multinational corps and economic interconnectedness apa

8/14/2019 Multinational Corps and Economic Interconnectedness APA

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Corporations and the Economy

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Running Head: TECHNOLOGY AND THE GLOBAL ECONOMY

Multinational Corporations and Economic Inter-Connectedness,

From the 1960s to Today

Steven B. Biasca

Jesse Bethel High School Humanities Academy 11

United States History & American Studies Summer Research

Assignment

Mr. Ron Garrison

August 19, 2009


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Abstract

Throughout history, industrialization has greatly shaped society,

the economy, as well as the United States political system.

Through the development of multinational corporations, new ideals

regarding business have been established. In addition, large

corporations have held great influence over the development of

Big Businesses, Government, and Labor. However, many of these

corporations have globalized American capitalism into many new,

developing countries for several reasons.


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Multinational Corporations and Economic Inter-Connectedness,

From the 1960s to Today

There are many factors that led to the growth of

multinational corporations that are still around today.

Industrialization has played a key role in the development and

stabilization of many growing corporations. As a result, many

businesses began functioning on a multinational level, often

depending on other corporations and countries for labor,

competition, and resources thus exemplifying their economic


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inter-connectedness. The creation of these multinational

corporations, such as Wal-Mart Stores, Inc., Chevron, and Nike,

led to a surge in the economy, which, in turn, created a strong

economy where many benefited as a result of the creation of

credit and lending practices. In addition, with the development

of these multinational corporations came the rise of Big

Business, Government, and Labor. The coupling of the latter three

socioeconomic entities demonstrates the interconnectedness

between various multinational corporations and the economies they

have established whether they are at home in the United States or

abroad in overseas countries. In the words of Professor Murray

Low, of the Columbia Business School, The American dream is no

longer in America. Corporations today are now placed on a global

scale and creating very complex economies in todays society.

Throughout history, industrialization lead to the growth of

businesses that eventually flourished into Big Businesses that

operate on a much larger scale than many locally based companies.

For example, many car companies are not only based on a national

level, but are categorized under multinational companies, e.g.,


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Ford, Honda, and Nissan. Industrialization has allowed these

companies, and many others like them, to thrive and have great

effects on todays society, economy, and political processes. The

effects that industrialization have had on the economy are often

viewed as a domino effect. The United States experienced an age

of industrialization all the way through the early 19th

century,

and as a result, new technology was created. Consequently, the

United States, as well as many other countries, experienced a

heightened growth of businesses. Since new businesses were

forming and growing at a phenomenal rate, the worldwide economy

began to expand and became stronger. According to the website

EconomyWatch, the Industrial Revolution influenced many

countries, especially the United States, to develop the

manufacturing sector and expand trade. Therefore, many

multinational corporations, such as Microsoft and Apple Inc.,

soon emerged. The following chart, Figure 1, demonstrates the

process by which these multinational corporations formed. With

the formation of these new corporations came new government


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Figure 1. Much of todays economy is the result of the Industrial

Revolution from the early 19th

century; which allowed small

businesses to grow into multi-national corporations as a result

of lower transportation costs. From there, strengthened economies

formed on a global scale, which allowed a greater exchange of

money between both countries and several corporations.


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regulations that began taxation on these immense corporations,

which actually implemented a controlled economy in the United

States. For example, on August 15, 1971, President Richard Nixon

presented the United States with his New Economic Policy, which

created a council that regulated the amount corporations could

increase workers pay and sale prices. The execution of the New

Economic Policy was considered to be a bold move taken by the

President to strengthen the American economy, in the words of

Mr. W.P. Gullander, who was the president of the National

Association of Manufacturing (NAM) at the time. In addition, the

combination of both industrialization and the formation of

corporations also lead to the creation of government agencies

that monitor nearly all business practices. These agencies

include The Bureau of Economic Analysis (BEA), which provides

accurate economic accounts data, to The Economic Development

Administration (EDA), which stimulates industrial and commercial

growth, and many other agencies that assist in monitoring other

business activity. It becomes apparent that these agencies would

have never been formed if it were not for the development of


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multi-national corporations. In addition, industrialization and

