TNCs and International CapitalUnderstanding the Role of Business Around the World

Overview

• Ritual apologies• Brief Review • Trans-National

Corporations• International

Capital and FDI

• Top TNCs• Pros & Cons of

TNCs

Brief Review

Our Story So Far…

Smith Ricardo

CLASSICAL LIBERALISM

List

MERCANTILISM

Marx

MARXISM

Engels

MODERNIZATIONTHEORIES

Weber Rostow

KEYNESIANISM

Keynes

NEOLIBERALISM

Hayek Friedman

STATE CAPITALISM

Bremmer O’Neill

ANTI-COLONIALISM & DEPENDENCY THEORY

Lenin GunderFrank

Cardoso

Where We Go Next..• Macro-Economic Policy• Making & Mitigating Economic Crises• Modernity & Dependency• Multi-National Corporations & Capital Investment• The Problem of Inequality• Social Welfare Redistribution• Environmental Politics and Gender Inequality• Our Economic Obligations• International Aid & Giving• Micro-Philanthropy

Trans-National Corporations

What Are TNCs?• Trans-National

Corporations (TNCs) are businesses that are able to extend beyond nation-state territories to compete in regional or global markets, thanks to technological innovation, low trade barriers, and liberalized domestic markets.

TNCs are also called Multi-National Corporations (MNCs) or Multi-National Enterprises (MNEs).

Why Go Global Instead of Trade?According to classical liberal economic theory, countries should specialize in their areas of comparative advantage, so why wouldn’t U.S. companies just trade with foreign producersbased in those countries with the greatest advantages.

Advantages of Going Global…• Vertical integration

improves profit margins by cutting out middle man• Location-specific

advantages of production in certain regions• Currency instability can

affect production • Need to protect intangible

assets such as trade secrets (appropriability theory)

International Capital and Foreign Direct Investment

Foreign Direct Investment• Foreign Direct

Investment (FDI) are those investments made by a company in the “direct”control of the production, distribution, or sales of goods and services in other countries.

Greater FDI Flows

Outward vs. Inward Investment

Downside of FDIStephen Hymerargues that FDI-recipient countries suffer from branch factory syndrome, since profits and technology are retained by developed countries.

The Dangers of Capital FlightWhen investors rapidly withdraw investments from an economy, this can undermine economic growth and cause capital account imbalances that lead to currency devaluations.

The Dangers of Capital FlightThis chart shows the 20 countries with the greatest capital outflows. These 20 countries account for more than 80 percent of the money flowing out of the 139 non-rich countries.

https://philebersole.wordpress.com/tag/capital-flight/

Top Trans-National Companies

How Do We Measure TNCs?• What are the top

global companies?• What indicators

constitute the important measures of a trans-national corporation?

How Do We Measure TNCs?• What are the top

global companies?• What indicators

constitute the important measures of a trans-national corporation?

Total Revenue vs. Market Capitalization

Example: Fortune 500Top U.S. Corporations by Revenue

Fortune 500—U.S. Corporations

Fortune 500—U.S. Corporations

WalmartThe world’s largest company (by revenue) with $500 billion in revenue in 2018, $200+ billion in total assets, and roughly 2.3 million employees.

In November 2012, over 24 hours Walmart workers, union members and other activists enacted the largest US strike in history. According to organizers, strikes hit 100 US cities, with hundreds of retail workers walking off the job (last month‘s strikes drew 160). Organizers say they also hit their goal of 1,000 total protests, with all but four states holding at least one.

Shifting U.S. Corporate LandscapeBanks and energy companies long dominated the top ten largest global companies (by market capitalization), but in recent years technology companies have been the world’s largest companies.

Image: The Economist

Shifting U.S. Corporate LandscapeA major change among leading global companies is the number of employees, which is much smaller among technology companies like Apple and Google compared to the manufacturers like GE.

Company HQ: Years Operating

# of employees:

1. Apple United States 41 66,0002. Alphabet United States 2 69,9533. Microsoft United States 42 114,0004. Berkshire Hathaway United States 128 360,0005. Exxon Mobil United States 135 73,5006. Amazon United States 22 222,4007. Facebook United States 13 15,7248. Johnson and Johnson United States 131 128,0009. General Electric United States 139 333,00010. China Mobile China 20 438,645

AppleIn 2018, the world’s largest company (by market capitalization) was Apple, with a market value of $926.9 billion. Along with Amazon ($777B), Alphabet

($776B), Microsoft ($750), Apple is one of the “Big Four” global technology companies. Facebook is in a distant 5th

place at $541B.

Pros and Cons of Trans-National Corporations

The Evils of TNCsCritics of TNCs argue that these organizations have “neither a soul to save nor a body to incarcerate” and therefore pose a menace to society

“I spent 33 years… being a high-class muscle man for

Big Business, for Wall Street and the bankers. In short, I was a racketeer for

capitalism…”

In the Service of CorporationsAs of 2008, Maj. Gen. Smedley D. Butler, the “Fighting Quaker” from Westchester PA, was one of only two Marines to date who have received two Medals of Honor for separate acts of outstanding heroism.

The Philippine Insurrection

Invasion of Mexico

Boxer RebellionUnited Fruit CompanyPanama Canal

HaitiWWI

Powell MemoPrior to joining the U.S. Supreme Court in 1972, Conservative Justice Lewis F. Powell, Jr. advocated for business interests to influence U.S. politics.

The New Leftists“…the American economic system is under broad attack... from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians.”

Herbert Marcuse,

German philosopher

(UCSD)

Powell ManifestoPowell called on corporate America to become more organized and assertive in countering leftist activistists who challenge free enterprise.

Powell’s NightmarePowell’s memo was partly a response to Ralph Nader’s book Unsafe at Any Speed, which pressured GM & the auto industry to install seatbelts and a new era of advocacy for consumer protections.

In 1965, the year Chevy released the Corvair, Ralph Nader’s book brought attention to the hazards posed by automobiles, which killed 49,000 people that year alone.

U.S. Traffic Fatalities

VMT=vehicle miles traveled

Corporate GreedIn the global era, there are widespread concerns about corporate greed and excess influence in politics, and the extent to which corporate profits override the public interest. Best Buy apologized in Aug. 2017 for

its Houston-area store that raised the price of a case of bottled water to $43 as Hurricane Harvey wreaked havoc.

Corporate Greed

Why would smart water be

cheaper than Dasani (Coca-Cola) water?

Corporations as CitizensCitizens United v. Federal Election Commission is a landmark 2010 U.S. Supreme Court case which upheld corporations rights to free speech in relation to the regulation of political campaign spending.

Citizens United upholds the notion of “corporate personhood” and the First Amendment right of corporations to make political campaign contributions.

Concluding Thoughts

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.”

—James A. Garfield (1831-1881)

*President from 3/4/81 to 9/19/81