The Influential Role Multinational Companies Have in National as well as Global Politics

Introduction

Multinational Corporations (MNCs) first evolved in the late 19th century. However, it was in the post Second World War that multinationals grew rapidly (Cherunilam, 2008) in the new liberalized environment of the Western European nations that were moving towards an integrated Europe, as well as in the United States, where the multinational corporations were already present. The post war period is therefore an important point in the timeline of the growth of the MNCs. Another important factor in the post war period is the newly emerging independent Asian and African nations, which presented new markets to the MNCs. These states also gave an opportunity to the Western nations to continue their imperialism over the Asian and African nations through economic means, now that colonisation was at an end.

The extended colonisation of the developing nations has been termed as neo-colonialism (Nkruma, 1965). As the preferred tool for maintaining this control over the developing nations, has been the economic instrument, MNCs are generally considered to be the agents of neo-colonialism.

The question of the kind of influence MNCs can wield within a nation is not a new question. The question has drawn the interest of political scientists for a long time. Even the powerful East India Company, which is one of the first examples of a true MNC in the 17th century, came to be a politically influential organization and ultimately went on to occupy a quasi-governmental role in the colonies by the 18th century (Darlymple, 2015). Thus, the political power that can be wielded by otherwise non-political corporations that are established solely for the purpose of profit making, is a phenomenon that is not new.

This essay seeks to understand the political influence of the MNCs in the contemporary period where there are many MNCs, both big and small, and there are relevant questions about the nature of the power and influence that MNCs may possess with regard to national and international politics. This question is all the more important considering the important events around the world, that were shaped by or involved MNCs. In the recent past, MNCs with global presence, such as ENRON, Lehman Brothers, General Motors and Toyota, have either broken down or been involved in controversies that also have implications on the issue of their political clout or influence (Dörrenbächer & Geppert, 2011).

The theoretical framework of this essay is based on neo-colonialism approach that is a part of the realism movement. Neocolonialism posits that MNCs do attain political power. The opponents of neo-colonialism believe that MNCs use their market position to influence states into making domestic policies and laws that may violate the interests of the indigenous people (Chua, 2004).

There are two principal arguments that are involved in the essay. The first argument is that MNCs are powerful organisations, sometimes with vested interests in the local or global politics and they do play a role in shaping political events. The second argument is that MNCs play an important role in shaping the national politics as well as global politics also because of the vested interests of the states themselves.

In formulating these arguments, the essay seeks to answer questions relating to the role that the MNCs play in shaping politics of nations and international organizations around the world. The essay also seeks to understand the political influence of the MNCs in the host nations.

MNC- Meaning and nature

Franklin Root defined an MNC as a parent company, which engages in foreign production through its affiliates, which are located in many locations around the world. An MNC exercises a direct control over the policy of its affiliates and it is geocentric in nature as far as the management and strategy of its business it concerned (Ngomba-Roth, 2007, p. 88). Furthermore, MNCs are not evidently interested in being loyal to the host nations, nor do they have any other interest other than global profit maximization. If the MNCs are found to be involved in corporate social responsibilities, then it is only because they want to polish their image within the communities they operate in (Ngomba-Roth, 2007, p. 88).

Therefore, it can be said that MNCs are geocentric business corporations, which are driven by the motivation to maximize their global profits. These companies are not particularly interested in the local lives or politics of the countries that they have their affiliates in. However, in order to maintain a certain image of itself, the MNC may involve itself in corporate social responsibilities.

