The 21st century version of colonialism.
Theme: Political Shenanigans
Length: 3,000 words
Reading Time: 10 minutes
We often hear or read about the shenanigans of law officials and politicians, but we seldom hear any news about the power plays that are pulled by banks and corporations which are an order of magnitude more consequential.
The last post, The Power Play Tactics of Trans-National Corporations (2022-7-20), conveyed an excerpt from a Pakistani conference paper published in 2014  that described “10 Bright Aspects of TNCs” which effectively served to seduce developing countries. This post relays another excerpt from the same paper that reveals how trans-national corporations exert a hegemonic influence that is detrimental to the developing country and its citizens.
The overall message contained in these two posts is how international corporations colonize emerging economies through economic entrepreneurship and political alliances, not done by force of arms, but through the lure of $$$ and “modernization”.
I’ve taken the liberty to enhance the English and add relevant images and links to improve the overall delivery and readability.
Dark Aspects of Trans-National Corporations
Being a Trans-National Corporation (TNC) usually inculcates big size, advanced knowledge, abundance of resources, economies of scale, cutting edge technology, high bargaining power, and most importantly, plentiful financing to back up every venture. These resources provide them the latent advantage to play the game of their choice, on the grounds of their choice, and by the rules of their own choice. TNCs silently or boldly use the tactics of a power play to meet their usually hidden and rarely declared objectives. The literature on TNCs provides a grave critique of them as power players, but provides a naïve understanding of how they do it.
Since TNCs are the primary agent of interdependence occurring in the international economic system, their increasing importance puts serious limits on the state’s control of the domestic economy. Factors such as internalization, intra-firm trading, and transfer-pricing hide the actual international transactions and thus, decrease the ability of the national government to control its economy. By lacking this supervision over market activities, the government’s interests get into serious conflict with Multi-National Corporations’ (MNC) goals: The government needs the information about the market transactions in order to achieve its economic policy objectives, while the MNCs seek to internalize their transactions as much as possible in order to save extra costs, especially those designed for tax contributions. This pattern emerges from the fact that MNCs and nation-states have different goals when assessing and controlling market dynamics. There is no reason to claim that MNCs and nation-states always have conflicting objectives, however, there is no reason to assume that they will be identical or even substantially overlapping.
This study attempts to bring forward a few of their power tactics, therefore, revealing the dark side of TNCs, as briefly discussed below.
1. Stagnating Living Standards of Laborers
The philosophy of maintaining a competitive advantage is one of the strongly existing ideas behind the decision to go international. The interplaying factors behind such decisions include the availability of raw material, labor costs, infrastructure, political support, logistics, and location strategies. TNCs intentionally select specific combinations of these factors that yield lower costs, cheaper acquisitions, greater production, easier maintenance, and speedier distribution bases for their products. One significant factor is that TNCs reportedly pay the laborers deployed at the production bases in the host country in accordance to the local wage rates, which are far lower than those prevailing in the TNC’s home country. These local wage standards (in the host country) are developed by their government in accordance to the local economic conditions, and only ensure the minimum levels of economic benefits of an activity which are necessary for one’s basic survival in that economy. Adherence to the local wage standards does not provide laborers any chance of improving their living standards. This results in the stagnation of the living standards of the laborers in the host country while the transnational capitalists accumulate the marginal difference between the wage rates in the home and host countries. In addition, the labor conditions are poor and labor unions are often absent. Laborers are reported to work overtime in addition to their normal working hours in order to earn some extra money, which they usually end up by spending on their traumatic miseries or ceremonial needs. Therefore, in spite of the appearance of having great opportunities, laborers continue to grapple with poverty and hasten towards their natural deaths. A coinciding dilemma of this phenomena is that it is in the TNC’s interests to keep the poor in a vicious cycle of poverty, as doing conversely may result in a shortage of labor which is a clear threat to their competitiveness.
2. Taxation and Transfer Pricing
Almost every emerging political economy urges for FDI inflow, bringing with it employment generation, an acceleration of economic activity, an inflow of sophisticated knowledge, technology, international best practices, etc., and therefore attract TNCs to include them (nation-states) in their (TNC) global operations. In this effort, the governments usually fall into a bargaining trap with the TNCs, granting them special tax rates and other concessions in their regulatory system. Such tax discounts further increase the already huge competitive gap between the TNCs and their local competitors. Therefore, it inflicts an irrecoverable wound to the local industry. The TNCs also take advantage of the special transfer pricing rates between the home and host countries. This strategic step helps the TNCs become more competitive in the host market, as well as reaping the benefits of accumulating larger earnings through market sales in the wealthier home country.
TNCs are highly resourceful and strictly adhere to their goals. The TNCs goals may or may not be acceptable to the host nor even to the home country in some cases. When TNCs do not find their purposes being fulfilled in a simple and straightforward manner, they attempt to find another way around the hurdle, often by brutally deploying the weapon of corruption to eliminate any obstacles that are preventing them from reaching their goals.
