Globalization and the effect of thetransnational corporations in the less developed countries.In attempting to investigate whetherglobalization may be regarded as an opportunity for the development of all thecountries of the world, the present essay examines when and in which situationsglobalization is an opportunity or a treat for the country; since transnationalcorporation are linked to the economic dimension of globalization we willanalyze the result of the influence of those companies in Latin America. The first section of this essay offers ageneral definition of globalization, and analyze this process of interaction,international trade, and investments. Furthermore, the consequences ofglobalization as the key for the future economic, cultural and socialdevelopment or the treat that will bring more inequality between differentcountries.The second section introduces thetransnational corporations (TNCs) whit a definition and its history, since 700BC to 2000 century. The third section investigates thereaction of the introduction of the transnational corporation in the lessdeveloped countries mainly after the Second World War, and pay attention in thedifference between the Latin American and the Asiatic countries. In conclusion, there is the need to find the rightbalance between benefits and costs associated with globalization, citizens ofall nations need to understand how globalization works and the policy choicesfacing them and their societies, and understand when the transnationalcorporation helped the global economy.
Globalization is a historical process, isthe result of the human innovation and of the technological progress, thisphenomenon developed due to an increase in interaction between powerfulcountries of all the world and thanks to the trade agreements and financialflows between those. This process has an impact on the culture, on theenvironment, on the human well-being in societies around the world and also onthe 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 atransforming process that converts local transactions and deals into globalones. The globalization offers hugeopportunities to reach a real development many governments have adoptedfree-market economic systems, vastly increasing their own productive potentialand creating new opportunities for international trade and investment.Governments also have negotiated reductions in barriers to commerce and haveestablished international agreements to promote trade in goods, services, andinvestment. Taking advantage of new opportunities in foreign markets,corporations have built foreign factories and established production andmarketing arrangements with foreign partners. A defining feature ofglobalization, therefore, is an international industrial and financial businessstructure, but this progress is not reached uniformly because some countriesare integrating into the economy with more rapidity than others.
Countries that achieved this developmentsaw a diminishing in poverty, incrementation in the life condition of thepopulation, develop the economic plan and achieve improvement on theenvironment and on the work conditions, like in the Asiatic case called ‘theEast Asian Miracle’ that has opened its economy domestically andinternationally. In the 70-80 years a lot of the LatinAmerican countries as opposed to the Asiatic countries, implemented policies tothe internal sector like a closed economy and that led to the collapse of thoseeconomies, whit increasing of poverty and high inflation. Globalization is deeply controversial theopportunities that offers have some risk and weakness, like the volatility ofthe capital flows, and the risk of the deterioration of the social wellbeing,consequence the poverty, like the financial crisis in the market thatinfluenced all the developed countries.
Proponents of globalization argue thatit allows poor countries and their citizens to develop economically and raisetheir standards of living, while opponents of globalization claim that thecreation of an unfettered international free market has benefited multinationalcorporations in the Western world at the expense of local enterprises, localcultures, and common people, also there is another aspect that is theDependency Theory (Prebisch) in which economicdevelopment of the periphery is seen as a nearly impossible task, because forsome countries the economic development is influenced by the developed countries,for example, some undeveloped countrieshave been exploited, or in other cases there is only an improvement of theperiphery but those will never arrive to a full economic development. Politically globalizationmeans the expansion of the worldwide political system (Koshy, 2001). In thehyperglobalist opinion, political globalization challenges the nationalism,which leads to the decline of national-state and the loss of nationalsovereignty (Koshy, 2001). International organizations including the WorldTrade Organization (WTO) and the European Union (EU) superseded thenation-states to take the lead in decision-making (Haynes, 2003).
Many statessovereignty is weakened when the membership in intergovernmental organizationasks them to hand over (Agnew, 2009).However, skeptics proposepolitical globalization in many ways, again. They say that states retainautonomy and sovereignty unevenly (Agnew, 2009). Some states have gained, andsome have lost political power, for example, many states become stronger withmore social democratic policies. They also suggest that there is a great powerinequality between the states (Liedekerke, 2000). The most powerful nationswould use those international political body as a tool to impose their will fortheir own benefit and to exempt themselves from restrictions when it isdisadvantageous to them (Koshy, 2001).