The above does not answer the important question of its nature that is involved in this study, which is related to the role played by MNCs in global or national politics. Here, to illustrate the point one can take an example of the oil companies, which have established powerful and influential place for themselves in the oil producing nations of Africa. The OPEC was seen as a major measure by which oil producing nations would take back the power and influence wielded by the major oil companies in the world, like Shell or British Petroleum. However, the oil industry is dominated by some oil ‘supermajor’ companies (Ngomba-Roth, 2007, p. 101). These companies have the advantage of a superior access to capital, technology and resources. Some of these oil supermajors may actually have more capital than the GDP of a small African nation. For example, in 2001, EXXONMOBIl’s profit was 15 billion dollars. In the same year, the GDP of Chad was 1.4 billion dollars (Ngomba-Roth, 2007, p. 101). Therefore, EXXONMOBIL actually had a ten times profit in the year as compared to Chad. Clearly, the oil companies would be in a position to wield power and drive political change in the smaller African nations, simply by promising more investments into the host nation’s economy. In this way, corporations are able to influence host nations, especially in the underdeveloped and developing nations. Therefore, neo-colonialism may be exercised by these MNCs as asserted by the critics of neo-colonialism.

Neo-colonialism – Meaning and implications

For the purpose of understanding the context of this essay, it is important to define neo-colonialism and understand its relation to MNCs and developing nations. Neo-colonialism is a term that is used to define the continued domination of the less developed countries by the more influential nations of the world. As a term it has political, economic and social connotations.

Neo-colonialism is generally defined as “an alliance between the leading class or classes of two independent nations, which facilitates their ability to maintain a dominant position over the rest of the population of the weaker of the two nations” (Blanchard, 1996, p. 6). This implies that neo-colonialism is an alliance of the powerful against the weaker. Here, the powerful may be stronger nations and may also be the corporations that are sometimes as powerful as or more powerful than the less developed nations of the world.

Neo-colonialism is considered to have commenced where colonialism stopped. In other words, when colonisation gradually lost its relevance in the post war 20th century, and Asian and African nations emerged as independent and free nations, neo-colonialism, or a new form of imperialism took its place to keep the now independent territories within the control of the colonisers.

The term ‘neo-colonialism’ itself was coined by Kwame Nkrumah, the President of Ghana (Nkruma, 1965). He used the term to “describe the socio- economic and political control that can be exercised economically, linguistically, and culturally, whereby promotion of the culture of the neo-colonist country facilitates the cultural assimilation of the colonized people and thus opens the national economy to the multinational corporations of the neo-colonial country” (Sartre, 2001, p. 23). The exact definition of the term ‘neo-colonialism’ was given thus:

“The essence of neo-colonialism is that the state which is subject to it is, in theory, independent, and has all the outward trappings of national sovereignty. In reality, its economic system and thus its political policy is directed from outside” (Khanna, 2013, p. 338).

Therefore, neo-colonialism sees an otherwise independent and sovereign state being directed by outside agents in the important aspects of its economic and political life. Although there may be many methods by which the colonial states can exercise control over the developing countries, the most effective method for exercising such control is economically. Due to this reason, MNCs are generally considered to be the agents of neo-colonialism (Khanna, 2013, p. 338).

Neo-colonialism is seen as an extension of colonialism, or a new form of imperialism. One of the methods of exercising neo-colonial control over nations is through the economic instrument. Developing countries can be exploited by neo-colonists through continued investment into the industry of the developing countries. Investment into the developing nations is done primarily for greater economic advantage to the corporations, as the labour in developing nations is cheap and many developing nations abound in natural resources that can be used for industrial purposes. At the same time, these big corporations bring in technical know-how and sophisticated machinery into the developing nations. Some critics blame multinationals for exploiting the cheap labour and resources of the developing nations and using this exploitation to create more power for itself (Chapman, 2004). In fact, multinational companies have used the available opportunities in the developing nations when the post war period saw the big corporations looking to expand and also find new markets for their products. Moreover, the corporations found that not only was the labour in these countries was cheaper, the health and safety laws were also lax, and there were lower taxes in these nations (Chapman, 2004, p. 66).

One of the countries that has consistently been accused of neo-imperialism in the last few decades is the United States. What is more disturbing, is that not only the US government, the US corporations, that have a significant presence in the world, are also practitioners of political influence over other nations, so much so that these corporations wield the political power or clout of a nation itself.

