Sustainable Development: The Role of Multinational Corporations

Topics: Sub-Saharan Africa, Development, Developing country Pages: 9 (2556 words) Published: November 28, 2013
Sustainable Development: The Role of Multinational Corporations Gary Quinlivan, PhD
Saint Vincent College

The economic role of multinational corporations (MNCs) is simply to channel physical and financial capital to countries with capital shortages. As a consequence, wealth is created, which yields new jobs directly and through “crowding-in” effects. In addition, new tax revenues arise from MNC generated income, allowing developing countries to improve their infrastructures and to strengthen their human capital. By improving the efficiency of capital flows, MNCs reduce world poverty levels and provide a positive externality that is consistent with the United Nations’ (UN) mission — countries are encouraged to cooperate and to seek peaceful solutions to external and internal conflicts.

It follows that a supporting role for the UN would be to motivate developing countries to achieve the necessary political and economic environment that attracts foreign direct investment (FDI). Nations lacking FDI have common characteristics: they have economies that are heavily dependent on government regulations and controlled by inefficient state-operated monopolistic enterprises, and they tend to have non-democratic regimes. As a consequence, these nations are experiencing extreme rates of poverty, repressed human rights, and excessive environmental damage. These problem countries are primarily concentrated in Sub-Saharan Africa, South Asia, North Africa, and the Middle East.1

An important role currently undertaken by the UN is the provision of a valuable and detailed assessment of the economic impact of MNCs through its publication of the World Investment Report. In addition, the UN’s publication of the Human Development Report and the World Bank’s World Development Report, provide researchers with a broad picture of trends in world welfare. These reports, however, present static measures of income inequality and are thus too limiting. According to Nancy Birdsall and Carol Graham, the UN and World Bank should also analyze measures of mobility.2 Studies that focus only on income inequality, as emphasized by Jere Behrman, may be highly misleading because countries may have identical income distributions but far different social welfare levels due to differences in economic and social mobility.3

The primary thrust of this paper is to examine the myths and facts about MNCs that underlie public opinion and thus shape public policy.4 In particular the paper addresses the following questions: Are profit-motivated MNCs engaging in destructive competition and insidious plots to economically and politically manipulate entire economies? Are MNCs methodically eliminating domestic firms in order to exploit their monopoly powers? Do MNCs export high-wage jobs to low-wage countries? Are MNCs undermining the world’s environment? Are MNCs augmenting the external debt problems of developing countries? Are MNCs perpetuating world poverty? Do MNCs exploit child labor?

Monopoly Power?

Competition is not destructive, it has compelled MNCs to provide the world with an immense diversity of high-quality and low-priced products. Competition, given free trade, delivers mutually beneficial gains from exchange and sparks the collaborative effort of all nations to produce commodities efficiently.

Has the monopoly power of MNCs grown? Granted, some MNCs are very large: as of 1998, they produced 25 percent of global output, and in 1997, the top 100 firms controlled 16 percent of the world’s productive assets and the top 300 controlled 25 percent. Firm size and market power, however, are dynamic. The Wall Street Journal (WSJ) annually surveys the world’s 100 largest public companies ranked by market value.5 Comparing the rankings in 1999 to that of 1990, there were five new firms (Microsoft, Wal-Mart, Cisco Systems, Lucent Technologies, and Intel) in the top ten. Four of the five new firms were not even in the top 100 in 1990. Even more...
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