the corporations that soon followed also had a great effect on

todays society. After the Industrial Revolution, the United

States formed many businesses and had a demand for industry; the

combination of the latter two socioeconomic principles supplied

society with many new job openings, both here in the United

States as well as in other countries overseas. However, the

creation of these multi-national corporations also placed various

burdens on society due to depressions and recessions. This is

demonstrated in the current recession where many industrialized

countries, not just the United States, are in an economic

slump. According to the Department of Commerce, the United

States Gross Domestic Product (GDP) for the first quarter of

2009, which is based on various economic principles such as the

amount of imports, exports, and government spending, has sharply

declined by approximately 6.1%. This signifies the decrease in

worldwide economic activity. Throughout history, however, society

has also benefited from the establishment of these corporations

due to the formation of labor unions. Following the Industrial


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Revolution, many businesses formed, and with them came labor

unions. These unions assisted society by negotiating better

wages, safer working conditions, and benefits with the employing

corporations. In the end, it becomes evident that multi-national

corporations have had a significant effect on todays society,

economy, and political procedures by strengthening various

economic markets, creating thousands of jobs for society, and

indirectly influencing the creation of various political

policies.

The development of multinational corporations has also

contributed to the rise of Big Business, Big Government, and Big

Labor. To begin with, Big Business is roughly defined as a

large, lucrative corporation that is either individual or

collective. Royal Dutch Shell, Exxon Mobil, and Wal-Mart Stores,

Inc., are prime examples of Big Businesses that operate on a

multi-national scale. According to Fortunes Global 500, Shell,

Exxon, and Wal-Mart are the top three worldwide companies,

respectively, with the largest annual revenues for the year 2009,

Figure 2. Since 2005, Wal-Mart has seen a Percent Net Sales


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Increase of more than 7% each year. Royal Dutch Shell has nearly

doubled their annual revenue from 2005, totaling in approximately

$4.59 billion in 2009, which ranks them as number one in the

Petroleum Refining Industry whereas Exxon Mobil is the runner-up

with a whopping $4.42 billion. These considerable and recurring

increases illustrate how multi-national corporations have

contributed to the rise of Big Businesses. Large corporations,

such as the latter three previously mentioned, generate extensive

annual revenues and profits, leading to large conglomerates that

dominate the economic markets. In addition to developing the

class of Big Businesses, multinational corporations have also

shaped the expansion of Big Government. The term Big

Government is commonly used to refer to a government that is

excessively

Annual Net Revenue for Top Three Worldwide Corporations


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Figure 2. The top three worldwide corporations for 2009 are Royal

Dutch Shell, Exxon Mobil, and Wal-Mart Stores, Inc.,

respectively. Each of the multinational corporations has seen a

prominent and steady increase in their annual revenue. This

economic trend demonstrates the growth and rise of Big Businessesthat are operating worldwide.

Year


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large, corrupt, inefficient, and/or involved in areas of public

policy. Big Government is practically a government body that

attempts to control or regulate certain aspects of the private

business sector. The development of multi-national corporations

has indirectly led to the rise of Big Government by influencing

new policies and regulations. The car company General Motors

(G.M.), which was at one point in time, the largest worldwide

corporation in the automaker industry, is a prime example of

government regulation as well as the rise of Big Government.

General Motors filed for Chapter 11 bankruptcy protection in June

of 2009 and later received nearly $50 billion from the

government. As a result, General Motors is now considered to be a

government-owned entity, according to The New York Times, and

the government now holds approximately 60% of the corporations

shares. Furthermore, the new administration under President

Barack Obama has also coerced General Motors chief executive,

Rick Wagoner, to resign. In addition, the government has also

appointed the new chairman, Edward Whitacre Jr., to G.M. The

mandatory restructuring of this worldwide corporation vividly


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portrays a rise in Big Government. The new administration is now

stepping into the business sector of the economy and is

implementing new regulations and reforms on worldwide

corporations. With the rise of these multi-national corporations

comes a rise in Big Government as the need for regulation and

control of the economy increases. However, developing

corporations have not only resulted in the rise of Big

Government, but have also contributed to the rise of Big Labor.

