Inter-state relations are the relationships between various nations in the union. The connections require a prosperous administration state and harmonious cooperation among the member countries. The principal role of inter-state diplomacy is to build alliances, networks, and coalitions with other countries to accomplish common goals such as attracting investments or preserving the environment (Adams, 2008). Among such investments may include foreign investments by the multinational corporations (MNCs). Primarily, this paper will define MNCs as a transnational actor and assess its influence on inter-state relations providing brief examples in contemporary world politics to support the argument.
A multinational company is an organization that operates in many nations. Notably, they are also referred to as a multinational enterprise (Kobrin, 2009). Essentially, it is a corporation that delivers services in various states. Further, such organizations play a significant role in globalization. MNCs can make the foreign direct investment through a company located in different states by acquiring an organization in that country or by expanding operations of an existing company. MNCs can also partially or wholly own companies in other countries. Furthermore, MNCs may choose to operate in free-trade zones
MNCs dated back in the 19th century. However, the term multinational corporation became popular in the 1960s (Kobrin, 2009). Since the beginning, the term MNC was defined using jurisdiction terms and potential to raise jurisdiction conflict. Essentially, they were referred to as corporations that have their origin in one country but operate and thrive under the regulations of other nations as well. Foreign investment has been receiving special attention since the 19th century. However, many researchers mainly focus on the macroeconomic impacts of capital flows (Kobrin, 2009). Political implications of foreign direct investment have not received the needed attention.
Some good examples of MNCs include the coca cola company. The American corporation that thrives in the beverage sector was started a century ago. Today, the company operates in over two hundred countries worldwide. The company is famous for acquisitions of companies such as the Minute Maid. Notably, its intentions to buy Huiyuan Juice Group were interrupted on the belief that it would turn into a monopoly in China. The MNCs has been responsible for drying up community water resources and affecting their agriculture in countries such as Guatemala, Russia, Colombia and Turkey (Hills " Welford, 2005). However, through multimillion-dollar extensive marketing campaigns, the company can maintain its image. Nike is another MNC that deals in sports apparel. However, for many years it has been criticized for poor environmental and labor standards (Wilsey " Lichtig, n.d). Even though Nike does not make its products, millions of dollars are spent in marketing them. The reputation of such MNCs is at stake compared to social, economic and political factors of the nations.
MNCs have developed into quasi-governmental organizations that possess an enormous amount of power that impacts on social and community life. The MNCs do this by using all means in their ability to protect the existing government whenever another political party wants to take control. The MNCs aim is to protect their interests through a stable government to avoid disruption of the economic activities. The MNCs vote in favor of the status quo, in most cases an evil government affects citizens socially through authoritarian regimes (Adams, 2008). The exploitative governance is sustained through the protection of the MNCs and interference with the internal affairs. For example, the MNCs sustained President Mobutu in power in Zaire because he favored them. In return, the corporations deteriorated the economy of Zaire.
Since their origin, MNCs have been involved in international trade. As a result, corporations have influenced inter-state relations. The organizations have become profoundly concerned about operating in both foreign and domestic markets, a pathway to affect human rights and economic advancement. Human rights movements focus on the violation of human rights by the state since time immemorial. Countries were considered to be the most significant violators. Unfortunately, with the rise of globalization, the agencies have taken a new path in adopting strategies to protect human rights. Notably, business enterprises have grown to become the most significant violators of human rights (Adams, 2008). MNCs business practices have been receiving lots of complaints as it relates to citizens of various countries. Some of the corporations have committed frightful human rights violation. Unfortunately, it has been hard for governments to hold such organizations answerable. Some of the abuse involving the MNCs include sweatshops, environmental violations, and diamond trade.
According to Prachi (2018), the growth of MNCs is a new way of neo-colonialism. Notably, powerful economies such as the USA and western nations use organizations to dominate the politics as well as the economies of the developing nations. By investing in the emerging markets in developing nations, capital in those countries gets concentrated in the corporations which have their origin in foreign nations. Through the excessive mergers and acquisitions in a country, the MNCs dominate the economies of those nations. The corporations have the power to exploit resources in the emerging markets thereby establishing monopolies. Exports from developing countries, unfortunately, are composed of a more significant percentage that originates from the MNCs. Therefore, the developing countries are not able to escape the economic exploitation. Through the neo-colonialism policy, the MNCs infringe upon the sovereignty of the weaker nations.
Further, the monopolies find their way to get a large share in the natural resources and imposition of different agreements upon such nations to impede the development of the economies so that the economic independence is not attained. The MNCs contribute to the inability of the developing countries to acquire their financial independence, and in return, the political state is affected. For example, in 1967, 243 MNCs were operating in India whose assets stood at Rs. 8967 million. In 1976 the assets had risen to Rs. 16267 million (Prachi, 2018).
MNCs operations are not confined to the economic world alone. The corporations engage in political activities of a nation. The enormous economic powers within the MNCs enable them to manipulate the decision-making process of a nation within which they have expanded the operations. As a result, there have been questions as to whether the political freedom in countries hosting MNCs will thrive in a time when economic power is getting more concentrated in the hands of a few. MNCs lobby for a specific interest. Their goal in political interference is to finance candidates that will favor their operations concerning policies and regulations. Notably, money plays a significant role in elections. Primarily, parties that invest more funds possess greater winning chances (Prachi, 2018). Thereby, by funding such political parties to win, the MNCs gain political control of the countries as well. MNCs also act as fronts for their home country governments thereby interfering with inter-state affairs of the foreign countries leading to political instability. One famous example is the American International Telephone and Telegraph in Chile.
