3250 lecture - multinational corporations

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Unit Nine: Multinational Corporations Dr. Russell Williams

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    Unit Nine: Multinational Corporations

    Dr. Russel l Wil l iams

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    Requ ired Reading :

    Cohn, Ch. 9.

    Class Discussion Reading s:

    Debora Spar and David Yoffie, Multinational Enterprises and theProspects for Justice,Journal of International Affairs, Vol 52, Issue 2,(Spring 1999), pp. 557-582.

    Stephen McBride, Reconfiguring Sovereignty: NAFTA Chapter 11Dispute Settlement Procedures and the Issue of Public-Private

    Authority,Canadian Journal of Political Science, Vol. 39(4) (2006),pp. 755-775.

    Outl ine:

    1. Introduction

    2. The Origins of MNCs

    3. MNCs vs. States?4. Contemporary Policy Challenges

    5. The Politics of MNC Regulation

    6. Conclusions

    7. Further Reading

    8. For Next Time . . .

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    1) Introduction:

    What are Mult inat ional Corporat ions?

    =Firms that activelycontrol operations in 2+countries

    =Direct control over foreign affiliates/subsidiaries

    E.g. Foreign Direct Investment (FDI)vs. PortfolioInvestment

    Examples?

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    Worlds largest publicly traded company (?)

    Home: = Texas

    Oil reserves = 72 Billion barrels . . . .

    Operations = 44 refineries in 20 countries (Approx)

    Subsidiaries = Exxon, Mobil, Esso, several major shippinglines . . .

    Employees = 110,000 (Approx)

    Sales = $417 Billion USD (1stQuarter - 2011)

    Politics?????

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    1) Introduction:

    Why are we interested in Mult inat ional

    Corporat ions?

    =Key site of tension between national politicalsystems (states) and a transnational economy

    Under-analyzed . . . .

    1. Spectacular growth and spread of operations indeveloping economies (see handout)

    2. Can MNCs be regulated given their mobility?

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    Theoretical Perspectives:

    Liberals: MNCs organize global economic efficiency

    Technological improvements . . .

    Move capital to where it is needed. . .

    Orthodoxor Neoliberalstend to downplayMNCsper se . . .

    Focus on markets rather then corporate structures E.g. Many question the relevance of corporate nationality

    (Kenichi Ohmae and others)

    International economic cooperation should aim to help

    spread of MNC operations

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    Theoretical Perspectives:

    Realists: MNCs often seen as agents of home countries

    E.g. Susan Strange operations benefit the economy and powerof the state they are based in =Bad for host countries

    Historical Structuralistand criticalperspectives? Dependency Theory: MNCs manage

    underdevelopment E.g. locate key production irrespective of economic justice or

    market fundamentals

    Gramsicain Theory: MNCs are basis oftransnational capitalist hegemony

    International economic cooperation will probably helpMNCs but not the betterment of global society

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    2) The Origins of MNCs:

    Rapid growth of MNCs has both microeconomic and politicalexplanations . . . .

    a) Firm specific motivations Vertical Integration= stable supply chains/factor price

    differentials Horizontal Integration= economies of scale

    Technological change = improved ability to control operations inother countries

    b)Environmental

    or

    structural

    motivations:

    Global economic growth

    Liberalized financial markets

    Security of investment and support from dominant states = politics E.g. Reduced risk of nationalization and expropriation by hoststates

    Liberal trade barriers = politics

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    3) MNC

    s vs. States:

    IPE tends to focus on questions relating to the

    growing power of MNCs relative to states . . .

    MNCs and theirHome Countries

    :

    Most large MNCs based in a few countries

    MNCs and external FDI seen to have few negatives outside of the outsourcing debate

    E.g. supply of new resources, repatriated profits etc.

    =States actively promote and protect the interests of

    theirMNCs

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    MNCs and their Home Countries:

    However . . .

    Growing Home Countryconcern about MNCoutsourcing

    MNCs always moved production to other jurisdictions,but outsourcing is more concerning . . . .

    Concern over political/national security problems

    MNCs have ability to undermine statesforeignpolicy goals

    E.g. Toshiba and Soviet Submarines

    E.g. Digital media and data control

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    MNCs and Host Countries:Benefits:

    Greenfieldinvestment Host countries arecapital

    poor

    Integration into global supply chains

    Technology transfer

    Risks: Profits Does FDI reverse capital poor problem?

    Or,

    Investment localcrowding out

    effect which limits

    other local development

    Disorganization of local supply chains(?)

    Quality of employment(?)

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    MNCs and Host Countries:

    Research suggests host countries are politicallyweak relative to MNCs:

    E.g. Greenfield Investment- See handout, Table B . . .

    =states subsidize MNC investment in competition to attract FDI

    Dependson number of investors and number of suppliers E.g. Scarce natural resources may generate different relations . .

    Dependson nature of investment E.g. Obsolescing Bargain: MNCs have power initially, but as

    their investment becomes fixed . . . their bargaining powerdecreases

    Capital intensive industries . . . Exactly the kind of facilities MNCs

    have been slow to build in developing countries

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    Quest ion Does the Home/Host d ist inct ion st i l lmat ter????

    Liberals: Globalization and the borderless world mean thatcorporations all have same rational interests

    = home country MNCs shouldnt act differently . . .

