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Multinational Corporations

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Worldwide, corporate giants play a key role in neocolonialism. The term multinational corporations refers to commercial organizations that are headquartered in one country but do business throughout the world. Such private trade and lending relationships are not new; merchants have conducted business abroad for hundreds of years, trading gems, spices, garments, and other goods. However, today's multinational giants are not merely buying and selling overseas; they are also producing goods all over the world.

Moreover, today's "global factories" (factories throughout the developing world that are run by multinational corporations) may now have the "global office" alongside them. Multinationals based in core countries are beginning to establish reservation services and centers for processing data and insurance claims in the periphery nations. As service industries become a more important part of the international marketplace, many companies are concluding that the low costs of overseas operations more than offset the expense of transmitting information around the world.

Functionalist View. Functionalists believe that multinational corporations can actually help the developing nations of the world. They bring jobs and industry to areas where subsistence agriculture once served as the only means of survival. Multinationals also promote rapid development through the diffusion of inventions and innovations from industrial nations. Viewed from a functionalist perspective, the combination of skilled technology and management provided by multinationals and the relatively cheap labor available in developing nations is

ideal for a global enterprise. Multinationals can take maximum advantage of technology while reducing costs and boosting profits.

Through their international ties, multinational corporations also make the nations of the world more interdependent. These ties may prevent certain disputes from reaching the point of serious conflict. A country cannot afford to sever diplomatic relations or engage in warfare with a nation that is the head-quarters for its main business suppliers or a key outlet for its exports.

Conflict View. Conflict theorists challenge this favorable evaluation of the impact of multinational corporations. They emphasize that multinationals exploit local workers to maximize profits. Starbucks - the international coffee retailer based in Seattle - gets some of its coffee from farms in Guatemala. But to earn enough money to buy a pound of Starbucks coffee, a Guatemalan farmworker would have to pick 500 pounds of beans, representing five days of work .

The pool of cheap labor in the developing world prompts multinationals to move factories out of core countries. An added bonus for the multinationals is that the developing world discourages strong trade unions. In industrialized countries, organized labor insists on decent wages and humane working conditions, but governments seeking to attract or keep multinationals may develop a "climate for investment" that includes repressive antilabor laws that restrict union activity and collective bargaining. If labor's demands become too threatening, the multinational firm will simply move its plant elsewhere, leaving a trail of unemployment behind. Nike, for example, moved its factories from the United States to Korea to Indonesia to Vietnam in search of the lowest labor costs. Conflict theorists conclude that on the whole, multinational corporations have a negative social impact on workers in both industrialized and developing nations.

Workers in the United States and other core countries are beginning to recognize that their own interests are served by helping to organize workers in developing nations. As long as multinationals can exploit cheap labor abroad, they will be in a strong position to reduce wages and benefits in industrialized countries. With this in mind, in the 1990s, labor unions, religious organizations, campus groups, and other activists mounted public campaigns to pressure companies such as Nike, Starbucks, Reebok, Gap, and Wal-Mart to improve wages and working conditions in their overseas operations.


Several sociologists who have surveyed the effects of foreign investment by multinationals conclude that although it may initially contribute to a host nation's wealth, it eventually increases economic inequality within developing nations. This conclusion holds true for both income and ownership of land. The upper and middle classes benefit most from economic expansion, whereas the lower classes are less likely to benefit. Multinationals invest in limited economic sectors and restricted regions of a nation. Although certain sectors of the host nation's economy expand, such as hotels and expensive restaurants, their very expansion appears to retard growth in agriculture and other economic sectors. Moreover, multinational corporations often buy out or force out local entrepreneurs and companies, thereby in- creasing economic and cultural dependence.

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