MNCs have their interests that are not or are partially related to the needs of the countries that they expand. Differences in goals regarding social policies lead to a contradiction between the government and the MNCs. Labor issues stand out as the central social conflict. Moreover, employment conditions and regulations differ across countries. Some MNCs have been involved in child labor and other employment law violations. MNCs also use political power to lobby for meaningless projects and to become legitimate corporations in a country (Steinbockova, 2008). Such political powers allow MNC to impact how the governments can regulate trade by taking advantage of legislative processes that are easily exploited.
Democracy is also suffering under the power and impact of multinational corporations. The entities impose illegitimate authority on society that can no longer be ignored. The power of the organizations to rule over policy decisions lead to the shift of income away from the residents of the host countries into the shareholders' pockets. The MNCs has overwhelming power to influence the trade treaties such as the Transatlantic true and investment partnership (Smith, 2015). Such trade treaties give the MNCs the ability to sue sovereign states when the policies adopted by the governments threaten the profitability of the corporations. There over one thousand cases filed by the corporations against governments demanding millions of dollars in compensation.
The growth of the illegitimate power and its concentration among a few corporate elites has dramatically impacted the widespread of inequality, expanding environmental degradation and the undermining of essential public services globally. Sadly, the UN’s Global Compact has since received increased sponsorship from companies that use dirty fuels. Their powers are unshaken. No wonder the international climate change negotiations are bearing no fruits. Multinational corporations are running the world through their political prominence. Governments welcomed investments due to the foreseen benefits, but now fear has gripped them due to the economic takeover that the corporations are demonstrating. The size and political influence of the MNCs will, without doubt, continue to grow (Smith, 2015). Simple projections of the corporations clearly show that within a few years they will be running the world. Notably, governments have failed to take into account the demerits that come with the large-sized organizations and their monopoly advantages.
Governments have a substantial role in influencing the performance and operations of MNCs. It also regulates the environment in which the corporations operate. Further, it has a role in the market and nonmarket transactions through power (Smith, 2015). A government can impose a variety of measures to shield its economy from adverse impacts of MNCs. Majorly, a government can offer financial subsidies to promote domestic MNCs.
Further, the government can also create and implement jurisdiction on hostile takeovers. The government can additionally release public tenders to domestic MNCs. In a situation where the domestic MNCs cannot provide certain services, the role can be outsourced to a foreign MNC on the condition of owning useful controlling powers in the corporate firms.
Governments can also rely on NGOs to cut the effects of MNCs. NGOs, based on the recent study may be able to do much than most governments can. That is, the NGOs may be in a position to alter the way MNCs carry out their operations. NGOs are doing well in forestry and apparel sectors demonstrating their efficiency. Through the use of NGOs, weak policies and ineffective enforcement were delegitimized (Adams, 2008). The organizations were able to sensitize a good number of people to force MNCs to alter their practices. As globalization continues to affect many people, individuals will become aware of the MNCs operations. Unfortunately, NGOs and consumers alone cannot be able to regulate MNCs effectively. States have to come in since they possess the authority and powers to give and revoke legitimacy, monitor and mitigate MNCs (Adams, 2008). However, states may suffer if they rescind the legitimacy of MNCs that is welcomed in another state. Countries, therefore, need to join hands to regulate MNCs effectively. For instance, states gave up sovereignty to form world trade organization or the international criminal court. Member states are restricted to exercise some powers independently. Countries can come together through such organizations to fight the MNCs.
In conclusion, the paper defined MNCs as a transnational actor and assessed their influence on inter-state relations providing brief examples in contemporary world politics to support the arguments. MNCs have led to the erosion of political influence in weaker governments. Through manipulation of political forces, the MNCs can get what they want. Mainly, their interests fail to reflect what the society wants. For instance, Nike moved a majority of its activities from its headquarters to undeveloped markets in Chinese, Indonesia and Asian factories whereby labor is cheap. The MNC is also able to pay low wages and use its financial power to control government legislation policies for its favor. In such events, the citizens are affected. It is increasingly crucial for countries to come together to address the power of MNCs. MNCs have a considerable impact on inter-state relations as discussed in the paper because they play a substantial role in the county’s economy. It is therefore important to address collectively the implications of MNCs on inter-state relations to come up with a strong international body that can regulate the MNCs powers.
Adams, J. R. (2008). A case study of the role of multinational corporations in Sino-US relations and international affairs (Doctoral dissertation, Georgetown University).
Hills, J., " Welford, R. (2005). Coca‐Cola and water in India. Corporate Social Responsibility and Environmental Management, 12(3), 168-177.
Kobrin, S. J. (2009). Sovereignty@ bay: Globalization, multinational enterprise, and the international political system. The Oxford Handbook of International Business (2 ed.).
Prachi. (2018). Role of Multinational Corporations in international politics. Retrieved October 10, 2018, from PreserveArticles: http://www.preservearticles.com/201106208270/role-of-multinational-corporations-in-international-politics.html
Smith, D. (2015, September 21). Who runs the world? Retrieved October 10, 2018, from Equatex: https://www.equatex.com/en/article/who-runs-the-world/
Steinbockova, M. (2008). Multinational Corporations and Nation-states: Partners, Adversaries, or Autonomous Actors? (Doctoral dissertation, Masarykova Univerzita, Fakulta sociálních studií).
Wilsey, M., " Lichtig, S., (n.d). The Nike Controversy