    Realists: Home country MNCs still have allegiance to

    powerful states Pattern of investment suggests command and controlfunctions

    stay in high cost jurisdictions (?) MNCs still exhibit distinct national charactersand orientations to

    global capitalism (Pauley and Reich)=Benefits continue to flow to home countries

    Historical Stucturalists: Many influenced by ideas of dependency theory see development of

    own MNCs as vital to development

    Question is really about whether home countriescan strike

    better bargains with MNCs . . .

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    4) Modern Policy Challenges of MNCs:

    a) Ogopolisitic economic sectors and trade theory (?) Production decisions not driven by comparative advantage

    Extreme view: Traditional development strategies irrelevant (?)

    Cautious view: Lingering fears of political instability, nationalization etc.keep capital intensive industry investment in North

    b) Intrafirm Trade the problem of Transfer Prices Principle of separate national accountscreates potential for tax

    avoidance and evasion E.g. Offshore Tax Havens

    Impact on national tax revenues?

    c) Structural power locational bargaining and the Race tothe Bottom Environmental standards

    Labour standards

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    5) The Politics of MNC Regulation:

    Attempts to regulate MNCs

    Northinitially had no interest in global regulation Home countries sought:

    Bilateral Investment Treaties (BITs)

    Bilateral Tax Treaties

    =both supported MNC activity

    Host countries saw inward FDI as key to growth . . .

    Result = Regulatory efforts benefited MNC developmentand did little to address policy challenges

    South? Often have seen MNCs as hurtingdevelopment, but

    in a weak position politically

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    Attempts to regulate MNCs

    Southern warwith MNCs (1970-1982):

    a) Unilateral domestic actions

    E.g. Expropriations and nationalizations of MNC

    assets (See handout table C)b) Widespread demands for international regulation of

    MNC activities:

    UN Commission on Transnational Corporations &

    Centre on Transnational Corporations (1974)=Develop codes of conductfor MNCs

    1982 draft provisions had rules designed to combattax evasion, transfer pricing and global competition .

    . . . but . . . .

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    Attempts to regulate MNCs

    1980s present - Dominated by efforts to

    regulate FORMNCs . . . . Why? Political influence of MNCs want their problems addressed

    Demands of US in trade and investment regimes

    Political weakness of southern host countriesFDI was seenas only viable option for development = fighting MNCs wascounterproductive

    OECD/WTO/RTAs have all attempted to entrench MNC

    FDI rights at expense of state power and sovereignty

    Trade regime InvestorsRightsProvisions: WTO: National Treatment and GATS

    WTO: TRIMs

    WTO: TRIPs

    NAFTA: Chapter 11

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    Attempts to regulate MNCs

    OECD and an FDI Regime:

    E.g. Multilateral Agreement on Investment (MAI): National Treatmentand MFNapplied to all investment

    activities

    FDI restrictions to be removed in key sectors (culture,banking, transportation, healthcare)

    Ban on performance requirements

    Investor to state dispute resolution (E.g. NAFTA Chapter 11)

    Failed amidst considerable controversy(!)

    Developing nations not invited to negotiations

    Growinganti-globalization

    movement

    Current initiatives? WTO Doha Round?

    US wants investorsrights agenda

    EU wants WTO competition policy

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    6) Conclusions:

    MNCs remain a source of pol i t ical

    controversy . . .

    Widespread demands for regulation

    However, international cooperation tends tofocus more on protecting MNCs from states Thought to be economically desirable (?)

    Mirrors public ambivalence (?)

    What does this suggest about modern IPE?

    What does it suggest about states and state power

    as the central analytical concerns of International

    Relations?

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    Fur ther Read ing :On MNCs:

    Louis W. Pauly and Simon Reich, National Structures and MultinationalCorporate Behavior: Enduring Differences in the Age of Globalization,International Organization,51-1 (Winter 1997), pp. 1-30.

    Thomas C. Lawton and Kevin P. Michaels, The Evolving Global ProductionStructure: Implications for International Political Economy,in Thomas C.Lawton, James N. Rosenau, and Amy C. Verdun, eds., Strange Power:Shaping the Parameters of International Relations and International PoliticalEconomy, Ashgate, 2001, pp. 57-74.

    Mark Herkenrath and Volker Bornschier, Transnational Corporations in WorldDevelopment Still the Same Harmful Effects in An Increasingly GlobalizedWorld Economy?,Journal of World-Systems Research,9-1 (Winter 2003), pp.105-139.

    On po l i t ical strug gle over MNC regulat ion:

    Andrew Walter, NGOs, Business, and International Investment: The

    Multilateral Agreement on Investment, Seattle, and Beyond,GlobalGovernance,7-1 (January-March, 2001), pp. 51-73.

    On po l icy ch allenges: Sumner J. La Croix and Denise Eby Konan, Intellectual Property Rights in

    China: The Changing Political Economy of Chinese-American Interests,WorldEconomy,25-6 (June 2002), pp. 759-788.

    Trish Kelly, The WTO, the Environment and Health and Safety Standards,

    World Economy,27-2 (February 2004), pp. 131-151.

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    For Next Time:

    Unit Ten: Development and UnderdevelopmentEtc.

    Required Reading: Cohn, Ch. 10.

    Class Discussion Reading: Robert Hunter Wade, What Strategies are Viable for

    Developing Countries Today? The World TradeOrganization and the Shrinking of DevelopmentSpace,Review of International Political Economy,10-

    4 (November 2003), pp. 621-644. Shaun Breslin, The China modeland the global

    crisis: from Friedrich List to a Chinese mode ofGovernance?International Affairs, 87:6 (2011), Pp.1323-1343.