Assessing the view that the main cause of Globalisation is the increased importance of Transnational Companies (TNCs)
Do you think the rise of TNCs is globalisations most important catalyst?
Globalisation is defined as ‘the ability to produce any good or service anywhere in the world, using raw materials, components, capital and technology from anywhere, sell the resulting output anywhere and place the profits anywhere’. With the main features of globalisation being the increasing interdependence of global economies and the integration of markets in the global economy. Many different factors can be attributed to the rise of a globalised world and this essay will concur that TNCs are the main cause of globalisation by explaining how these different factors can be linked back to the increased importance of TNCs.
Firstly TNCs themselves are corporations with their headquarters in one country and subsidiaries in one or many more other countries who report back to headquarters in their home country, naturally, the profit and growth motive is at the heart of their operations.
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Fall of Communism
In the 21st century all the major players in the world economy have a free market approach – bar china with a mixed command economy – where privately owned or PLC corporations are allowed to exist, and act in their own interests to a large extent. The collapse of communism, is often said to be the starting point of the globalisation boom of the 20th century. The collapse in 1989 was seen by western governments as them meeting their goal of spreading democracy and halting the spread of communism. However simply spreading the democratic ideology did not increase market integration or the fluidity of capital, in line with the definition, instead it was the TNCs who took advantage of the new openness of the Eastern bloc and started to develop the necessary financial connections and infrastructure projects to trade. Western TNCs would have been particularly keen to muscle in on the ex-communist market due to the economies of scale benefits they had built up from their time in a competitive rest-of-the-world market, leading to lower average costs and a higher quality of product. TNCs would have also been encouraged to develop the ex-soviet market due to the size of the potential consumer base (a population of almost 300 million in 1989 out of a world population of about 5 billion). Therefore, although it was the western governments and their respective foreign policies that stopped soviet communism and introduced a free market democracy ideology, it was the TNCs who realised the possibility and actually opened up the markets through FDI.
Containerisation and the transport revolution is also stated as a major component of globalisation, perhaps second in importance to the fall of communism. Due to the law of increased dimensions (container principle) and the advances in the carrying capacity of freight vessels, more raw materials, components, capital equipment and technology is able to be transported anywhere in the world. This revolution also applies to passenger airplanes and ships, allowing for increased transnational movement of human capital. Today, about 90% of non-bulk cargo (non commodities) is transported by container, it has lowered shipping expense and decreased shipping time which has in turn helped the growth of international trade. The top 10 container shipping companies in the world have a combined market share of over 60%, and of the top 20 only COSCO is state owned (by the Chinese).
It could be said that because of the opening of international borders then production and sales TNCs needed a means of mass transit, this need was filled by other TNCs in the freight industry who sensed profit and capitalised by producing bigger and bigger ships.
Reduction of Tariffs and Government Cooperation
More recently and perhaps third in importance is the reduction of tariffs and increased government cooperation which is crucial for transnational connections to be made and further globalise the world’s economy. International organisations such as the WTO and the IMF are responsible for increasing free trade by removing barriers between countries and MEDCs have a disproportionately large say as to the actions of these IGOs, the EU and USA combined has 50% of IMF voting influence. This corresponds with over 90% of the top 100 TNCs having their headquarters in Europe, America or Japan. The increased importance of TNCs in these 3 countries and elsewhere, due to their large employment and tax revenue receipts along with large lobbying power, means that governments will often act in their favour as this can benefit the government’s macroeconomic objectives also. For example in Haiti in where the WTO Agreement on Agriculture rapidly opened Haiti agricultural market in 1995 when rice tariffs were cut from 35% to 3% allowing the USA to dump government subsidised rice into the market and force small growers out of business in effect almost monopolising the market.
However, the TNCs the governments are trying to help may have complex tax systems so that the tax revenue received by governments is a much smaller proportion of what was expected. Also, due to large scale outsourcing, the employment sector may not benefits as greatly either.