Globalization and the effect of the
transnational corporations in the less developed countries.
In attempting to investigate whether
globalization may be regarded as an opportunity for the development of all the
countries of the world, the present essay examines when and in which situations
globalization is an opportunity or a treat for the country; since transnational
corporation are linked to the economic dimension of globalization we will
analyze the result of the influence of those companies in Latin America.
The first section of this essay offers a
general definition of globalization, and analyze this process of interaction,
international trade, and investments. Furthermore, the consequences of
globalization as the key for the future economic, cultural and social
development or the treat that will bring more inequality between different
The second section introduces the
transnational corporations (TNCs) whit a definition and its history, since 700
BC to 2000 century.
The third section investigates the
reaction of the introduction of the transnational corporation in the less
developed countries mainly after the Second World War, and pay attention in the
difference between the Latin American and the Asiatic countries.
In conclusion, there is the need to find the right
balance between benefits and costs associated with globalization, citizens of
all nations need to understand how globalization works and the policy choices
facing them and their societies, and understand when the transnational
corporation helped the global economy.
Globalization is a historical process, is
the result of the human innovation and of the technological progress, this
phenomenon developed due to an increase in interaction between powerful
countries of all the world and thanks to the trade agreements and financial
flows between those. This process has an impact on the culture, on the
environment, on the human well-being in societies around the world and also on
the political system, because this includes a loss of economic sovereignty.
Its dimensions vary from economic,
political, social, and cultural applications. The term can be defined as a
transforming process that converts local transactions and deals into global
The globalization offers huge
opportunities to reach a real development many governments have adopted
free-market economic systems, vastly increasing their own productive potential
and creating new opportunities for international trade and investment.
Governments also have negotiated reductions in barriers to commerce and have
established international agreements to promote trade in goods, services, and
investment. Taking advantage of new opportunities in foreign markets,
corporations have built foreign factories and established production and
marketing arrangements with foreign partners. A defining feature of
globalization, therefore, is an international industrial and financial business
structure, but this progress is not reached uniformly because some countries
are integrating into the economy with more rapidity than others.
Countries that achieved this development
saw a diminishing in poverty, incrementation in the life condition of the
population, develop the economic plan and achieve improvement on the
environment and on the work conditions, like in the Asiatic case called ‘the
East Asian Miracle’ that has opened its economy domestically and
In the 70-80 years a lot of the Latin
American countries as opposed to the Asiatic countries, implemented policies to
the internal sector like a closed economy and that led to the collapse of those
economies, whit increasing of poverty and high inflation.
Globalization is deeply controversial the
opportunities that offers have some risk and weakness, like the volatility of
the capital flows, and the risk of the deterioration of the social wellbeing,
consequence the poverty, like the financial crisis in the market that
influenced all the developed countries. Proponents of globalization argue that
it allows poor countries and their citizens to develop economically and raise
their standards of living, while opponents of globalization claim that the
creation of an unfettered international free market has benefited multinational
corporations in the Western world at the expense of local enterprises, local
cultures, and common people, also there is another aspect that is the
Dependency Theory (Prebisch) in which economic
development of the periphery is seen as a nearly impossible task, because for
some countries the economic development is influenced by the developed countries,
for example, some undeveloped countries
have been exploited, or in other cases there is only an improvement of the
periphery but those will never arrive to a full economic development.
means the expansion of the worldwide political system (Koshy, 2001). In the
hyperglobalist opinion, political globalization challenges the nationalism,
which leads to the decline of national-state and the loss of national
sovereignty (Koshy, 2001). International organizations including the World
Trade Organization (WTO) and the European Union (EU) superseded the
nation-states to take the lead in decision-making (Haynes, 2003). Many states
sovereignty is weakened when the membership in intergovernmental organization
asks them to hand over (Agnew, 2009).
However, skeptics propose
political globalization in many ways, again. They say that states retain
autonomy and sovereignty unevenly (Agnew, 2009). Some states have gained, and
some have lost political power, for example, many states become stronger with
more social democratic policies. They also suggest that there is a great power
inequality between the states (Liedekerke, 2000). The most powerful nations
would use those international political body as a tool to impose their will for
their own benefit and to exempt themselves from restrictions when it is
disadvantageous to them (Koshy, 2001). Oppositely, some weak nations, perhaps,
have no freedom to speak their will in front of these most powerful nations. In
contrast to another two views, transformationalists see political globalization
in a relatively positive way (Haynes, 2003). They think there is a shared
sovereignty between nation states and international organizations (Haynes,
2003). Nation states still have the power to make important decisions. States
and international political body cooperate with each other to solve the global
problems, such as demands for human right, environmental pollution,
developments in international transport and communication (Haynes, 2003).
continues to be the most widely accepted solution to ensuring consistent
economic growth around the world.
transnational corporation, the national-state and the enterprise begin whit the
Treaty of Westphalia in 1648, this treaty is seen as the starting point of the
nations-state and the first anonymous company in England. Historically the
nations-state has been the most powerful and important organization; but now
this is changing. Since its origin, those organizations are evolving in particular,
the enterprises and the multinationals.