Oppositely, some weak nations, perhaps,have no freedom to speak their will in front of these most powerful nations. Incontrast to another two views, transformationalists see political globalizationin a relatively positive way (Haynes, 2003). They think there is a sharedsovereignty between nation states and international organizations (Haynes,2003).
Nation states still have the power to make important decisions. Statesand international political body cooperate with each other to solve the globalproblems, such as demands for human right, environmental pollution,developments in international transport and communication (Haynes, 2003).However, globalizationcontinues to be the most widely accepted solution to ensuring consistenteconomic growth around the world. Thetransnational corporation, the national-state and the enterprise begin whit theTreaty of Westphalia in 1648, this treaty is seen as the starting point of thenations-state and the first anonymous company in England. Historically thenations-state has been the most powerful and important organization; but nowthis 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 tothe supranational organization, and also the development of technologies is playinga significant role because technologies are controlled by transnationalcorporations.The result is a new balance of power, the transnational corporations arespreading quickly and becoming more and bigger, concerning of income andcontribution to the PBI, these multinationals are in the most powerfulcountries of the world like USA, EU, and Japan, but now are establishingsubsidiaries in one or more other countries, the subsidiaries report to thecentral headquarters. All this process is affecting the international order, andthe agreements that regulate the international relations between state andorganization. Transnational corporations have a direct impact on the economic,political and social environment of the countries in which they operate, theyhave the ability to both positively and negatively affect individuals and humanrights. This is because these corporations generate large amounts of bothincome and wealth for their host countries, and also provide prominent levelsof employment in markets which traditionally are notable for their high levelsof unemployment, albeit generally at very low levels of income.TNCs act as modernizers of the world economy. It is reflected as aresult of constant promotion of modern technologies and introducing innovationsacross the world.
Especially they are active by introducing technologies torelatively remote places. Multinational corporations are likely toestablish interconnection between the domestic economies of some isolatedcountries and the world’s greatest economies, in addition to that, they promoteglobalization.But The negative side of TNCs can be seen in the scenarios whencompanies tend to make usage of cheap labor and relatively rich naturalresources of a country Moreover, multinational companies are known to rarelytake 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. (TheEconomist 1997) Trade is the core element of transnational corporations, in fact thehistory of transnational corporations (Gabel, Medadrd 2003), start in the700-1600 BC with the first opening to the international trade, economic routeslike the Silk Road, Roman road. -1300-1600 born the European enterprises like the Medici’s Family or theMuscovy Company.
-1600-1800 there is an expansion of the global trade thanks to companieslike the English East Indian Company and the Virginia Company.-1800-1914 there is the first global economy the industrialization, themigration movement and is after the First World War that there is thedevelopment of the modern multinationals companies. The last period is between 1914-2000, were after the Second World War thereis a leader of the USA’s multinationals, that goes diminishing in the 60tieswith the development of the European companies and in the 70ties of theJapanese companies.Especially since the 1980s, TNCs’ involvement at international politicalnegotiations and fora has accompanied and encouraged the rise of globalcorporate economic power. In an effort to reduce barriers to trade andinvestment capital flows in the last decade, TNCs have lobbied vigorously toshape to their liking Europe’s Single Market agreement, the North American FreeTrade Agreement (NAFTA), and the Uruguay Round of the General Agreement onTariffs and Trade (GATT).
For TNCs, so-called free trade lessens governmentalrestrictions on their movement and ability to maximize returns. Finally, A transnational corporation can be defined as a firm or companythat has the power and ability to coordinate and control operations in morethan one country, even where actual ownership does not reside in that firm orcompany (Dicken, 2009), we can distinguish between transnational corporationsthat are known for the fact that there is no centralized office in a certaincountry (Cromwell) and the Multinational corporation, that in their turn, haveheadquarters in a single country, however, the main activity of these companiestake place in several countries and continents. The ability of transnational corporations to shape and define the globaleconomy is without dispute, as is their ability to influence the regulatoryframeworks within which they operate or seek to operate, given that countrieshave significant variances in laws regulating economic activity.A representative case is Latin America, that since the second half ofthe 19th century, around the 1870s, is called the primary goodsexport economy. Latin America is considered the part of the periphery of theglobal economic system (Prebish), in this period of political uncertainty,established, under an open free economic policy, focusing on export of theirprimary goods to industrially advanced nations such as the UK.