It can be said that neo-colonialism and MNCs are related conceptually and there is a merit in a discussion on how far MNCs are involved in neo-colonialism in the host nations. In the following section, the essay discusses the manner in which a discourse around neo-colonialism and MNCs can be constructed and also the important concepts that are involved in such a discussion.

Neo-colonialism and MNCs

An MNC by its very structure is modelled to exert neo-colonialism. Although incorporated in one country (usually a large capitalist country), MNCs have presence in many other countries of the world. Moreover, they can exert their influence due to the fact they are large organisations and have great pools of capital. These MNCs operate across countries and usually exercise their presence in countries through their subsidiaries. In this way, MNCs are able to exercise their control over many markets around the world. At times, the control over the markets may be monopolistic in nature. An example can be seen in context of the big American corporations, such as Coca Cola or Nike. These organisations are large and have a pan world presence.

As one author puts it, the notion of influence and control exercised over smaller and developing nations, goes much beyond the government to the actions of American corporations, which in themselves are large enough to become “small governments in themselves” (Blanchard, 1996, p. 7). In fact, American MNCs have long been considered to exercise much political clout in the US itself. This can be seen in the impact that the powerful gun lobby or the rich oil companies exercise within the US itself (Blanchard, 1996, p. 15). According to Simpson and Sinclair MNCs not only dominate the capitalist world economy, some of these MNCs also have more political and economic power than the smaller less developed nations of the world. (Chapman, 2004, p. 66).

The study on the interrelationships between MNCs and politics has interested political scientists for a long time (Gilpin, 1976). In the 1970s, the inter-relationship was drawn out of different positions of liberalism, Marxism and mercantilism (Gilpin, 1976). The economic liberalism approach contends that MNCs provide many benefits to both home and host nations, due to which they are in a position to exploit economies of scale (Duncan, Jancar-Webster, & Switky, 2009). The critics of neo-colonialism assert that MNCs do not play a positive role in the economies of the developing nations. On the contrary, the critics assert that MNCs are just agents of the neo-colonial practices which assert imperialism and dominance over developing countries through an economic instrument.

The interest in the MNCs’ role in influencing global politics is not unusual, considering that MNCs are seen not only as organizational entities, but also as powerful economic and political players in the global economy (Geppert, Becker-Ritterspach, & Mudambi, 2013). Since after the World War II, MNCs have grown in scope and have come to occupy influential position in the global economy. MNCs have vast pools of resources and as these resources are seen as a source of power, MNCs have become the source of awe as well as animosity (Kegley, 2008). Therefore, it is possible that MNCs do influence political and economic change in the nations that they are involved in. However, it is also worth considering whether these changes are good or bad. In other words, the power to influence change notwithstanding, it is possible that the power is being used for the benefit of the people of host nations.

MNCs and influencing change

MNCs are considered by some critics, particularly, critics of neo-colonialism, as an agent of neo-colonialism. The central reason for such a charge is that MNCs have the potential to influence national and global politics, drive changes in host countries and generally exploit the cheap labour and resources of the host economies, in particular, developing nations (Blanchard, 1996). This would imply that in the first place, MNCs are capable of driving change and create such a powerful impact. But the important question is can the MNCs really “propel changes within nations and amongst them as well as in the global marketplace”? (Kegley, 2008, p. 208).