This change is due to States that are conferring their competences to
the supranational organization, and also the development of technologies is playing
a significant role because technologies are controlled by transnational
The result is a new balance of power, the transnational corporations are
spreading quickly and becoming more and bigger, concerning of income and
contribution to the PBI, these multinationals are in the most powerful
countries of the world like USA, EU, and Japan, but now are establishing
subsidiaries in one or more other countries, the subsidiaries report to the
central headquarters. All this process is affecting the international order, and
the agreements that regulate the international relations between state and
Transnational corporations have a direct impact on the economic,
political and social environment of the countries in which they operate, they
have the ability to both positively and negatively affect individuals and human
rights. This is because these corporations generate large amounts of both
income and wealth for their host countries, and also provide prominent levels
of employment in markets which traditionally are notable for their high levels
of unemployment, albeit generally at very low levels of income.
TNCs act as modernizers of the world economy. It is reflected as a
result of constant promotion of modern technologies and introducing innovations
across the world. Especially they are active by introducing technologies to
relatively remote places. Multinational corporations are likely to
establish interconnection between the domestic economies of some isolated
countries and the world’s greatest economies, in addition to that, they promote
But The negative side of TNCs can be seen in the scenarios when
companies tend to make usage of cheap labor and relatively rich natural
resources of a country Moreover, multinational companies are known to rarely
take care of the well-being of the country where they place their businesses.
The main goal for such corporations is to get as much profit as possible. (The
Trade is the core element of transnational corporations, in fact the
history of transnational corporations (Gabel, Medadrd 2003), start in the
700-1600 BC with the first opening to the international trade, economic routes
like the Silk Road, Roman road.
-1300-1600 born the European enterprises like the Medici’s Family or the
-1600-1800 there is an expansion of the global trade thanks to companies
like the English East Indian Company and the Virginia Company.
-1800-1914 there is the first global economy the industrialization, the
migration movement and is after the First World War that there is the
development of the modern multinationals companies.
The last period is between 1914-2000, were after the Second World War there
is a leader of the USA’s multinationals, that goes diminishing in the 60ties
with the development of the European companies and in the 70ties of the
Especially since the 1980s, TNCs’ involvement at international political
negotiations and fora has accompanied and encouraged the rise of global
corporate economic power. In an effort to reduce barriers to trade and
investment capital flows in the last decade, TNCs have lobbied vigorously to
shape to their liking Europe’s Single Market agreement, the North American Free
Trade Agreement (NAFTA), and the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT). For TNCs, so-called free trade lessens governmental
restrictions on their movement and ability to maximize returns.
Finally, A transnational corporation can be defined as a firm or company
that has the power and ability to coordinate and control operations in more
than one country, even where actual ownership does not reside in that firm or
company (Dicken, 2009), we can distinguish between transnational corporations
that are known for the fact that there is no centralized office in a certain
country (Cromwell) and the Multinational corporation, that in their turn, have
headquarters in a single country, however, the main activity of these companies
take place in several countries and continents.
The ability of transnational corporations to shape and define the global
economy is without dispute, as is their ability to influence the regulatory
frameworks within which they operate or seek to operate, given that countries
have significant variances in laws regulating economic activity.
A representative case is Latin America, that since the second half of
the 19th century, around the 1870s, is called the primary goods
export economy. Latin America is considered the part of the periphery of the
global economic system (Prebish), in this period of political uncertainty,
established, under an open free economic policy, focusing on export of their
primary goods to industrially advanced nations such as the UK.
The industrialization of the undeveloped countries was achieved thanks
to the borrowing and improving the technologies that were created by the
companies of the developed countries, technologies that were transferred to the
backward countries with the transnational corporations; this transfer of
technologies sometimes was not adequate for the undeveloped countries, because
the backward countries want technologies adequate for them that will optimize
the work conditions, but the most of the times the multinationals corporations
did not have any incentive to develop technologies good enough to solve the
unemployment in this countries.