The industrialization of the undeveloped countries was achieved thanksto the borrowing and improving the technologies that were created by thecompanies of the developed countries, technologies that were transferred to thebackward countries with the transnational corporations; this transfer oftechnologies sometimes was not adequate for the undeveloped countries, becausethe backward countries want technologies adequate for them that will optimizethe work conditions, but the most of the times the multinationals corporationsdid not have any incentive to develop technologies good enough to solve theunemployment in this countries.Dicken theorizes that the transnational corporations influence the hosteconomy in five different ways: -Capital and finance, the major part of capital used is the one of thedeveloped nations, but some companies use the host economy’s capital, this isthe problem of the transfer pricing, where the TNCs could set its internalprice and adjust it in its favor.-Technology, is the power of the transnational corporations and have thecapacity of maintaining and exploiting new technologies, that firstly areintroduced in the domestic economy and that in the host economies but whit someadditional costs.-Trade and foreign relations, las TNCs have and important role in theexpiration and importation of goods and service and develop strategies toimprove 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 economyand two positive aspects: create new opportunities, and could create a spin-offeffect. -Work, employment: create new work opportunities and high salaries.
But like Prebish theorize, as long as the developing countries go onspecializing in producing and exporting the primary goods, their dealingconditions with advanced countries who exported the industrial goods woulddeteriorate in the long term to the point where the developing countries wouldnot be able to get out of their underdeveloped situation. This happened inLatin America when the United States of America developed their productivityand Latin America’s countries were not able to implement the resources that thetransnational corporation brought to their countries, so the commercial tradeand the economical development was influenced by every movement of thedeveloped economy, and this dependence limited the power and the autonomy onthe 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 theirimport coefficient rose steeply, in Mexico TNC served as key agents for thecountry’s integration with the United State by expanding or reducing the sizeof these branches of industry as needed and boosting their import and exportlevel sharply, and in Brazil TNC took a basic strategic decision to carry outan adjustment that would allow them to maintain their production units. But this was not the case for the Asiatic countries that achieved theeconomic development thanks to the intervention of the state, and whit thedirect intervention in the economy, important for the development of thesecountries was the creation of institutions that promoted the technologicalprogress, like for example the case of Taiwan. In Latin America is important towork in order to formulate policies and develop the institutions to promote thehigh technologies manufacturing. The Asiatic countries have implemented thepolicy of the selective protectionism and did not opened their economy untilthey were not ready for the competition, then they opened their economies tothe multinational companies and organizations of rich countries. This movementprovides countries with extra employment opportunities for both genders andcontributes the governmental efforts in fighting unemployment.
In addition, ithas liberated people from the strong bond to their own customs that refusecoping with other nationalities through exporting jobs and business deals. CONCLUSION Finally, we can summarize that the formation of TNCs was a reflection ofthe effective capital allocation need in terms of conditions of economies beinginternationalized. Although TNCs existed in the past, their boom has started inthe era of globalization. Transnational corporations are one of the drivingforces of international production internationalization.Gilpin, an American economist, sustain that those transnationalcorporation widened the gap between the developed and undeveloped countries, itis important to consider that there is no incentive through which transnational corporations contribute togenerating productive linkages in the host economies, furthermore when weconsider if the foreign direct investment produce or not a bad economydistribution in the host economy, we have to remember that the economy growth usuallyto create disparities (R.Frank and Freeman, 1978). But also the cause of thisdisparity is that the host economies do not have a powerful political systemand a strong bureaucracy, and emerge the weakening position of national states.
The multinational companies and the international production reflect a worldwhere the capital and the technology have been even more interconnected, but atthe same time the workforce is still at the same level and did not improve.Additionally, Prebisch propose a solution, the creation of internationalorganization, that organize and supervise the relations between the developedand undeveloped countries, and most important the world economy has to caterthe 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 thatwas the creation of a complex network of relations binding between thenation-state and the companies of all the world. Some critics argue that transnational corporations exhibit no loyalty tothe countries in which they are incorporated, but act solely in their own bestinterest.
Transnational corporations with headquarters in the United stateshave played an increasingly dominant role in the world economy. This dominanceis most pronounced in developing countries that rely primarily on a narrowrange of exports, usually primary goods. A transnational organization has theability to disrupt traditional economies, impose monopolistic practices, andassert a political and economic agenda on a country; eve thought there havealways been periods of protectionism and nationalism in the past, butglobalization continues to be the most widely accepted solution to ensuringconsistent economic growth around the world.