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Unit Nine: Multinational Corporations
Dr. Russel l Wil l iams
8/10/2019 3250 Lecture - Multinational Corporations
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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 “actively” control operations in 2+countries
=Direct control over foreign affiliates/subsidiaries
E.g. “Foreign Direct Investment (FDI)” vs. PortfolioInvestment
Examples?
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World ’s 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 (1st Quarter - 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” . . .
“Orthodox” or Neoliberals tend to downplayMNCs per 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 Structuralist and 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 “host” states
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 their“Home Countries
”:
Most large MNC’s 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
“ their ” MNCs
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MNCs and their “Home Countries”:
However . . .
Growing “Home Country” concern about MNC“outsourcing”
MNC’s always moved production to other jurisdictions,but outsourcing is more concerning . . . .
Concern over political/national security problems –
MNCs have ability to undermine states’ foreignpolicy goals
E.g. Toshiba and Soviet Submarines
E.g. Digital media and data control
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MNCs and “Host Countries”:Benefits:
Greenfield investment – Host countries are“capital
poor ”
Integration into global supply chains
Technology transfer
Risks: Profits – Does FDI reverse capital poor problem?
Or,
Investment – local“crowding 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
Depends on number of investors and number of suppliers E.g. Scarce natural resources may generate different relations . .
Depends on 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 shouldn’t act differently . . .
Realists: Home country MNCs still have allegiance to
powerful states Pattern of investment suggests “command and control” functions
stay in high cost jurisdictions (?) MNCs still exhibit distinct “national characters” and 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 countries” can 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 accounts” creates 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
North initially 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 “hurting” development, but
in a weak position politically
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Attempts to regulate MNCs
Southern “war ” with 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 conduct” for MNCs
1982 draft provisions had rules designed to combattax evasion, transfer pricing and global competition .
. . . but . . . .
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Attempts to regulate MNCs
1980’s – present - Dominated by efforts to
regulate FOR MNCs . . . . Why? Political influence of MNCs – want their problems addressed
Demands of US in trade and investment regimes
Political weakness of southern “host countries” – FDI 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 – “Investors’ Rights” Provisions: 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 Treatment and MFN applied 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
Growing“anti-globalization
” movement
Current initiatives? WTO Doha Round?
US wants “investors’ rights 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 model‟ and the global
crisis: from Friedrich List to a Chinese mode ofGovernance?” International Affairs, 87:6 (2011), Pp.1323-1343.