Economic power

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So far in this essay I have only focussed on some of the negative aspects of the transnational companies, however there are many theorists and economists that support these economic giants. Many argue that the investment provided by TNCs increases the capital stock, which then increases the income within a country (May 1975)4. However certain critics like Frank (1972)5 argues that such investment does not necessarily increase the income of a particular country as the money that is generated is sent back to the homeland where the company was originally based.

Many who support TNCs argue that they globalise the third world by the introduction of advanced technology, theory and practical skills that can be applied to the developing countries industry ‘to provide them with the means to expand output and incomes and compete effectively in the world economy’ (Vernon 1973) 6 This view coincides with that of Jacobs (2001) who claims ‘to oppose globalisation is to deny people in poorer countries the benefits of knowledge, technological advance, cultural diversity and travel which we in the rich world enjoy.

‘7 However it can be argued that such technologies is not guaranteed to be used to its full capacity. For instance a country’s comparative advantages increasingly lies in its ability to use effectively new technology, which is generally a function of the capacity of its population to absorb new technologies and incorporate them in the production process (Aharoni, 1991)8. However the introduction of technology may not necessarily help or serve the peoples needs as it may displace workers from jobs that already exist.

At the end of the day TNCs are seeking for higher profits seeing the world as one conceptual global space, and is supported by the rapid development of technology in communication, transportation and production. Peter Dicken seems to express this point properly by saying that the TNC is arguably the most important single force creating global shifts in economic activity, and their strategies and operations are much influenced by the forces of technological change. Supporters of the TNCs often claim that by them coming into a third world country to create jobs.

Wages are often higher in comparison to local capital. However as stated before this could also displace workers who originally work for the local capitalist as the TNCs put them out of business. For example Cohen 2000) gives an example of when he lived in the Caribbean, local outlets served wonderfully succulent and spicy portions of chickens. They were then undercut by a certain US ‘brand leader’, which subsidized imported chickens and took losses over a two-year period until it could drive the local firms out of business.

According to Vaitsos (1976) the higher wages that are provided by TNCs are still going to be less than those of the first world in the same job. So it can be argued more jobs may be created but at the expense of poor wages and working conditions. Also many jobs that are given to the people of the third world may involve merely fixing together parts and materials which do very little to build local skills and expertise. They are ‘deskilled’ and ‘alienated’ from their work as illustrated by the work of Braveman (1974)

According to supporters of TNCs, economic growth in a third world country will also lead to economic long-term political stability. However many critics like Noam Chomsky (1997) showed in 1997 how the US government and TNCs cooperated secretly together in order to undermine democracy, and also weaken and damage genuinely free markets. He wrote that the: ‘… assaults on democracy and markets were actually related to each other. Their roots lay in the power of corporate entities that are totalitarian in internal structure, increasingly interlinked and reliant on powerful states, and largely unaccountable on the public.

These unelected and unaccountable corporate entities produce extreme inequality, not only in the Third World countries, but in the rich ones as well, including the USA’9 Chomsky goes on to state that American social policies with TNCs are turning the whole world into an expanded version of the Third World, in which includes a world that inequality goes on expanding through the third and first world. This is due to the fact under globalisation in his opinion most of the profits go to the elite groups of investors and TNCSs.

Since the US is by far the richest country and controls the world economy (with the support of its allies and mainly unelected agencies like the International Monetary Fund, World Trade Organisation), this means, in effect, that the world economy is being adapted inexorably to suit US investors and the US economy. 10 This allows TNCs to undermine governments in the Third World for example the activities of ITT in Chile in 1973. Many Third World governments insist to placate TNCs so they will bring trade to their country.

Competition between poorer countries at attract foreign investment is fierce. Often to offer the best deal to the TNCs, wages are sometime forced down so low that human rights group have compared it to modern day slavery. ‘TNCs may take advantage of the third world willingness to attract foreign investment and so locate to ‘pollution havens’ where environmental controls are less strict. ‘ (Michalowski and Kramer 1987)11 It would be wrong to think that the developing world is completely passive to TNCs exploitation.

States of the third world do not have to be passive receptors but can regulate these activities. As Kiely explains ‘states in East Asia such as Taiwan and South Korea have imposed strict controls over foreign investment. These developmental states have successfully ‘guided the market’ so that capital has to some degree faced the discipline of state regulation’12. For instance if you take the example of South Korea, it has benefited from TNC’s. They have created jobs and generating investment that can be used to develop home grown skills and expertise.

This has a ‘domino effect’ with local businesses, as they benefit too as factory workers spend their earnings and a consumer market also is being developed. South Korea is a country that has gained from such knock on effects. By manufacturing economically, many Koreans now enjoy a standard of living similar to Europeans thanks to the profits from exports. China has also followed this trend. Fuelled by foreign investment, China is now the world’s biggest exporter of clothes, toys, shoes and electronic goods.

Average incomes in urban areas are ten times greater than they were 20 years ago. 13 In conclusion the arrival of a TNC into a country brings a mixed response, as it is welcomed by the government, keen on seeing a boost in economic activity, as well as hoping to see a reduction in unemployment rates, but is disapproved of by environmental campaigners and those who object to any change. The examples of South Korea illustrate the benefits of TNCs. However ‘economic power of this magnitude will have fundamental effects on the global economy, polity and society.

’14 It can be argued both countries and TNCs have interests in each other; the key solution is to find the agreement so that all the interests are satisfied. To make this possible it would be necessary a regulation from the international institutions, and that the action of local governments was efficient and democratic, through legislation, execution of laws.


Abercrombie N. , et al, The Penguin Dictionary of Sociology: Fourth Edition, Penguin Books (2000) Bauman, Z. Globalisation: The Human Consequences, Polity Press (1998) Cohen, R ; Kennedy P Global Sociology Macmillan, (2000)

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