Dicken theorizes that the transnational corporations influence the host
economy in five different ways:
-Capital and finance, the major part of capital used is the one of the
developed nations, but some companies use the host economy’s capital, this is
the problem of the transfer pricing, where the TNCs could set its internal
price and adjust it in its favor.
-Technology, is the power of the transnational corporations and have the
capacity of maintaining and exploiting new technologies, that firstly are
introduced in the domestic economy and that in the host economies but whit some
-Trade and foreign relations, las TNCs have and important role in the
expiration and importation of goods and service and develop strategies to
improve these relations.
-Industrial structure, A TNCs have a huge influence on the host economy,
a negative aspect: a TNCs could destroy domestic business of the host economy
and two positive aspects: create new opportunities, and could create a spin-off
-Work, employment: create new work opportunities and high salaries.
But like Prebish theorize, as long as the developing countries go on
specializing in producing and exporting the primary goods, their dealing
conditions with advanced countries who exported the industrial goods would
deteriorate in the long term to the point where the developing countries would
not be able to get out of their underdeveloped situation. This happened in
Latin America when the United States of America developed their productivity
and Latin America’s countries were not able to implement the resources that the
transnational corporation brought to their countries, so the commercial trade
and the economical development was influenced by every movement of the
developed economy, and this dependence limited the power and the autonomy on
the making decision process for de less developed economy.
The transnational corporation have influenced this countries, in Chile,
transnational corporations abandoned most of their production activities,
Argentina witnessed a reduction in TNC production activities because their
import coefficient rose steeply, in Mexico TNC served as key agents for the
country’s integration with the United State by expanding or reducing the size
of these branches of industry as needed and boosting their import and export
level sharply, and in Brazil TNC took a basic strategic decision to carry out
an adjustment that would allow them to maintain their production units.
But this was not the case for the Asiatic countries that achieved the
economic development thanks to the intervention of the state, and whit the
direct intervention in the economy, important for the development of these
countries was the creation of institutions that promoted the technological
progress, like for example the case of Taiwan. In Latin America is important to
work in order to formulate policies and develop the institutions to promote the
high technologies manufacturing.
The Asiatic countries have implemented the
policy of the selective protectionism and did not opened their economy until
they were not ready for the competition, then they opened their economies to
the multinational companies and organizations of rich countries. This movement
provides countries with extra employment opportunities for both genders and
contributes the governmental efforts in fighting unemployment. In addition, it
has liberated people from the strong bond to their own customs that refuse
coping with other nationalities through exporting jobs and business deals.
Finally, we can summarize that the formation of TNCs was a reflection of
the effective capital allocation need in terms of conditions of economies being
internationalized. Although TNCs existed in the past, their boom has started in
the era of globalization. Transnational corporations are one of the driving
forces of international production internationalization.
Gilpin, an American economist, sustain that those transnational
corporation widened the gap between the developed and undeveloped countries, it
is important to consider that there is no incentive through which transnational corporations contribute to
generating productive linkages in the host economies, furthermore when we
consider if the foreign direct investment produce or not a bad economy
distribution in the host economy, we have to remember that the economy growth usually
to create disparities (R.Frank and Freeman, 1978). But also the cause of this
disparity is that the host economies do not have a powerful political system
and a strong bureaucracy, and emerge the weakening position of national states.
The multinational companies and the international production reflect a world
where the capital and the technology have been even more interconnected, but at
the same time the workforce is still at the same level and did not improve.
Additionally, Prebisch propose a solution, the creation of international
organization, that organize and supervise the relations between the developed
and undeveloped countries, and most important the world economy has to cater
the necessities of the host economies improving the access to the market,
giving more decision power, and reducing the cost of innovative technologies.
The result is the internationalization of the industrial production that
was the creation of a complex network of relations binding between the
nation-state and the companies of all the world.
Some critics argue that transnational corporations exhibit no loyalty to
the countries in which they are incorporated, but act solely in their own best
interest. Transnational corporations with headquarters in the United states
have played an increasingly dominant role in the world economy. This dominance
is most pronounced in developing countries that rely primarily on a narrow
range of exports, usually primary goods. A transnational organization has the
ability to disrupt traditional economies, impose monopolistic practices, and
assert a political and economic agenda on a country; eve thought there have
always been periods of protectionism and nationalism in the past, but
globalization continues to be the most widely accepted solution to ensuring
consistent economic growth around the world.