The term Big Labor is typically used when referring to large,

structured labor unions and is commonly also known as organized

labor. In todays society, organized labor unions, or Big

Labor, and several multi-national corporations appear to be

intertwined. One of the largest organized labor unions today is

the American Federation of Labor and Congress of Industrial

Organizations (AFL-CIO). The AFL-CIO was established in 1955 to

improve the lives of working families to bring economic justice

to the workplace and social justice to our nation. The creation

of the AFL-CIO and many other labor unions like such were created

in response to the development of multi-national corporations.


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For example, the United States Department of Labor cited the

worldwide corporation Wal-Mart Stores, Inc., in 2005 for

violating child labor laws. In this case, 24 violations were

cited in Arkansas, Connecticut, and New Hampshire, leaving Wal-

Mart with a $135,540 settlement to pay, according to the

Associated Press. However, the effects of Big Labor are not only

felt at home in the United States, but they are also noticeable

on an international level. The AFL-CIO is also affiliated with

the International Trade Union Confederation (ITUC), which is a

worldwide union organization that represents over 150 million

workers, according to the AFL-CIO. The ITUC and AFL-CIO both

vouch for equality in the workplace, fair wages, and a safe work

environment, which is all in response to a rise in developing

corporations that began to dominate the economy and exploit their

workers. In the end, it becomes evident that the growth of multi-

national corporations has significantly led to the rise of the

Big Business, Government, and Labor. The growth of multi-national

corporations has indirectly allowed Big Businesses to expand by

creating an economic market where certain companies form a


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monopoly in particular industries, allowing them to generate

large revenue and profits. Big Government has been on the rise

since the world economic market and global companies have been in

need of regulation. Lastly, Big Labor has become widespread since

the employees of these multi-national corporations have lobbied

for work improvements. These three social and political aspects

have been on the rise, collectively, ever since global

corporations have been flourishing.

Furthermore, the exportation and globalization of American

capitalism, or business that is conducted through multi-national

corporations, has had a significant effect on the worldwide

economy and society. Many corporations have begun the process of

globalizing their business into several other developing

countries other than the United States. This process has

developed a new, key economic ideal: offshore outsourcing. This

newly emerging business concept is a synthesis of both

offshoring and outsourcing. According to the BNET Business

Dictionary, offshoring is defined as The transfer of service

operations to foreign countries in order to take advantage of a


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supply of skilled but relatively cheap labor. In the case of

offshoring, services remain within the corporation but are

executed in a different country. Contrastingly, outsourcing is

defined as the transfer of the provision of services previously

performed by in-house personnel to an external organization

(BNET). With outsourcing, many large corporations subcontract

certain services to separate subsidiaries, which are also often

located in a different country. Many corporations are turning to

offshore outsourcing to allocate nonessential services overseas

in an attempt to minimize production and labor costs. Many

substantial corporations such as AT&T Wireless, Microsoft, and

IBM, outsource a significant portion of their information

technology services overseas to various countries such as India,

China, and the Philippines. Multi-national corporations typically

outsource information technology services to newly developing

countries for several reasons. By outsourcing peripheral services

of their corporation, businesses can focus on the core products

or services that they provide. Furthermore, by eliminating

nonessential functions from a companys central structure,


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companies can place a greater focus on more critical aspects of

their business. In addition to creating a greater focus on a

corporations essentials, outsourcing allows many businesses to

curtail manufacturing and labor costs. The exportation of the

textile industry to overseas countries has become increasingly

popular to major corporations that are operating on a worldwide

scale. Many outsourcing firms, such as The Outsourcing Network,

contract manufacturing operations to overseas vendors that

produce products for companies at a nominal cost. By doing so,

companies can cut production costs by 20-40%...by making your

company more efficient (The Outsourcing Network). Although

offshore outsourcing may have its benefits for the massive multi-

national corporations that utilize this tactic, offshore

outsourcing greatly affects the surrounding economy and society.

