There is no doubt that MNCs have an immense amount of power that they can use to get what they want. Stephen Brooks’ article contends that “the globalization of production is a historically unprecedented change in the international economy” (p. 16). The enhanced significance of MNCs in the global economy is a reality where Brooks states that if we look beyond the growth rates, “the globalization of production outstrips trade as an organizing feature of international economy” (p. 17). When reading Brooks’ chapter, I realized that he is right; a lot of the trade today is a by product of the “geographic dispersion of MNC production.” A product is not made in only one country, rather, the product transcends across an array of boundaries, from country to country. These examples demonstrate the large influence that MNCs have in the world because of their operations. MNCs have the ability to subcontract, that is, they no, longer contribute to every stage in production chain and source particular stages out for other enterprises to undertake. If firms split up the production process into a variety of specific stages, such as finance, R&D, parts production and distribution, with each of the stages carried out by affiliates; what we get is a web of connections between one affiliate in a country to an affiliate in another. What is created in the global arena then is an international-infra firm division of labour. This example shows that the activities of MNCs can re-create and create the global economy, whether that be intentionally or unintentionally. In addition, the characteristics of MNCs give them immense amounts of power. The fact that MNCs possess the technology and investment capital is what makes them attractive. In fact, developing states now face a cost if they choose to isolate from MNCs. These characteristics of MNCs have pushed states to create a more favourable investment climate for global firms. Viewed in this light, MNCs are not merely economic actors, but political and social actors as well. They have the power to influence the global economy through its globalized production chains through subcontracting and interfirm alliances (where firms collaborate to minimize the cost, difficulty, and complexity of research and development). They are political actors since they are able to (usually successfully) lobby governments to have governments on their side to implement business policies that are favourable to them. IMF and World Bank uphold policies that are largely to the benefit of MNCs. MNCs are also social actors, for their actions within countries can have social impacts on the citizens (i.e. pushing people off their land to create factories, and implementing poor working policies in factories). From this perspective then, MNCs are extremely powerful actors due to the fact they have a role to play in various aspects of world society. It would be a mistake to view these entities as merely economic actors; they too, are agents of global governance that are able to have their interests heard and make their interests more important than the interests of others.

I read an article a while back from the Huffington Post that posed the following question: “Are We the People the boss of giant multinational corporations, or are they the boss of us?” (Johnson, 2016). The CEO of Apple, Tim Cook was asked about the large amounts of profits that Apple had shifted into overseas tax havens due to a loophole in US tax law that allowed them to “defer paying taxes on those profits as long as the money technically stayed outside the country” (Johnson, 2016). He said a quote that really stood out to me:

“And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it.”

This quote is telling; it shows you just how much power MNCs really have. If an ordinary person were to do this and were caught, there would certainly be repercussions. It demonstrates that MNCs do not have to comply to the rules if it does not suit their interests. The power of MNCs cannot be underestimated. They are global actors who have global impacts and are entities that can significantly influence other actors to align with their interests. I am not saying that all MNCs are inherently bad and that we should only think of them as lousy people who do not care about human rights. Rather, as global citizens, we should be at least aware that MNCs can be both positive and negative actors in this world.

References

Johnson, D. (2017, August 25). CEO Of Giant Corporation Tells US Government He’s the Boss Of Them. The Huffington Post. Retrieved from https://www.huffpost.com/entry/ceo-of-giant-corporation_b_11686542

Brooks, S. (2007). “Understanding the Globalization of Production,” In Producing Security: Multinational Corporations, Globalization, and the Changing Calculus of Conflict. Princeton: Princeton University Press.