Normally, TNCs involve the top level bureaucrats by offering them direct and indirect undue personal benefits in return for their commitment to guard the TNC’s interests through the regimentation of law or through the manipulation of regulatory procedures. This weapon of corruption is usually deployed through licensing, taxation, accounting procedures, financial reporting, information disclosure, concealing the norms of corporate conduct, violating the prevailing labor laws so as to operate in a racist or authoritarian manner, and engaging in brinkmanship in conflicting areas until the opposing party concedes to their demands, etc.
4. Environmental Damage
The literature and current affairs reflect that environmental awareness has been increasing rapidly during the last few decades, especially in the first world countries, giving rise to an intense public concern over environmental issues. New groups, forums, and classes of ecofriendly consumers have emerged in the global market, especially in North America and the member countries of the European Union. This awareness has forced governments to pass laws prohibiting practices damaging the environment and to adopt all kinds of environmentally friendly practices in business affairs. These measures invariably prove to be costly to TNCs and therefore detrimental to their goal of maintaining a competitive market position.
This situation has instigated the TNC decision makers to take solid steps to remove the unethical and environmentally damaging practices from their corporate firms located in first world countries – the majority of which are the home countries of those TNCs. Instead, they shift these practices to the appropriate production facilities in emerging political economies eager to host TNC factories. The TNCs, already being more sophisticated in technology and quality management than these third world countries, give an excellent presentation before the regulatory bodies of the host country and cleverly conceal the negative environmental effects of their operations in the host country. In some cases, the host countries are aware of the risks and accept them anyway in exchange for monetary gain. In case their real face is exposed, the weapon of corruption is there to solve the problem.
TNCs do not hesitate to damage the air, water, and soil for the sake of exploiting resources, or dumping hazardous wastes. The author of this study, during his past, has closely observed a European pesticide giant who had incorporated a dummy business in Pakistan with an objective to import and dump pesticides approaching their expiry date – pesticides which were not allowed to be dumped in the air, land, or water throughout Europe.
5. Threats of Sacking the Contracts
Trans-National Corporations usually are in a stronger position than nation states when it comes to bargaining over contracts. In almost all cases, their entry in the host country is a pleasant event, but their departure may carry devastating effects. When TNCs enter an economy, all the stakeholders in the home and host countries express positive feelings. The hosting stakeholders welcome the TNCs, as their arrival means a bulk of FDI inflow and increased economic activities in the country, which implies employment generation, more tax revenue at the corporate and individual level, a new range of products in the local market, etc. Whereas, the investing stakeholders feel safe to open a new market, which in the long run, shifts its wealth to their economic system.
TNCs, being huge, establish an eco-system comprised of key individuals and business networks around them as part of their backward, forward, horizontal, and vertical value chain linkages which ultimately rely on their (TNC) activities. This symbiotic condition alleviates their already strong position before the national governments and sometimes even before the global polity institutes. In such conditions, keeping this ecosystem intact itself becomes a tough challenge for the host government, as little disturbances may result in a backward drift of several decades to the national economy. In case of any conflict between government and TNCs, sacking the contract would become the worst nightmare for the host economy. However, in cases where the TNCs wind up business on their own will, they develop and implement an exit strategy which reduces the incurred losses to the hosts.
In Pakistan, the sports goods giant Nike sacked its production contract in 2006 on six months’ notice. This incident, although reportedly due to some conflict between the brand and the vendor (Saga Sports), resulted in the unemployment of 7,000 soccer ball stitchers. The repercussions from this breach of contract further affected 60,000 dependents directly or indirectly, and later become the prime reason for the distorted image of the host country around the globe. The rehabilitation of jobless soccer ball stitchers and their families become a serious challenge for the government, which was later solved after a series of dialogues with its final round between Sialkot Chamber of Commerce and Industry, the Prime Minister of Pakistan, and the executives of Nike in Bangkok. Although Nike eventually came back to the host country with many strict terms, a revised code of conduct, and a new monitoring policy, Pakistan lost its reputation as the leading soccer ball producer and the goodwill of soccer fans around the globe. The damage was irrecoverable – the country which was once the producer of 80% of world’s soccer balls is now struggling hard to sustain a 20% share in the global market.
6. Promotion of Consumerism
TNCs have ample resources in terms of technology, knowledge, innovation, and finance, and they operate on large scales to remain competitive. Such large scale production requires acquisition, distribution, purchasing, consumption, and waste disposal at an equal pace, and therefore entails advertisement, sales strategies, shipments, and aggressive marketing campaigns to localize products alien to the host culture. As a result, consumerism spreads throughout the host economy. A few authors have even blamed TNCs for promoting the materialistic American dream of living a lavish and luxurious life which produces high levels of stress among individuals.
In fact, TNCs have well developed strategies to reap the full benefits of the increased economic activity in the system in which they operate. Promoting consumerism, in garb, is an intelligent way of creating and expanding a market in which consumer goods are exchanged for an individual’s savings; therefore, providing an effective way of siphoning out wealth from the host country and accumulating wealth in the TNC’s home country. This phenomenon also produces a deceleration in the process of national wealth creation.