Many economists point out that offshore outsourcing can

indirectly assist in the strengthening of the American economy by

producing inexpensive products. The lower market prices of

products are due to the reduction of manufacturing and production

costs via offshore outsourcing. The American consumer benefits


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from production cost reductions since they gain access to

quality, yet affordable, products that are often imported from

overseas manufacturing and production firms. However, the

offshore outsourcing of manufacturing processes can also have an

adverse effect on the American economy. By allocating jobs from

the United States to developing countries overseas, the American

society experiences a shortage of jobs or a loss of available

positions with major conglomerates here in the United States. As

a result, many American workers are left unemployed since

production costs overseas are significantly cheaper than they are

in America. This is clearly demonstrated when the unemployment

rates of the United States are examined across a ten year period,

Figure 3. From the year 2000, the United States annual average

unemployment rate has seen a considerable rise, reaching a

whopping 8.67% in the year 2009 (U.S. Bureau of Labor

Statistics). This upsurge of the unemployment rate is a trend

that is partially blamed on the distribution of jobs that were

once performed at home in the United States. This is evidenced by

the report Mass Layoff Statistics Data in the United States and


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Domestic and Overseas Relocation, conducted by the Bureau of

Labor Statistics. According to this report, there were

approximately 2,379 cases where employers laid off more than 50

workers at one time, which are considered to be a mass layoff.

As a result, nearly 470,000 people lost their jobs, and out of

the 470,000 jobs or positions, 50,000 were moved out of the

United States to overseas countries. This demonstrates the

globalization of American business as well as its effects. It

becomes evident that the exportation of American capitalism has

had extensive

Average Annual Unemployment Rate, 2000 to 2010

Unemplo

yment

Rate


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Figure 3. Annual average statistics are according to the U.S.

Bureau of Labor Statistics (BLS). Since the year 2000, the

average annual unemployment rate has been on the rise. The 2009

unemployment rate (8.67%) is nearly double what it was in 2000

(3.97%). *According to Nouriel Roubini, a business professor at New York University, economic analyst, and author for Forbes

Magazine, the projected 2010 annual average unemployment will be

approximately 11%, based on the amount of current job losses, a

reduced Gross Domestic Product (GDP), and a worsening labor

market*

Year


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effects on not only the American society, but society in general,

by saving multi-national corporations substantial sums of money

through productions and labor cost cuts. In addition, globalizing

American capitalism has created new labor opportunities in other

societies overseas as a result of offshore outsourcing. However,

this has also affected the American society by removing jobs once

performed at home in the United States, thus causing a nominal

increase in the United States unemployment rate. Therefore, the

diffusion of American capitalism has had great effects both at

home and abroad.

The formation of multi-national corporations has had great

effects on society. From the creation of a prosperous and growing

industry emerged corporations that would soon expand trade to a

global scale. Consequently, the exchange of capital led to a

strengthened economy, new economic regulations, and various

political policies. Furthermore, large conglomerates operating

worldwide have also influenced the rise of The Big Three: Big

Business, Big Government, and Big Labor. Many businesses have

grown into Big Businesses by expanding their services and


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products into newly developing countries and markets, thus

forming dominance over the economic market. As a result of

growing economic activity came the need for government

regulation, or Big Government. In an attempt to control certain

aspects of the business sector, the new government administration

has implemented new policies to regulate how many corporations

conduct business. However, with the rise of multi-national

corporations, which typically employ a vast number of workers,

came the need for Big Labor. Labor unions were established in an

attempt to protect both employees and their rights, indicating a

rise in Big Labor. Nevertheless, multi-national corporations have

not only influenced a rise in The Big Three organizations. Many

businesses have expanded into new markets and have globalized

American business. By doing so, many new labor markets have been

established overseas via offshore outsourcing. Therefore, this

has also led to the exportation of American jobs, thus leaving

some Americans unemployed. In the words of Henry Ford,

Competition is the keen cutting edge of business, always shaving

away at costs. In todays society and economy, this seems to be


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the chief business principle that many corporations conduct their

business by.

multinational corps and economic interconnectedness apa

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