If one considers the above posited question, there are possibilities of positive as well as negative influence by the MNCs. Positive influence can be seen in the possibility of the technology transfer that the MNCs can do for the benefit of their host countries. However, one common complaint is that MNCs are not really involved in technology transfer as these MNCs keep their technological prowess close to themselves (Cherunilam, 2008, p. 542). Although criticized on this point, it must be noted that MNCs are after all profit making organisations and they operate in extremely competitive environments. In such an environment, it would be unfair to expect that companies like Coca Cola would impart their technological know-how to anyone outside the organization. Regardless, many of the multinational corporations are also involved in corporate social responsibility. This is also an important area of contribution by the MNCs to the host nations, which may help to deflect claims that MNCs are opportunistic and capitalist organizations that are only interested in exploiting the cheap labour and resources in the developing countries. This is in some way aligned to the perception of the MNCs as profit making organizations, where the sole purpose of the corporation is to make profits. This idea was also propounded by economist Milton Friedman, who was very critical of the concept of corporate social responsibility and famously said that the idea lacked academic rigour (Friedman, 1993, p. 249). Nevertheless, corporate social responsibility has become a central concept for many big corporations. It is pertinent at this point to discuss the advent of the concept of corporate social responsibility. Corporate social responsibility is historically rooted in the idea of the social responsibilities of corporations (Carroll, 1999). The advocates of the concept of corporate social responsibility have always drawn a relationship between the social service and profit making functions of the corporations (Hopkins, 2012, p. 2). MNCs have not been immune to the impact of the growth of the concept of corporate social responsibility since the 1930s and the resultant changes that took place in law, economics and politics (Hopkins, 2012, p. 1). In fact, the issues on the basis of which corporations are criticised generally for being agents of neo-colonialism, such as stakeholder theory, and business ethics theory (Carroll, 1999) are the same issues that have come to occupy a central place in the justifications for corporate social responsibility.

For the MNCs, the people of the host countries are important stakeholders and it is increasingly stressed that MNCs must be involved in corporate social responsibility in order to respect the rights and interests of these stakeholders. As is said: “Just as communities contribute via social capital to the profitability of firms and their production of private goods, and to the soundness of government and their production of public goods, so presumably can both the economic and the political spheres…be harnessed to contribute to the welfare of communities and their production of social goods” (Wicks, 2009, p. 556). Therefore, the concept of social welfare and profit making is not antithetic to each other. MNCs can be conductors of positive change as well. In this context, it is pertinent to consider the issue of corporate social responsibility.

Recently, a lot of corporate social responsibility movement has come to the fore in the MNCs around the world. This is one way of influencing change. One perspective on this issue is that MNCs are becoming more sensitive to the issue of corporate social responsibility in their host countries. This includes the impact of human rights on the MNCs as well as the impact of the MNCs on the human rights (Blanton & Kegley, 2016). The other viewpoint is that MNCs are increasingly under the spotlight, especially the scrutiny accorded to their functioning and activities by the NGOs and other social organisations. Due to this increased scrutiny, MNCs are more careful about their corporate social responsibilities as they don’t want to be involved in some crisis that they cannot manage (Blanton & Kegley, 2016). Therefore, in context of corporate social responsibility, there are conflicting views as to the motivations of the corporation to drive such social activities. On one hand, it can be said that these activities are driven by altruistic motivations, and on the other hand, it can be said that the motivations are opportunistic. It is worthwhile to consider these viewpoints in greater depth.

One view is that MNCs are involved in social activities in order to respond to criticism against its role as an agent of neo-colonialism and in exploiting the developing nations. Business enterprises have come under intense scrutiny in the recent period of time. The 2007-08 sub-prime crisis, the failure of major banks and investment funds and the ensuing global depression has brought to fore issues of business ethics. Many Multi National Corporations (MNCs) such as Lehman Brothers, ENRON, Toyota and General Motors have either broken down or been involved in controversies that bring attention to the entire mechanism of the business enterprise and how it affects matters with social and economic significance (Dörrenbächer & Geppert, 2011). It is also said that MNCs are involved in corporate social activities to leverage its corporate social capital, which also acts as a buffer in times of crisis. Corporate social responsibility has become an essential part of corporate policy of companies around the world. This is evident from the fact that more companies are now adopting corporate social responsibility plans as well as companies that are particularly involved in social values. Even laws have responded to this change in countries like the US and France. In the US, ‘Benefit Corporations’ are legislatively allowed and these enterprises combine profit making with the carrying out of corporate social responsibilities (Brown, 2011). In France, under the “New Economic Regulations” law of 2001 listed companies have to publish corporate social responsibilities activities data in their annual reports (Ducassy, 2013)

