Multinational Background information

Theoretical background

The actions of multinational corporations are strongly supported by economic liberalism and free market system in a globalized international society. According to the economic realist view, individuals act in rational ways to maximize their self-interest and therefore, when individuals act rationally, markets are created and they function best in free market system where there is little government interference. As a result, international wealth is maximized with free exchange of goods and services.

To many economic liberals, multinational corporations are the vanguard of the liberal order.They are the embodiment par excellence of the liberal ideal of an interdependent world economy. They have taken the integration of national economies beyond trade and money to the internationalization of production. For the first time in history, production, marketing, and investment are being organized on a global scale rather than in terms of isolated national economies.

Transnational corporations

A transnational corporation differs from a traditional multinational corporation in that it does not identify itself with one national home. While traditional multinational corporations are national companies with foreign subsidiaries, transnational corporations spread out their operations in many countries to sustain high levels of local responsiveness.

An example of a transnational corporation is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralized headquarters.

Another example is Royal Dutch Shell, whose headquarters are in The Hague, Netherlands, but whose registered office and main executive body are headquartered in London, United Kingdom.

Multinational corporations and colonialism

The history of multinational corporations is closely intertwined with the history of colonialism, with the first multinational corporations founded to undertake colonial expeditions at the behest of their European monarchical patrons. Prior to the era of New Imperialism, a majority European colonies not held by the Spanish and Portuguese crowns were administered by chartered multinational corporations. Examples of such corporations include the British East India Company, the Swedish Africa Company, and theHudson’s Bay Company. These early corporations facilitated colonialism by engaging in international trade and exploration, and creating colonial trading posts. Many of these corporations, such as the South Australia Company and the Virginia Company, played a direct role in formal colonization by creating and maintaining settler colonies. Without exception these early corporations created differential economic outcomes between their home country and their colonies via a process of exploiting colonial resources and labour, and investing the resultant profits and net gain in the home country. The end result of this process was the enrichment of the colonizer and the impoverishment of the colonized. Some multinational corporations, such as the Royal African Company, were also responsible for the logistical component of the Atlantic Slave Trade, maintaining the ships and ports required for this vast enterprise. During the 19th century formal corporate rule over colonial holdings largely gave way to state-controlled colonies, however corporate control over colonial economic affairs persisted in a majority of colonies.

During the process of decolonization the European colonial charter companies were disbanded, with the final colonial corporation, the Mozambique Company, dissolving in 1972. However the economic impact of corporate colonial exploitation has proved to be lasting and far reaching, with some commentators asserting that this impact is among the chief causes of contemporary global income inequality.

Contemporary critics of multinational corporations have charged that some present day multinational corporations follow the pattern of exploitation and differential wealth distribution established by the now defunct colonial charter corporations, particularly with regards to corporations based in the developed world that operate resource extraction enterprises in the developing world, such as Royal Dutch Shell, and Barrick Gold. Some of these critics argue that the operations of multinational corporations in the developing world take place within the broader context of neocolonialism

Criticism of multinationals

Anti-corporate advocates criticize multinational corporations for entering countries that have low human rights or environmental standards. In the world economy facilitated by multinational corporations, capital will increasingly be able to play workers, communities, and nations off against one another as they demand tax, regulation and wage concessions while threatening to move. In other words, increased mobility of multinational corporations benefit capital while workers and communities lose. Some negative outcomes generated by multinational corporations include increased inequality, unemployment, and wage stagnation.

The aggressive use of tax avoidance schemes allows multinational corporations to gain competitive advantages over small and medium-sized enterprises. Organizations such as the Tax Justice Network criticize governments for allowing multinational organizations to escape tax since less money can be spent for public services.