The presence and activities of multinationals (MN Cs) in developing countries has been a subject of controversy in discussions on development, politics and economics. Renewed confidence in the positive benefits of MNCs has led many countries previously resisting MNCs in the 60s, 70s and 80s to be more open in the 90s . “Governments are liberalizing regimes as they have come to associate MNCs with positive effects for economic development and poverty reduction in their countries.” Of course, in practice, objectives to attract MNCs differ by country and the impact of MNCs is not always desirable. However, economic growth and industrialization combined with an increasingly globalized world enable MNCs to become a useful tool for economic growth. This essay will assert that within a state planned strategy of growth, integration into the world economy through collaboration with MNCs can help developing countries grow economically. This essay will dispute the claims of dependency theorists who claim that integration into the world market must lead to underdevelopment and instead suggest a modern mercantilism perspective where development benefits from a mix of state and market is the best strategy for achieving economic growth. The question is not so much whether or not to use MNCs; the case for, is overwhelming. Rather, I suggest the more pertinent question is how to use MNCs as part of a focused strategy of growth. A broad interpretation of multinationals (MNCs) will be used; a large company that operates in more than one country, usually entailing foreign direct investment (FDI) by a corporation. This is opposed to a purely domestic business which has no operations abroad. There are estimated to be 63,000 multinational corporations in the world. Nike, IBM, General Motors and McDonalds are typical examples. Between them, they are responsible for two thirds of global trade and 80% of investment. Economic growth will be understood to mean an increase in a country’s real GDP After independence, many former colonies were faced with issues of economic underdevelopment. Although economic development was crucial to establishing a national identity and ensure internal political stability, “political leaders often viewed former colonial powers with some suspicion.” Many leaders of the new nation states believed Western led capitalism was partly responsible for the backwardness of their state, “in some parts of the developing world, these sentiments helped shape a cautious approach to adopting Western influence and methods of economic development.” Liberal free market economies were viewed with a certain degree of skepticism and many developing countries adopted closed, protectionist economies in an attempt to grow from within. However, without a liberal free market economy, there is little entrepreneurship or incentive to industrialize as people do not directly profit from their work. The starting position for developing countries is a largely agrarian society; Ros tow suggests this is the first of five stages of growth. This per-capitalist society existed everywhere before the industrial revolution; there is limited output because of a lack of science and technology. Ros tow suggests that development requires makes real economic growth a possibility. The objective is to allow industries to develop with protection in the hope that they will eventually be able to compete within the global market. In the short run, the domestic market often has to pay a higher price than they would in a free market yet tariffs on imported goods ensure that the domestic market grows. The problems faced by this type of growth is that developing countries do not have access to developed world technology and yet do not have the finance to invest in their own research and development. The development of the ‘Asian Tiger’ countries during the 1970s where rapid economic growth was experienced through integration into the world economy has dealt a serious blow to dependency theory assertions of stagnation and instead supports a liberal modernization theory approach. Furthermore, attempts to establish industries under protection have largely been regarded as failures and developing countries have looked back to MNCs for the investment they require to industrialise. Even where protectionist import substitution has been used to develop the domestic market, in order to generate substantial growth an export led approach to generate capital was required. This necessitates integration into the world economy and a free market. The mistake that dependency theory makes is suggesting that dependence creates underdevelopment. On the contrary, former developing countries such as “Taiwan and South Korea have a more equitable distribution of income than do LDCs that have restricted outside investment.” Whilst there is undoubtedly some dependence, this is not a cause of underdevelopment. Underdevelopment creates dependence. I would suggest that a mercantilism approach embracing the positive aspects of MNCs yet recognising the need for maintaining tight control over the type of investment is a sensible middle road to take. A careful balance needs to be struck between state and market, autonomy and integration. AMB. OSSAI K.C
Posted on: Wed, 13 Nov 2013 10:41:03 +0000
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