It is also said that companies are motivated by self gain when they involve themselves in corporate social activities. So, MNCs may involve themselves in corporate social responsibilities in host nations for the leveraging of certain gains from the host economy and its people. Corporate social responsibility may act as a buffer in times of crisis, as found in one study on the relation between levels of corporate social responsibility in the firm (Godfrey, Merrill, & Hansen, 2009). The researchers studies a number of firms during crisis events and found that corporate social performance was like an insurance policy for times of crisis, and in such crises the positive perceptions of the firm helped crisis managers (Godfrey, Merrill, & Hansen, 2009). Due to these advantages, MNCs are actually looking developing corporate social responsibility as an investment (Ducassy, 2013).

Even if the above mentioned arguments are true and the MNCs are actually motivated by self-gain in the involvement in corporate social responsibilities, it does not really help to paint the picture of neo-colonialist MNCs, because if anything, the MNCs are actually involved in some social good and are not the exploiters that they are made out to be. It can be said that MNCs are increasingly aware of their stakeholders and the need to respect the interests of these stakeholders (Semuels, 2014). MNCs are aware that the sole focus on making profits without regard to other stakeholders, such as society would be adverse to the interests of the MNC in the long term and will have a negative impact on its sustainability (Semuels, 2014). Therefore, most big corporations, are increasingly aware of their position in the society and are more responsible in their activities. If that is the case, it is hard to say that MNCs are neo-colonialist agents which simply exploit the interests of the local populations of the host countries. Recently, a lot of corporate social responsibility movement has come to the fore in the business enterprises and MNCs around the world. It is seen that the MNCs have now developed a greater sensitivity to the issue of corporate social responsibility. Especially when these MNCs function in their host countries, they take care to ensure that they work with ethics (Blanton & Kegley, 2016). Here ethics also relate to rights of stakeholders and human rights in general (Blanton & Kegley, 2016).

It is also true that the MNCs are now increasingly under the spotlight. Governments, NGOs and social organisations are now more concerned in the functioning of the business enterprises and this means that now business enterprises have to be more serious about their corporate social responsibilities (Blanton & Kegley, 2016).

Another area of interest is the funding of MNCs. Many of these MNCs are actually funded by Transnational banks (TNBs). Now TNBs themselves are seen as wielding a lot of influence in the global politics. These banks are critical to global financial stability because they are in part responsible for the global economic integration, or at least they play an important role in this integration. These TNBs have led to the interdependence between nations due to the process of economic integration (Kegley, 2008). This makes the TNBs as the funders of the MNCs also a powerful factor in how MNCs are able to shape global politics or politics within a nation.

Multinational Companies and Politics

Multinational corporations affect local and national policies by causing governments to compete with each other to be attractive to multinational corporation investment in their country. Multinational corporations often hold power over local and national governments through a monopoly on technological and intellectual property. The national governments may not have access to similar technology and may not be able to provide the scale of employment to their peoples. At the same time, the MNCs may come into direct conflict with the local populations of a place. The communities within which the MNCs operate are important stakeholders in the MNCs and they may be impacted negatively due to the activities of the MNCs (Calvano, 2008). On the other hand, MNCs too are impacted by the elements of “government stability, internal and external conflict, corruption and ethnic tensions, law and order, democratic accountability of government, and quality of bureaucracy are highly significant determinants of foreign investment inflows” (Busse & Heffeker, 2007). Therefore, it would stand to reason that the MNCs would in fact involve themselves into local politics and social environments in order to ensure that local policies, law and practices do not adversely affect its business and profit.

Because of their size, multinationals can also have a significant impact on government policy through the threat of market withdrawal.

