The power struggle between MNCs and nation-States

Multinational corporations (MNCs) have generated significant strength to influence the international political economy, anchored by the nation-state. Traditionally, the nation-State has the monopoly of decision-making to conduct domestic and international affairs—conceptualised as the State’s sovereignty. Sovereignty is the unchallenged authority to control a country's internal and external affairs. However, it is argued that States have ceded part of their sovereignty to multinational companies to allow the latter to conduct their scale of operations at the transnational level.

Their dominant economic roles in the global and national economies allow them to lobby for foreign policy issues. They contribute to about a third of global gross domestic product (GDP) (28%), half of global exports and about a fourth of global employment, according to OECD (2018). They have shaped the present global value chains through their global business operations through outsourcing and offshoring activities. Governments have followed foreign economic policies supported by MNCs, which has led to the strengthening of globalisation. MNCs are at the centre of the modern State economy facilitated by technological discoveries, conducive economic situations, and public policy reforms. MNCs have gained a more robust position owing to the advanced stage of international production that affects global businesses' ownership, organisation and location.

The nation-State-based international order constantly pushes and pulls between states and MNCs to assert their authority over the other. After the Trump administration’s rolling back on globalisation in favour of protectionism, President Biden has tightened its anti-Chinese trade practices by threatening to ban TikTok or biotech companies like Wuxi AppTec, among others, while at the same time warning McKinsey & Company, which conducts businesses with the Chinese government. Trump’s trade policies were hurting domestic firms at the same time. American companies raised concerns against protectionist trade policies that restrict immigration and disrupt global value chains. Even during the bilateral trade tensions, the American companies lobbied their national government and successfully got tariff exemptions. It only shows their strength in influencing government policy-making.

The cracking down on several Chinese companies/apps reminds us of colonial businesses that led to war and conflict. The British East India Company ruled most of the Indian subcontinent, reaching Burma, Singapore and Hong Kong with immense power. Trump’s efforts were to renew the existing trade agreements between the US and China, which he believed were against American national interests. The Biden administration has labelled the trade practices of China anti-America, posing a severe threat to American national security. It is an example of a state using MNCs to control/attempt to destroy a nation’s economy, depending on which side of the argument is made. The US administration believes that Chinese trade practices could seriously damage American businesses. The Chinese government is accused of using MNCs as a tool to do this through unfair trade practices in technology, transfer, intellectual property, and innovation—which may leave American companies out of the competitive markets.

Beijing’s American policy is to keep Washington busy with the bilateral trade deficit favouring China and the growing penetration of Chinese MNCs into the global value chains. At the same time, Beijing can strengthen its strategy to challenge American hegemony by strengthening its power position in the South China Sea and neighbouring areas. The tension surrounding TikTok, a foreign product, reflects the growing geopolitical rivalry between the US and China.

Well, the growing power of MNCs can be translated into meanings: one, MNCs can provide public goods like schools, health centres, and other basic amenities that host States may lack the capacity to develop, and two, some of them are even bigger or more powerful than states, employing more staff than the population of many States in Africa, e.g. the Gambia or Principe posits themselves to influence the politics or foreign policies of the host countries, as it is reported. In the second interpretation, the government’s ability to exercise its powers becomes weak. Multinational companies, including big banks, can lobby for free capital markets, foreign investments, and more capital mobility.

In another perspective, the relationship between the States and MNCs is mutually beneficial under the World Trade Organization (WTO) terms for transactions. Governments can still close down MNCs or ask them to follow the laws of the land. Globalisation has reshaped the functioning of governments by interconnecting their decision-making processes, as one government can no longer have the final say within its territory. MNCs have brought together public and private actors through global production networks which connect political MNCs bring technology and foreign direct investment (FDI) to host countries, which are essential for development and reduction of poverty in developing countries. They also export their goods and services to host countries, which serve as a source of balance of payment and foreign currency. However, this is not always true, as these MNCs can also become a tool of exploitation, especially in countries of Africa. It is argued that multilateral institutions like the World Bank, the International Monetary Fund and the WTO protect MNCs from unethical practices and anti-welfare activities.

The US-China rivalry is putting MNCs (local or foreign) at the crossroads—a reminder that the State can bounce back by restoring its long-withheld sovereignty. However, whether the control of MNCs is good or bad is context-specific, and the conclusion is tentative due to a lack of data. MNCs controlled by governmental regulations towards producing public goods to improve people’s lives is a good thing. MNCs without such regulations would try to avoid corporate social responsibilities (CSRs) and choose their primary objective of profit earning. They can harm the environment, politics or social fabric if a few owners of capital pocket the benefits. It would be far-fetched to say that the private actors have swayed over the elected government.

On the other hand, if they operate through market forces to trade freely, mobilise capital, and produce and distribute goods and services, they can bring enhanced efficiency good jobs, and offer goods and services at competitive prices. The critical role of their FDI in this regard is widely agreed. MNCs should be allowed a free interaction in the market for free trade with limited State intervention. The States are as powerful in the globalised world as ever. The governments have allowed the private forces to take the lead in the development process, for they bring innovative ideas and efficient modes of business operations, in which governments could be dull, slow and inefficient.

This article is authored by Mehdi Hussain, former assistant professor, Political Science, Kirori Mal College, University of Delhi.