MNCs in the global economy have allowed globalization to thrive full throttle. But overall, how much have they really been universally beneficial?
A (Very Rapid) Crash Course On MNCs In Global Economy
Multinational companies/ corporations or MNCs for short are plenty in this day and age. And why not? For all the technological advancements we are witnessing, there are still opportunities for growth, especially in least developed and developing countries.
The question we should be asking is if these opportunities produce an absolute good effect in terms of increased labor benefits and standard of living. The truth is not so difficult to dissect.
The general mission statement of MNCs tend to imply that this instrument of globalization is mutually beneficial; both for them and the local economy they operate in. This encourages the local governments to be more accepting of MNCs. They believe that the presence of MNCs in their countries will improve their standard of living. This sadly happens less often than expected.
MNCs are decentralized private companies, so their bottom line is large profits. Whatever actions they take or plan to take are centered on achieving this bottom-line. A key component in obtaining this is having the lowest possible cost. Additionally, it does not hurt if the host countries have a small number of legal obligations and hurdles. So what better places to incur such costs than the least developed and developing countries?
The Ugly Side of MNCs in Global Economy
The Financial And Economic Sides
For example, consider the countries in the Latin American region. A 2017 International Labor Organization report shows that employees from the host countries suffer from low salaries, low glass ceiling in management roles and minimum labor inspection. The same report outlines surprising statistics regarding the immediate benefits of the foreign direct investments in the Latin American countries.
Moreover, between 2003-2013, the number of direct employment due to foreign direct investment was only 5% of the gross employment in the region. At the same time, there were no apparent social benefits in association with the foreign direct investments. They were very meagre relative to the expectations.
MNCs also have the dangerous scope to become a monopoly for a particular good or service in least developed and developing countries. Even if they are employing local employees to operate in that country, they can drive out local firms and businesses. For a developing country’s economy, this could spell catastrophe which is why local governments need to provide greater oversight to MNCs. Although, it may not always be possible to provide such oversight if the country’s government lacks resources to do so.
The Environmental Side
MNCS in the global economy have the privilege of originating from countries that are very environmentally and socially aware of their production and operating activities. Yet, when they are working in least developed and developing countries the same rules do not apply for them. For instance developed countries are very strict when it comes to the consumption of cigarettes by their country’s inhabitants. This preserves the environment as well as keeps the practice of underage smoking under restraint.
On the contrary, the same is not applicable for the least developed and developing countries. The cigarette producing MNCS in those countries are not directly liable and responsible for this. They do however, have the platform to make a difference. They could advocate for better smoking laws by telling governments that they will hire more local individuals in managerial roles if better smoking laws are enacted and implemented. Yes, this is an extremely wishful thinking as companies everywhere care primarily about the revenue and rarely about social welfare. But this is achievable if profits and social welfare are handed equal priorities.
This is just an example of how a specific industry in the MNC sector could innovate and make a lasting change in the host countries they operate in. Such innovation is applicable for the other sectors as well.
How MNCs in global economy are beneficial
While it is true that most MNCs are exploitative in their practices micro-economically, it would be prudent to understand how it achieves positive results macro-economically.
The establishment of MNCs creates a network between countries. This network allows exchange of products between countries which in turn fosters international relationships . The spread of products in particular allows countries to lower inflation if planned properly.
For example, if goods and services created by MNCs have lower prices per unit of output due to economies of scale, local producers will feel inclined to lower their prices too. This action results in the value of money to increase thus lowering inflation. Although, this only happens in the anomalous event when all the local producers in a country are not faring well due to low prices of the MNCs.
MNCs also help least developed and developing countries by introducing innovative goods and services in the economy. They achieve this via research and development using internal funds. More often than not, firms and businesses in less privileged countries require funds from their government for research and development. However, they do not obtain adequate said funds which is why they rely on the MNCs to do the research and development for them.
A good MNC is easy to spot as well. If it is achieving great results financially in the host countries from the get go then it is a positive sign. This shows that the MNC has done its research before setting foot in a new country. The effort to perform research about a country’s consumers before entering it shows that the MNC cares about the consumers.
So Are MNCs good or bad?
There is no definitive answer to this. Like all entities in a capitalistic economy, MNCs have their pros and cons. History has shown that being nationalistic and refraining from consumption of foreign goods and services have stalled economic growth. At the same time, fully relying on non-locally produced goods and services stalls economic growth as well; if not in the short-run, then in the long run.