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Do Trans-National Corporations Help More or Harm More

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Han Yuh Ding A0110466N
Do Trans-national Corporations Help More or Harm More?

“Globalization” is a popular term that originated in the 1980s to describe the process of increased interconnectedness among nations, through the movement of people, information, investments and goods across national borders. The presence of Trans-national Corporations (TNCs) in many economies today has sped up the process of globalization and the impacts of TNCs is a hotly debated issue now. From an economic viewpoint, TNCs bring about more benefits than negatives to host nations and I will be illustrating this in the remaining part of my essay by bringing in TNCs like Nestlé, Nike, Monsanto and Walmart, just to name a few.

One undisputed economic benefit that TNCs brings is that it creates jobs and helps to alleviate the problem of unemployment in developing countries.

TNCs actively exploit the principle of comparative advantage and often produce in a country or a region with lower costs of production input, for example, labour costs or material costs. Due to the cheaper labour costs that can be found in less economically developed countries, many TNCs choose to set up their manufacturing plants in these countries and it has opened up more jobs for the locals, especially for the low skilled workers. Nestlé, for example, operates 28 factories in the African continent today and provide direct employment to 14000 Africans and indirect employment to more than 50,000 (Nestlé, 2012). In addition, there are 70 factories and 312,828 workers in Vietnam producing apparels for Nike which can be found on their website (Nike, 2013). These TNCs provide low-skilled workers with job opportunities, a steady source of income and helps to alleviate part of the high unemployment rate that are faced by developing countries. It is found in a 2012 United Nation Conference on Trade And Development (UNCTAD) report that “foreign affiliates of TNCs employed 69 million workers” as of 2011 and majority of it comes from developing countries(United Nations Conference on Trade and Development, 2012).

However, as the old cliché ‘there are always 2 sides to a coin’ goes, there are some economists who criticize TNCs for threatening the livelihood of locals because of their sheer size or huge market power at times.

TNCs are big corporations who are able to reap economies of scale in some industries and produce at a lower cost, which can potentially price their direct local competitors (individuals or firms) out of the market. Walmart, for example, has put many small local grocery stores out of business because of their inability to compete with the low prices that they have to offer. In a paper published by Professor Kenneth Stone who teaches Economics at Iowa State University, it was found that the retail trade of some small towns could decrease significantly by half within ten years of a Walmart store opening (Stone, 1997). In addition, there also exist TNCs who dominate the market because of their huge market power and their actions in return can have irrevocable damage on the livelihood of locals who depend on their products. One clear example is Monsanto, who monopolizes the Genetically Modified (GM) seeds with a market share of 90% and has brought harm to many local Indian farmers. Due to Monsanto’s dominance in the GM seed market, they were able to set their Bt cotton seeds, which many local Indian farmers are highly dependent on, at a high price. However, the seeds did not thrive well in India’s climate, and many farmers took their own lives because of the debts that they have incurred. Furthermore, the monopolization of Monsanto has made it impossible for the farmers to turn to other alternatives.

However, on a deeper analysis, the negative impact of threatening the livelihood of locals by TNCs can actually be curbed with proper governance. Governments can actually intervene by implementing sound economic policies if they find that TNCs are destroying more jobs than creating them. Bringing back to the example of the disastrous impact that Walmart has on small local retailers, the government of India has crushed Walmart’s plans to invest in the country because of “new regulations that discourage foreign investment.” (Sheffield, 2013) On the other hand, the Indian government has also revoked Monsanto’s license to sell their GM cotton seeds after an increasing trend in the deaths of local farmers.

Therefore, with proper governance, as seen from the above paragraph, the host nations can minimize the negative impact while harnessing the vast employment benefits that other TNCs can bring to them at the same time. Furthermore, the instances when TNCs destroy more jobs than creating them are rather few and it can be seen that TNCs generally do create more jobs rather than destroying them

Secondly, TNCs also help developing countries by bringing in economic benefit in the form of monetary investment. TNCs invest heavily by shipping monetary capital to the host nations in order to expand their production capacity overseas. Nestlé alone has set aside US$1.4 billion dollars to invest in its production capacity in Africa by 2015 (McGregor, 2011). If used appropriately, this large sum of money can aid in the economic development of developing countries. Less developed countries do not possess vast amount of reserves that are required for investment in development projects like economic and social infrastructure, and foreign capital that is contributed by TNCs help to bridge this gap.

Despite all the potential economic benefits that TNCs bring, many activists have criticized that these economic benefits come at the expense of human rights. Many TNCs have come under fire by various human rights groups for this approach, which is being deemed as an exploitation of labour. It has been found that many workers are lowly paid despite toiling for long hours, and working conditions are very unpleasant. However, on a deeper analysis, this might not be a serious issue after all. While the pay and working circumstances may appear to be inferior by the standards of developed countries, they are actually significant improvements over what the low skilled workers had before, with their low qualifications. These “sweatshops” are still better than subsistence farming and other menial labour that low skilled workers in developing countries commonly do. In addition, TNCs have also recognized that working conditions are far from ideal and have participated actively in Corporate Social Responsibilities (CSR) programmes. For example, Nike has instituted after hours education and microenterprise loan programs for employees (Hartman and Wokutch, 2003) to provide them with an opportunity to upgrade themselves in the hope of finding better jobs with better qualifications. Levi Strauss also aims to improve the nutrition levels of employees by offering them subsidized healthy food, which is more efficient than merely increasing wage levels (Radin 2003).

Therefore, with an increased effort from TNCs over the recent years, they are still able to bring economic benefits to developing countries in terms of employment while minimizing human rights concerns at the same time.

In conclusion, TNCs do in fact bring more benefits than harm to host nation from an economic viewpoint mainly in the form of employment and investments. While I do recognize that there exist potential harms in rare instances when TNCs destroy local jobs or infringe upon human rights, I believe that these negative impacts can be curbed and minimized with proper governance by host nations and an increased effort on the part of TNCs.

Bibliography
Nike. (2013). Nike Sustainability, Interactive Map. Retrieved 2013, from Nike. Inc: http://manufacturingmap.nikeinc.com/#
United Nations Conference on Trade and Development. (2012). World Investment Report 2012. Geneva: United Nations Publications.
Nestlé. (2012). Nestlé EAR Factsheet. Retrieved 2013, from Home | Nestlé Global: http://www.nestle-ea.com/en/aboutus/nestléearfactsheet
McGregor, S. (2011, July). Nestle Plans to Invest $1.4 Billion in Africa, Buy Local. Bloomberg News .
Stone, K. E. (1997). Impact of the Wal-mart Phenomenon on Rural Communities. Chicago: Farm Foundation.
Sheffield, C. (2013). India's Bureaucratic Nightmare Kills Wal-Mart Retail That Could Benefit Millions in Poverty. Forbes.
Hartman L, Wokutch R (2003) Nike, Inc.: corporate social responsibility and workplace standard initiatives in Vietnam. In: Hartman L, Arnold D, Wokutch R (eds) Rising above sweatshops. Praeger, Westport pp 145-190
Radin T (2003) Levi Strauss & Co.: implementation of global sourcing and operating guidelines in Latin America. In: Hartman L, Arnold D, Wokutch R (eds) Rising above sweatshops. Praeger, Westport, pp 249-292…...

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