MNCs or Multinational Corporations is a company that operates under a corporate structure in more than once country. This term is general, and is used to encompass a wide array of companies, from small corporations that operate in two or a few countries, to giant companies like Apple that operate in over a hundred different countries. People within countries are governed by laws created by whatever government system corresponds with that country. One issue with Multinational Corporations is that because they operate across borders is that they are held accountable to different legal systems, which an at times be drastically different. Since no single country can control their dealings across their borders, this limits the ability of the power of the nation states under which they operate.
Countries have a stake in wanting to keep companies operating in their borders. Commerce is what brings wealth to a nation state, and if companies leave their borders, or transfer the majority of operations to another country where a multinational operates, this can hurt the economy of the country from which it has left. This creates an incentive for countries to keep operations and cash flows within their borders. Conversely, this gives multinational corporations pushing power, in both regulations and taxes. They can in a sense, threaten to leave, hurting the nation state’s economy, if certain terms are not met.
An example of this is the agricultural company Archer Daniels Midland Co, which is using such sway to demand $24 million in incentives over the next twenty years in exchange for keeping it’ headquarters in Illinois (Chicago Tribune, 2013). The company works on legislation that benefits it financially. None of this is illegal, but it is all done under the threat of them moving their headquarters elsewhere. Politicians are well aware of the fact that such companies employ a lot of voters, and so cracking down on them, even in cases where they feel a moral or ethical obligation to do so, may lead to the company simply packing up and moving operations somewhere where they get what they want. This will leave voters jobless, hurt the economy, and will likely hurt the politicians that passed legislations or enforced legislation which caused them to leave. This is a clear case of limiting of powers, which is directly related to the nature of Multinational Corporations cross border operating.
The other side of this, is that for companies who have their headquarters in one country, but operations in another, this can lead to the head quarter country having increased power in the nation where there are satellite operations. An example of this is come from the book “The Brothers” which details among other case studies an account of The United Fruit Company’s operations in Guatemala which led to American intervention into their politics, going so far as to assassinating the democratically elected leader of that country. One could argue that this increased the power of the US, but it without a doubt limited the power of the nation state in Guatemala (Kinzer, 2013).
So while exceptions like this do exist, by and large national corporations are beyond the ability of any single government to control and this limits the government’s power.
Cancino, Alejandra . "ADM asks for as much as $24M in tax breaks to keep HQ in Illinois." Chicago Tribune. N.p., 1 Oct. 2013. Web. 19 Dec. 2013. <http://articles.chicagotribune.com/2013-10-01/business/chi-adm-incentives-20131001_1_tax-breaks-tax-credit-adm>.
Kinzer, Stephen. The brothers: John Foster Dulles, Allen Dulles, and their secret world war. New York: Times Books, 2013. Print.
The Global Compact is a United Nations creation began in 2000 and is the largest voluntary corporate responsibility initiative ever. It was enacted in response to growing awareness about how business practices were harming the environment. The goals of it were aimed at having business adopt green policies while not being a tool for regulation, but instead a forum of discussion and network for communication. (United Nations Global Compact, 2013). It brought four entities to the table, labor, NGOs, the UN, and government, and was not spearheaded by nations and their governments. While it was ambitious and admirable because it was based on emerging principles of ethical business, as a tool designed to make an actual impact, it was weaker than it could have been since it held no one involved accountable for failings to meet the requirements of the agreement. It does however, hold to its standards tight enough to kick companies and firms off its roster when they fail to uphold the standards detailed in the agreement.
The breakdown of the GC is ten principles that can be divided into Human Rights, Labour, Environment and Anti-corruption. (UNGC, 2013). While there is not a provision for marking the results with the GC itself, because it is such a hallmark agreement, it has been audited extensively by outside sources to measure its effectiveness. In the third outside study conducted by Accenture, it was found that only 32% of CEOs believed that “the global economy is on track to meet the demands of a growing population within environmental and resource constraints.” This is a fairly alarming percentage, which means that much more than the GC must be done in order for the world to get on the right track. (Accenture, 7). While the report was for the most part upbeat, there was also the realization that while the GC was a good thing, it was not the end all solution, but merely a step in the right direction.
"The Ten Principles ." The Ten Principles. N.p., n.d. Web. 19 Dec. 2013. <http://www.unglobalcompact.org/AboutThe
"What is the UN Global Compact?." United Nations Global Compact. N.p., n.d. Web. 18 Dec. 2013. <http://www.unglobalcompact.org/>.
"The UN Global Compact-Accenture CEO Study on Sustainability 2013." accenture. N.p., n.d. Web. 19 Dec. 2013. <http://www.accenture.com/Microsites/ungc-ceo-study/Documents/pdf/13-1739_UNGC%20report_Final_FSC3.pdf>.
NGOs represent an important part of civil society. They provide a check to the power of both governments and Multinational Corporations. Most MNCs goal is profit, and this can blind them from having a perspective outside of that narrow confine. Since most NGO’s have some social justice or environmental concern at heart, they provide an important perspective on global issues of which both nation states and MNCs are involved.
While there are plenty of criticisms of MNCs, there are a lot of positive things that they do for countries that many operate in. They in some ways have replaced the traditional roles of government by building infrastructure and providing jobs. However, it because, as established in the first essay, outside of regular regulatory control of governments, it is easy for them to overstep their bounds and this is not always something that governments in place can correct. This is why NGOs represent an important check and balance on MNCs.
USAID says that governments need NGOs “for democracy to thrive.” (USAID). According to the Organization for Economic Co-operation and Development (OEDC) NGOs “bring citizen concerns to governments, advocate and monitor policies and encourage political participation through provision of information” (OECD). Adding to this definition is the World Bank’s definition which says NGOS are, “value-based organizations which depend, in whole or in part, on charitable donations and voluntary service.”
While it is difficult to lump all NGOs together since each provides unique services in a variety of areas, one consensus that all three of these influential organizations cited have is that NGOs are necessary for a just state. Works Cited:
"Usaid.com." Usaid.com. N.p., n.d. Web. 19 Dec. 2013. <http://www.usaid.com>.
"World Bank Group." World Bank Group. N.p., n.d. Web. 19 Dec. 2013. <http://www.worldbank.com>.
"oecd.com." oecd.com. N.p., n.d. Web. 19 Dec. 2013. <http://www.oecd.com>.
When a nation fails, MNCs are some of the first to feel the impact. A failed nation state, or a change in regime can be devastating for MNCs. In some cases it has led to them completely losing all assets and operations within a country. All Foreign Direct Investment, or FDI, can be lost in an instant. This is why companies and individuals should opt to invest in countries with stable governments in order for their investment not to be at risk for total or partial loss.
Foreign regimes will be friendly to a MNC operating in their country so long as there is some advantage for them. Many times this advantage comes in the form of wealth, infrastructure development, or a boost to their economy. Under shadier circumstances, this could mean bribes for some officials. The advantages for a company to move to another country is that the country can provide additional resources, a new market for goods, better efficiency, or strategic asset seeking. All other things being equal, a company will choose a country with the more stable government.