Multinational corporations operate in conditions that are in their favour and it is certainly helping that these days, countries are willing to change their policies in order to attract the FDI of MNCs. Countries that are desperate to develop their countries are keen to have MNCs operate in their territories. In the present, there is intensified competition among states for world market shares to the point where states are bargaining with MNCs to locate their operations within their territory in hopes that as this will bring them access to technology and investment capital. MNCs can foster technological innovation within the host country and provide training to the population. With enhanced competitiveness of global markets, the name of the game for many developing countries is to attract the attention of MNCs. However, MNCs are known to exploitative, where the common belief is that MNCs are willing to do anything to maintain their profits margins. Some countries are determined to attract MNCs no matter the negative effects it may have on its citizens. Bennett’s (2002) article argues that MNCs have a social responsibility to help keep conflict at bay and to improve the lives of citizens of the host country, not to exacerbate conflict. Good corporate governance, both at home and abroad and advancing community good will are crucial elements of international security. Conflict minerals are a large part of the supply chains of MNCs where MNCs use elements such as tin, tungsten, silver, and gold for consumer electronics and jewelry. I do agree with Bennett that MNCs have a responsibility to promote good corporate governance, however, I am a little bit skeptical that this will happen. It is certainly the case that MNCs are moving towards the direction of claiming that they are practicing good corporate responsibility. In fact, if you go the websites of fast fashion giants such as FOREVER 21 and H&M they have a separate section where they state e ways in which they have ethical sourcing of their products. Forever 21 claims that they have a highly trained vendor compliance team, which promotes and enforces lawful and ethical operations at their third-party factory sites and lists a number of charitable causes in whey have donated to including Japan’s disaster relief, and The American Red Cross. H&M on the other hand, are carrying out a fair living wage strategy and have put a huge emphasis on sustainability. But could this just be all rhetoric and a way for these MNCs to put forth a good image for themselves so that consumers do not boycott them? Some people say that states themselves are responsible for making sure that human rights are upheld and that business and human rights diverge. But, I believe that business and human rights can converge where MNCs can take action to ensure the well-being of citizens inside the country in which they operate. The only part is, are MNCs willing to take on this role? After all, it is their decision whether to take action, no one is forcing them.

The Global Compact, established in early 2000, encourages businesses worldwide to adopt sustainable and socially responsible practices with the ten principles based on 4 categories: human rights, labour, environment and anti-corruption.  MCNs are aware of the fact that countries want them to come do business within their country due to reasons described earlier. Aware of this, MNCs can use this as a tool to do whatever they want because they know that these countries need them. So, it seems that it is all up to the consciences of MNCs to do the right thing. If MNCs were to align their strategies and operations in a more responsible manner, it could enhance the lives of the citizens within their operations and enhance the environment in which they work. MNCs are known to engage in environment polluting acts and deforestation but if they were to change their ways, these problems could be rectified. The damages may not be reversed, but it would help inform future decisions made by MNCs. MNCs can engage in partnerships with the government, with local NGOs, and local civil society where they can utilize their business skills and financial leverage to promote regional stability (Bennett, 2002). Sometimes, MNCs can create conflict where they operate due to the grievances that arise from the people who may feel like they are being left out or treated unfairly and pit groups against each other (i.e. elites versus the working class). MNCs can implement social investment programs, champion economic inclusiveness and abide by economic and social rights. What MNCs fail to consider is the social aspect of it all—the question of ‘what are the social impacts of business operations’ is left unanswered.  MNCs have the ability to provide stability to local communities and address the concerns of those individuals who are neglected and excluded from the benefits of their operations. Consultation with the locals and activities that incorporate social and environmental policies on human rights is a step in the right direction. The global compact is certainly a move in the right direction, however, it is not legally binding. It is voluntary and there is no monitoring system in place. These are the reasons that make me question the true impact and effectiveness of the global compact. To say that the global compact is robust and effective is incorrect. MNCs signing onto this global compact may not be a normative shift, but merely, it is a way for them to maintain their image. MNCs have an immense role to play in positively influencing what happens in the world, but the question is, will they do it? Or will they do it under the guise of making themselves look good?

References

Bennett, J. (2002). Multinational corporations, social responsibility and conflict. Journal of International Affairs, 55(2), 393-410.