Economic globalization refers to increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, services, technology and capital. Multinational corporations play a key role in this process.

It is also seen that MNCs are actually hurtful to local businesses. Here, the use of patent for creating monopoly is an effective weapon for the MNCs. An area that this phenomenon is increasingly witnessed is in the area of pharmaceuticals (Chauduri, 2014). Pharmaceutical majors often patent their drugs and sell these drugs at exorbitant prices in markets around the world, where the local manufacturers are not allowed to develop these drugs. In this way, big pharmaceutical majors such as Pfizer are able to maintain their monopolistic hold in the market.

When an MNC enjoys monopoly in the market of the host country, it also has the greatest possible bargaining power vis a vis the host country (Oatley, 2015, p. 189). It is usually seen that monopoly is with the MNC because of its access to capital and more importantly to knowledge and technology know how. However, there is an interesting aspect to this bargaining power which is seen some years after the investment was made by the host country. Here, the investment becomes fixed and therefore, the MNC cannot simply pull it out. This is called as obsolescing bargain and it favours the host country (Oatley, 2015, p. 189).

The biggest influence that are seen to be driven by the MNC in the host states’ polity, is the wrangling of tax benefits from the host state. These tax benefits may include tax holidays of up to 5 years at a time, which the host state provides as an incentive for the MNC to create a fixed investment in the host state (Oatley, 2015). Similar such incentives are usually not given to the local businesses. Clearly then the MNCs are coveted by the state as well due its potential to create and generate employment.

Implications

The principal implications of the arguments are that MNCs, if they are influential enough to shape changes within the host nations and also as between different nations, are not mere profit making corporations but political movers. This would mean that governments are influenced by the MNCs and respond to the MNCs in both making laws and regulations, as well as crafting important aspects of economic or finance policy. This would have several implications, and may even be a strong argument for those who oppose globalisation for the same reason that MNCs use the process of globalisation to wield economic, social and cultural influences in the host economies and even to the detriment of local businesses, culture and social processes. In other words, this aspect of MNCs influence many be used by those who oppose globalisation to make a strong point in their favour.

Although there is some literature available on the issue of MNCs and the role they play in global politics, it a fact that most of the literature on MNCs has failed to address this aspect of the MNCs role. Mostly, literature is focused on the other areas, such as culturalism in MNCs, or managing host and home nations, or the headquarters approach that focuses on how the headquarters and other offices within the MNC respond and react to one another. The role that MNCs play in shaping global politics has not received as much attention, although there are some writers that have focused on this aspect also (Blanton & Kegley, 2016).

Conclusion

MNCs are corporations that function on a grandiose scale. It is involved in foreign production through its affiliates, which are located in many locations around the world. As such, an MNCs interests and aspirations are not limited to any state or region in the world. An MNC exercises a direct control over the policy of its affiliates and it is geocentric in nature as far as the management and strategy of its business it concerned. The critics of neo-colonialism have tended to view MNCs in a critical light. They allege that MNCs are agents of neo-colonial powers who want to continue exerting dominance and control over the earlier colonies. The only difference between the older colonialism and neo-colonialism is that in the latter the instrument of choice is invariably the economic instrument. Therefore, for that reason, MNCs are involved in exploiting the developing countries and they take advantage of cheaper capital and resources in the developing countries for their opportunistic profit making objectives.

On the other hand, the supporters of MNCs allege that MNCs are actually beneficial to the host economies and they are also involved in corporate social responsibilities, which are for the benefit of the host economies. To this, the critics point out that any involvement in the social activities, is not out of altruistic purposes, rather, it is for the objective of gaining more corporate social capital and advantage, which acts as a buffer for the corporation in times of crisis.

The MNCs are usually in a stronger bargaining position with respect to host states because of the economic and social benefits that MNCs may provide, including the generation of employment and a better GDP. Due to this MNCs are able to drive important political and legal changes that are to its own benefit.

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