Introduction
The impact of globalization on the world states is very profound. It’s no longer possible to regard a country as having its own separate economy. This trend has seen the subservience of countries in control over their currencies and foreign trade. Countries have lost control of financial flows in their economy and subsequently, their political influence curtailed. The major beneficiaries of these fundamental changes have been transnational corporations (TNCs). Their influence has transcended their traditional roles in trade and finance to influence local and international politics. The total number of transnational corporations has seen remarkable growth. The number has grown from 7,000 in the 1970s to over 65,000 by 2002. They have over 850,000 affiliates operating around the world, with a third of the world GDP and one-third of the total world exports. (UNCTAD, 2007).
Main body
By virtue of their strategic capacities and positioning, the transnational corporations (TNCs) are able to influence major development activities and strategies in the field of lobbying, agenda-setting, and other public debate (Doris Fuchs, 2003). The corporations are engaged in a variety of political activities at all levels of the political sphere; at community and urban levels and unto national and global politics. Although non-political groups have always influenced international relations, the rising impact of numerous groups exemplified by transnational corporations (TNCs), social movements and advocacy networks, international criminal networks, have acquired increased visibility in world politics. The current economic crisis has revealed the perverse impact of the transnational corporations, such that even the economically superpowers like the U.S. and European countries are helpless against the transgressions of the transnational companies and other speculators.
Their impact on trade is also profound; e.g. when goods move physically across frontiers, it may seem sometimes seems like trade between countries while it may in actual fact may be intra-firm trade. The intra-firm trade is estimated to account for one-third of all world trade in goods (UN 1995: 37). This reaches half of the trade-in manufacturing countries (UN 1988: 91-2). Since intra-firm trade is regulated differently from inter-country trade, governments have no clear control of their financial and fiscal policies on the transnational corporations. The TNCs aggravate this further by distorting transfer prices including evasion of custom levies on the cross-border trade and profit repatriations. Countries, therefore, encounter difficulty in regulating international transactions. Trade control over international borders is evaded by the TNCs, even direct import or export of goods. This type of evasion is called triangulation, where there is no guaranteed method of controlling indirect trade between nations. (UNCTAD, 2007).
Of the top 100 transnational corporations with the highest asset levels outside their home countries, 50 are European in origin, 27 from the U.S., 17 from Japan, and 3 from Canada, one each from Australia and Venezuela, and South Korea. The transnational corporations now are able to evade control by states over their financial transactions, evade trade sanctions and production regulations. The government’s sovereignty is therefore greatly eroded. The transnational companies sometimes choose to engage in rigid arbitrage; this is when the TNC objects to one country’s policy and threatens to limit or close down its local assembly lines and subsequently increase production in another country. They then choose the country with the least demanding health, safety, welfare, or environmental values. The decreasing significance of territorial jurisdictions has added to the greater impact of the transnational’s as they control access over the mobility of capital, the crucial access to international communication networks, and the financing and production/manufacturing firms as a source of power (Scholte, 2000).
The advent of modern complexities in societal orders and relentless tribulations in economic growth has led to a loss of confidence in the abilities of politicians and politics ability to facilitate public development either in the economic sphere or in communal affairs. On the contrary, the influence and impact of the transnational corporations and their perceived orientation towards the needs and economic expertise in business, is very profound, ranging from the developing countries to the developed economies. The transnational corporations have grown into gigantic mammoth conglomerations as they continue to engage in takeovers and mergers as the transient government funds face up to an ever-increasing financial wealth of the TNCs. (Fuchs, 2005).
Various leaders, including politicians, have come to acknowledge the importance of transnational corporations in the global arena. Traditionally the corporation’s firms exercised economic rather than political power, however, the emergence of international trade and finance, led to the crumbling of political authority, the rise of non-political actors, and the ambiguity between private and public spheres. These new non-political groups wield political authority in the internal system (Kobrin, 2008).
The transnational corporations exert their influence on the host countries either directly: through diplomatic pressure via the embassy; and also directly via the government ministries. The TNCs also exert control indirectly by requesting their own governments to pressurise other foreign countries in their favor; and also indirectly by raising a general policy matter in an international organization. Other methods of applying pressure are used, e.g. trade associations both local and international to influence policy matters. This has the effect of making the TNCs influential political actors (Willetts, 2001). Transnational corporations create clashes of sovereignty between different governments. When the TNCs are operating in more than two countries, there is generated a conflict on which regulation the company will adopt for its operations. Governments are, therefore, forced to accept that the TNCs can, within certain confines, control their own policies like in purchasing, production, and sales. The change of one country’s policy on the TNCs can conflict with the other states where the TNCs are resident. This problem is known as extraterritoriality and is inherent in the structure of transnational corporations.
The advent of international treaties, multilateral and bilateral trade agreements, regional pacts e.g. European Economic Commission, NAFTA, etc., all provide a forum and legal rights to the TNCs including the right to resort to international law to challenge governmental actions and infringement of property rights. This represents a loss of sovereignty by states as they submit to binding arbitration. In 2002, the United Nations announced that it had “abandoned” its procedure of relying on government administration to deal with HIV/AIDS in developing countries and would turn to finance corporate companies to supply the anti-retroviral drugs. This is an example of transnational firms taking over duties traditionally the responsibility of governments by supplying public goods. The need for private rating agencies to judge the creditworthiness of a country in order for them to access international capital has also further eroded the sovereignty of states. Initially states negotiated between themselves and the international lending agencies like World Bank and IMF, but now borrow funds from transnational banks “over the capacity of sovereign nations to access international capital…” (Abdelal and Brunder, 2005) These firms function like states in the international political system exercising private political authority.
The use of the internet for international trade, where firms like Amazon.com, eBay are major transnationals further complicate regulatory issues faced by governments. Digital transactions and digital communications where even international broadcasts are transmitted to hostile states to influence and market goods to hostile countries have further aggravated the regulatory spheres exercised by the governments. China and France’s futile attempts to regulate digital cyberspace exemplify this. This has led to questions as to where a digital transaction occurred; located in two dimension geographic places may no longer be theoretically applicable (Kobrin, 2008).
Conclusion
The economic and political impact of transnational corporations (TNCs) cannot be overstated in view of the current global crisis felt across most of the globe. The fact that the financial crisis starting in the U.S. has impacted the whole world, calls for better regulations, less independence, and the influence of the TNCs on the arms of governments. The transnational corporations’ role in international politics is no longer restricted in the traditional indirect participation like lobbying governments and policy positions, but they now set standards, provide civic supplies, and contribute to global discussions. (Kobrin, 2008).
The TNCs have even been endorsed by the United Nations, the communion of states. “The rights of transnational corporations have increasingly become enshrined in national legislation and are better defended in obligatory arbitrations before international tribunals, which are undoubtedly true.” John Ruggie, U.N Principal Advisor on Global Compact, Special Representative to Study Transnational Corporations, 2006. However, the consequences to the TNCs been granted commercial agreements, bilateral treaties, privatization and liberalization policies, and subsequent obligatory international arbitrations are disastrous especially to developing world economies (Teitelbaum, 2007). The conflicts over-regulation of markets to avoid risks of market failures or externalization of social and environmental costs of production will always arise. The aspiration of the TNCs to lessen their tax burden and the desire of governments to control the patterns of trade and investment decisions is always diametric. Globalization and the international financial crisis have emphasized the need to control the excess of the TNCs who were indirectly controlling global affairs both economically and politically.
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