Nov 14, 2020 in Politics

Multinational Corporations

Multinational Corporations: Impact on Developing Countries

Multinational corporations have both positive and negative effects. For poorer developing nations, MNCs effects are larger than in rich industrialized nations. For this reason, I argue in this short essay that for developing countries, MNCs produce mostly negative externalities. I support my argument by providing concrete examples of the negative externality effects of multinationals on developing nation.


Externality and Its relation to Multinational Corporation

Externality is the impact on third parties. There are at least two concerned parties of any agreement or deal. In most cases, such deals have impact on other parties or countries. The world becomes more and more globalized with each passing year. A crisis in one country can cause economic problems in other region or even overall in the world. As an example, one can look at the economic crisis in 2008. Therefore, nothing in this world can stay aside, especially if it is connected with economic processes in the global world. Furthermore, externality has both positive and negative sides.

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Multinational Corporations are large companies in the field of international business that produce and market goods and services, taking into account the specificities of national markets of foreign countries. Coca-Cola, McDonalds, Microsoft, Nokia, and many other companies are vivid examples of MNCs. Recently, TNCs and MNCs have owned the status of subject of international relations. Since they are ruled only by mercantilist interest, it has a bad impact on global society and individuals.

The activity of MNCs has a direct or mediate impact on third parties. Therefore, the term externality is the best one to describe MNCs activity in the modern world. Jerry Brown emphasizes the great impact of MNCs on all spheres of life in this quote:

Multinational corporations do control. They control the politicians. They control the media. They control the pattern of consumption, entertainment, and thinking. They are destroying the planet and laying the foundation for violent outbursts and racial division. That is all true. (Herbrich, 1994)

Therefore, in the near future, all policies can be controlled by MNCs. Although MNCs have a wide range of positive features, they cause many problems in a host country. Some countries try to limit the access of such corporations into their trade market, but such a policy leads to new problems and outputs in development.

Negative Externalities

People say history repeats, and this statement is quite true. Although modern world is globalized to such extent that every sphere of life develops very quickly, some processes are similar to those that have already took place in the past. Nowadays, international economic stable situation is sometimes compared to colonialism (Jensen, 2003). MNCs get profit abroad and repatriate it to their countries. Another externality is the great impact of MNCs on states policies. It is hard to imagine international economic negotiations without MNCs participation. Therefore, they influence decision-making processes in pursuit of acquiring leverage on economic laws in each country. One more disadvantage is technological fraud (Jensen, 2003). Most MNCs do not follow the rules of technological transfer agreements. This neglect of rules leads to the uselessness of agreements for states. Each company in any country has to obey the governmental laws and report principal organs about its activity. Multinational Corporations have privileges not to account powers in any country (Jensen, 2003). They are free in their activity; therefore, they are not controlled. Consequently, little or no accountability is one of the major disadvantages.

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One more externality is that MNCs undermine social and economic rights. MNCs take participation in passing international laws (Jensen, 2003), which affects developing countries greatly. The position of developed countries is much stronger that that position of developing ones; hence, high-developed countries can save economic independence as opposed to weaker countries. MNCs use this feature for their benefits. In some cases, MNCs are dangerous for developing countries. As a rule, developing countries have an unstable and slow economic progress, which means that local companies are not successful. Opening the national market to MNCs leaves no chance for medium business in the host country, which automatically leads to economic decline. Within disadvantages, there is also unmatched budget (Jensen, 2003). No local company can compete with MNCs when it comes to resources. MNCs have great amount of money. They use it to promote their products in the host country, which makes local companies less popular.

The next problem is human rights abuse. Due to globalization, international community enables access for investors, transnational and multinational corporations to the market of different countries (Jensen, 2003). It requires passing new laws that limit a countrys power authority. The main aim of MNCs is to gain profit; therefore, they do not take into consideration human rights during international forums and conferences, where most important decisions are made. Countries compete with each other by attracting investors to their states. It causes new problems since each country makes MNCs free from legal obligations. Therefore, countries transmit pieces of their sovereignty to other international actors on their own (Jensen, 2003). The last externality is the growing MNCs dominance over political institutions. MNCs are under controlled. They choose any country and any employees they want. They only sign agreements that they deem beneficial for them since they are welcome to almost any country in the world. MNCs are not chosen by countries. Conversely, countries are chosen by them. Consequently, MNCs have both positive and negative sides, but the number of disadvantages exceeds advantages.

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In summary, I have provided strong evidence to support my argument that multinational corporations have largely negative effects on developing countries. I have done this in two distinct ways. First, I have explained what externality and multinational corporation are, their significance, and how they are related to each other. Second, I supported my statement about negative impact of MNCs with evidence.


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