7. Bullying through ‘Ethics’ and Licensing
The inherent characteristics of TNCs, such as its large size, resources, manpower, knowledge, technology, political position, bargaining power, etc. are the essential ingredients used when formulating any strategy. TNCs display their power in both the home or host country through the promotion of ‘ethics’. Their aggressive strategies not only ensure the fulfillment of their objectives, but also to snub or even crush any of competitors. They wisely use their export policies, franchising, licensing, intellectual property rights, brand protection management, etc. for this purpose. If the imposition of ‘ethics’ fails, they do not hesitate to silently cross the ethical boundaries at certain times in order to take lead over their competitors.
8. The Sovereignty of the Host Nation-State is at Stake
Trans-National corporations are not bound to any country or nation-state; instead they are bound to their own incorporation having the objectives of attaining a market position and profiteering. If the environment in any host and/or home country becomes unfavorable to them, nothing can stop them from relocating their enterprises to another place of their choice, such to obtain a more favorable environment. Secondly, they acquire such a strong bargaining position that they can take smaller governments hostage to fulfill their agenda. In such conditions, they brutally use their powers to bring their selected agents into positions of authority, which is a severe damage to the democratic process.
No nation-state is safe. Even the flagship democratic countries are held hostage to TNCs. This phenomenon has brought the worst historic example on record when a cartel of oil companies intervened in the U.S. political system to ensure the election of President George W. Bush, twice; a President who later fulfilled his commitments by invading Iraq and giving them access to her rich reserves of oil and gas. All these proceedings and happenings were portrayed in the colors of political, social, and ethical theories by the international media, who itself is the prime partner in creating this criminal ethos with the power to create a hyper-reality in the media. Meanwhile, innocent humanitarian citizens, having grave trust in the government and media, still consider it as a ‘war for peace’ and a ‘war on terror’ between a ‘good’ and a ‘bad’ nation-state; whereas the TNCs have silently reaped all the benefits.
According to Vernon , it is crucial to note that many TNC-state conflicts have always been fueled by the duality of foreign subsidiaries and the use of extraterritorial actions. According to him, Multi-National Corporations serve as vehicles facilitating the extraterritorial reach of one state into the domain of another. TNCs are also used as a passive intermediary for channeling the home country’s influence into the host country. This phenomenon of TNCs being used as the primary vehicle of imperialism can be found throughout history.
9. Selling Back Local Resources at a Premium
Transnational corporations select their host countries on the basis of their location and resources (raw material, man-power, etc.). TNCs, particularly those engaged in the trade of Fast Moving Consumer Goods (FMCG), use ‘local people’ to process ‘local material’ to produce the ‘foreign product.’ This ‘foreign product’ is then advertised as ‘export quality’ or ‘a symbol of having an up-graded lifestyle’; and therefore, is sold back to the ‘locals’ at high premiums. This type of strategy can be described as ‘moving back to go forward’ on the part of TNCs. Another example of this phenomenon is how TNCs engage in the trade of bottled drinking water, fruit juices, etc. TNCs add nothing to these products except the packaging and foreign brand identity, for which the ‘locals’ must pay a premium price. This transfer of wealth to TNCs thereby fulfills their agenda of wealth accumulation.
10. Hyper-Growth Strategies
Trans-National Corporations are very aggressive when it comes to their growth. They use their powers of capital and knowledge to win at the warfront of their own choice. TNCs use the tools and techniques of mergers, acquisitions, joint-ventures, and alliances in both positive and negative ways to ensure their hyper-growth. The objective behind this hyper-growth is not to become an effective ‘market player’, but rather to become the ‘market leader,’ more accurately phrased as the ‘market controller’ with their monopolistic bent of mind.
Sources and References
- Asghar, Ali. “Power Play of Transnational Organizations in Emerging Political Economies.” SSRN Electronic Journal (2014) 1349-1353. doi:10.2139/SSRN.2432811.
- Peebles, D.M., Ryans, J.K., Vernon, I.R. and Willis, J.R., “International Advertising Strategy”, European Journal of Marketing, 11:8 (1977) 564-576. https://doi.org/10.1108/EUM0000000005034
- Transparency International: In Bangladesh, Corruption Kills Hundreds (2013-4-26)
- In These Times: How We Can Hold American Companies that Use Sweatshop Labor Accountable (2015-4-13)
- Institute on Taxation and Economic Policy: American Corporations Tell IRS that 61 Percent of Their Offshore Profits Are in 10 Tax Havens (2017-11-5)
- Amerika (Brett Stevens): How The World Is Changing (2019-7-6)
- Σ Frame (Jack): As the Worlds Turn… (2019-8-22)
- ABC Finance: The Companies More Profitable Than Countries (2020-2-1)
- The National Interest: “Century of Humiliation”: China Hasn’t Forgotten the Opium Wars (2021-4-24)
- Real Business Rescue: Companies that are worth more than countries (2022-2-2)
- Σ Frame (Jack): Mandated Agricultural Failures (2022-7-11)
- Lexet Iustitia: Big Beef is to Blame (2022-7-22)