last concern is one of the most crucial concerns, the MAI would provide corporations with such great power that they could sue governments. This means that if governments supported environmental policies that hindered corporate profits then corporations would have the right to sue. Critics argue that acceptance of the MAI will have devastating health, environmental, human rights impacts. The issue that is extremely interesting about the MAU is how it was halted. Preamble collective brought the MAI agreement forward to the public. What was previously a discussion being had secretively for three years became public internationally. Media and increased technology has a large hand in achieving this as the incomplete agreement was uploaded onto the internet. This sparked wide spread debate across the world regarding the concerns of the MAI. Media was a grand component of raising awareness as well as creating resistance for the MAI; such as protests, debates and pledges. Media serves as a tool to bond a broad range of groups (human rights, and environmental activists) in order to oppose the MAI. Some people argue that media didn’t serve to halt the MAI, however, it can be argued that media’s ability to raise awareness quickly enabled these other components to occur. Media’s bringing forth of the issue is the initial incident and therefore it has one of the greatest hands in preventing the MAI.

Stephen Kobrin(1998)  “The MAI and the Clash of Globalizations,”Foreign Policy 

     In short, the Global Compact is a set of principles modelled to a substantial extent of the Geneva Convention on human rights protection. More importantly, it is an attempt to create a new mode of global governance by bringing together MNCs into the human rights and global governance discourses. It poses as a partnership between states and MNCs, in which the Compact encourages good social, political and economic behaviours not only from the states, but from MNCs as well. The Compact serves as a contrast to the traditional realist attitude, in which the states serve as the centre of the global governance discourse. As we move to the contemporary era with more MNC involvement, global institutions like the UN are looking to cooperate with MNCs too. In other words, MNCs are now partnered with states to deal with global issues as they have risen to become important social, political and economic actors.

     However, like many other attempts to instil corporate social responsibility in MNCs, the Global Compact is voluntary, meaning that it is non legally-binding. It is because the UN is not granted with any legal power to enforce and coerce law-binding behaviours on its member states. The world is an anarchical system, which makes monitoring efforts nearly impossible.

     Due to the voluntary nature of the Global Compact, the realists think that it can be effective if only the signatory states want its principles to matter and make an effort to enforce them. According to the constructivists though, they think the Compact matters and can be effective because it can change how MNCs, and global citizens as a whole, the way they look at the world in the long haul. In other words, they argue that norms matter in international law. I agree that the Global Compact is hopeful in bringing a positive impact on corporate social responsibility because norms are subject to change, so there is much room for progress. Similarly, the way we look at security has changed: now it is fashionable to talk about human security, which differs from national security that focuses on states (we tended to talk like this as the realist model was dominant).

     What is your take on the effectiveness and future of the Global Compact?