Unit Nine: Multinational Corporations. Dr. Russell Williams

Transcription

1 Unit Nine: Multinational Corporations Dr. Russell Williams

2 Required Reading: Cohn, Ch. 9. Class Discussion Readings: Debora Spar and David Yoffie, Multinational Enterprises and the Prospects for Justice, Journal of International Affairs, Vol 52, Issue 2, (Spring 1999), pp Stephen McBride, Reconfiguring Sovereignty: NAFTA Chapter 11 Dispute Settlement Procedures and the Issue of Public-Private Authority, Canadian Journal of Political Science, Vol. 39(4) (2006), pp Outline: 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...

3 1) Introduction: What are Multinational Corporations? =Firms that actively control operations in 2+ countries =Direct control over foreign affiliates/subsidiaries E.g. Foreign Direct Investment (FDI) vs. Portfolio Investment Examples?

4 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 shipping lines... Employees = 110,000 (Approx) Sales = $410 Billion USD (2008) Politics?????

5 1) Introduction: Why are we interested in Multinational Corporations? =Key site of tension between national political systems (states) and a transnational economy Under-analyzed Spectacular growth and spread of operations in developing economies (see handout) 2. Can MNCs be regulated given their mobility?

6 Theoretical Perspectives: Liberals: MNCs organize global economic efficiency Technological improvements... Move capital to where it is needed... Orthodox or Neoliberals tend to downplay MNCs per se... Focus on markets rather then corporate structures E.g. Many question the relevance of corporate nationality (Kenichi Ohmae and Robert Reich) International economic cooperation should aim to help spread of MNC operations

7 Theoretical Perspectives: Realists: MNCs often seen as agents of home countries E.g. Susan Strange operations benefit the economy and power of the state they are based in =Bad for host countries Historical Structuralist and critical perspectives? Dependency Theory : MNCs manage underdevelopment E.g. locate key production irrespective of economic justice or market fundamentals Gramsicain Theory : MNCs are basis of transnational capitalist hegemony International economic cooperation will probably help MNCs but not the betterment of global society

8 2) The Origins of MNCs: Rapid growth of MNCs has both microeconomic and political explanations.... a) Firm specific motivations Vertical Integration = stable supply chains/factor price differentials Horizontal Integration = economies of scale Technological change = improved ability to control operations in other 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

9 3) MNC 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 (See Handout Table A-2) MNCs and external FDI seen to have few negatives E.g. supply of new resources, repatriated profits etc. =States actively promote and protect the interests of their MNCs

10 MNCs and their Home Countries : However... Growing Home Country concern about MNC outsourcing Concern over political/national security problems MNCs have ability to undermine states foreign policy goals E.g. Toshiba and Soviet Submarines

11 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(?)

12 MNCs and Host Countries : Research suggests host countries are politically weak 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 power decreases Capital intensive industries... Exactly the kind of facilities MNCs have been slow to build in developing countries

13 Question Does the Home/Host distinction still matter???? Liberals: Globalization and the borderless world mean that corporations 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 MNC as vital to development Question is really about whether home countries can strike better bargains with MNCs...

14 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 to the Bottom Environmental standards Labour standards

15 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 facilitated MNC activity Host countries saw inward FDI as key to growth... Result = Regulatory efforts benefited MNC development and did little to address policy challenges South? Often have seen MNCs as hurting development, but in a weak position politically

16 Attempts to regulate MNCs Phase One: Southern war with MNCs ( ): 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 combat tax evasion, transfer pricing and global competition.... but....

17 Attempts to regulate MNCs Phase Two: (1982 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 seen as only viable option for development = fighting MNCs was counterproductive 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

18 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

19 6) Conclusions: MNCs remain a source of political controversy... Widespread demands for regulation However, international cooperation tends to focus 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?

20 Further Reading: On MNCs: Louis W. Pauly and Simon Reich, National Structures and Multinational Corporate Behavior: Enduring Differences in the Age of Globalization, International Organization, 51-1 (Winter 1997), pp Thomas C. Lawton and Kevin P. Michaels, The Evolving Global Production Structure: 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 Political Economy, Ashgate, 2001, pp Mark Herkenrath and Volker Bornschier, Transnational Corporations in World Development Still the Same Harmful Effects in An Increasingly Globalized World Economy?, Journal of World-Systems Research, 9-1 (Winter 2003), pp On political struggle over MNC regulation: Andrew Walter, NGOs, Business, and International Investment: The Multilateral Agreement on Investment, Seattle, and Beyond, Global Governance, 7-1 (January-March, 2001), pp On policy challenges: Sumner J. La Croix and Denise Eby Konan, Intellectual Property Rights in China: The Changing Political Economy of Chinese-American Interests, World Economy, 25-6 (June 2002), pp Trish Kelly, The WTO, the Environment and Health and Safety Standards, World Economy, 27-2 (February 2004), pp

21 For Next Time: Unit Ten: Development and Underdevelopment Etc. (November 24 & 26) Required Reading: Cohn, Ch. 10. Class Discussion Reading: David Dollar and Aart Kraay, Spreading the Wealth, Foreign Affairs, 91 (January/February 2002), pp Robert Hunter Wade, What Strategies are Viable for Developing Countries Today? The World Trade Organization and the Shrinking of Development Space, Review of International Political Economy, 10-4 (November 2003), pp