The future of transnational corporations: trends and scenarios for global politics
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Doctor of Economics, Head of Department of IMEМО RAS, Professor of MGIMO University, RAS Corresponding Member, RIAC Member
For a long time the world of global business has been justly compared to the jungle where places in the sun are bitterly contested, the size matters and mistakes are in most cases costly. The jungle is densely populated and is quite important for the creation of the planet's economic landscape. The aggregate output of transnational corporations (TNC) exceeds a quarter of the global GDP.
The Transnational Business Jungle
For a long time the world of global business has been justly compared to the jungle where places in the sun are bitterly contested, the size matters and mistakes are in most cases costly. The jungle is densely populated and is quite important for the creation of the planet's economic landscape. The aggregate output of transnational corporations (TNC) [1] exceeds a quarter of the global GDP [2]. The TNC divisions beyond the home countries, i.e. the countries where relevant TNCs are registered and/or headquartered, boast approximately 10.3 percent of the global GDP and one-third of the world exports [3]. In spite of the global crisis, the TNCs successfully expand. As compared with the pre-crisis level of 2005-07, the employment at TNC divisions beyond home countries has gone up by 33.9 percent, sales – by almost 35 percent and exports – by 47.1 percent [4]. Therefore, TNCs have been markedly solidifying their economic positions even during the global crisis. After the crisis consequences are surmounted, it is expected that further growth of their share in the global GDP, exports and employment will continue.
Apart from greater role in the world economic processes, there are some stable structural trends that are likely to determine the TNC operations in the nearest decades.
Firstly, TNCs based in developing countries should gain ground. In 2009-11, the share of foreign direct investments (FDI) made by the TNCs from developing and transitional countries solidly exceeded 25 percent [5]. Although the phenomenon could be partially attributed to lower investment from the crisis-stricken industrialized states, the relevant share should make 35-40 percent in the nearest 10-15 years.
Scientists from ETH Zurich in Switzerland created
transnational corporations topology map
Secondly, the strengthening of TNCs’ economic position vis-à-vis nation-states will certainly continue. But note that frequent comparisons of the countries’ GDP with TNC sales are inappropriate because in former case it goes about the produced added value and in the latter – about gross revenues including the feedstock and intermediate product expenses. On average, the added value makes one-fourth of the revenue [6], which means that popular comparisons overstate the economic weight of TNCs against national economies by four times. But even upon relevant adjustments, in 2010-11 in terms of economic might the Wal-Mart Stores matched Vietnam, Royal Dutch Shell exceeded Morocco, and ExxonMobil was slightly behind Slovakia. As far as Gazprom is concerned, in terms of produced added value the leading Russian TNC has left behind Costa Rica and about a hundred more countries covered by the GDP statistics («Financial Times Global 500 Rating–2011»; «World Development Indicators & Global Development Finance»). In the nearest 20 years the economic might of major TNCs is likely to match EC countries such as the Czech Republic, Ireland and Portugal.
At the same time, transnationalization of small and medium businesses is going to gain momentum. The process reflects the overall imperative for the commercial activities in global economics, which means the need to concentrate competitive advantages on the basis of economic capability (resources, science and technology, marketing, agglomeration, etc.) in various parts of the world. As a result, the TNCs will no longer mean only large-scale enterprise since in reality the planet’s business landscape will incorporate transnational entities of different dimensions united by the drive to increase their global competitiveness.
These trends are likely to materialize within the coming two or three decades. A longer-term forecast should inevitably require inclusion of political and social aspects of the TNC activities, with the future scenarios to be determined by high variability of these factors. So, who is going to inhabit the transnational business jungle in the 22nd century?
Scenario #1. Strangling Ficuses
Strangler fig tree engulfed cypress tree
This setting presents the worst nightmares both for antiglobalists and advocates of customary international relations based on domination of nation-states in making globally significant decisions. According to this scenario, economically stronger TNCs acquire more political clout to successively seize the regulation functions formerly belonging to states and international government organizations. Primarily, it goes about the formation of powerful business associations, their greater direct influence on international structures, possibly including the casting vote or the right of veto, the establishment of private mechanisms for regulating global economic processes including the financial segment, and dispute resolution. In the midst of the final collapse of the social state model, the TNC rising potential in filling the economic and social needs of the workers and transnational mobility of the latter are likely to put corporate loyalty above national citizenship and turn TNCs into main generators of transnational identity.
Should this scenario come true, the TNCs, which have been resting on the nation-states’ regulatory potential during the past century, would become a kind of constrictor ficus to gradually strangle – rather figuratively than actually – their former superiors, and shape a new global politico-economic landscape. Under the circumstances, the states and sub-national regions would compete not only for the TNC investments, which become the key development resource, but also for the remnants of national loyalty of corporate citizens in order to justify the very need for preservation of territorial sovereignty. If the former tendency may justly cause jitters about the TNC omnipotence, the second one is rather positive as it should make national governments move from abstract priorities and doctrines to satisfying real needs of the people.
Scenario # 2. A Web of Lianas
Web of vines
This scenario also implies significant growth of TNCs’ economic power but suggests a more cooperative alternative for interaction with nation-states, international government organizations and civil society. The resultant structure for the management of global economic processes will be founded on an intricate web of diverse global politics actors, both governmental and non-governmental, and private mechanisms created by TNCs on their own or in cooperation with the civil society leaders [7]. The scheme should be similar to the Kimberley Process aiming to curb the international trade in blood diamonds originating from local conflict zones. Launched in 2000 as an initiative of human rights NGOs (Global Witness, Amnesty International) and DeBeers company, the Kimberley Process brought about the Interlaken Declaration of 2002 on the Kimberley Process Certification Scheme for Rough Diamonds. Currently, the observance of the Declaration is a must for the diamond sector.
The resultant of interests within the triangle of TNCs, nation-states and global civil society entities will to a great extent depend on configuration of coalitions on specific issues, some of these alliances quite unexpected in composition. In fact, common strive of the developing nations and the TNCs to avoid excessive social and ecological standards may bring them together against the industrialized countries and humanitarian NGOs who aim to raise these standards at WTO and climate change negotiations. Anyway, in global politics nation-states will remain first among equals and preserve the key functions in regulation of economic processes.
Scenario 3. Baobabs in the Savannah
Baobabs in savanna
The most exotic scenario involves the alliance of nation-states and civil society entities aiming to achieve drastic tightening of regulations for transnational businesses and their forcible attachment to the social responsibility norms in a broad sense. In this case, both strength and economic might of the TNCs will be times less than under alternative circumstances, with the governmental TNCs to become a sort of oasis for transnational operations. In 2010, their number was about 650 (approximately 1 percent of all transnationals) but they provided 11 percent of global FDIs [8]. Should this scenario become a reality, the figure may reach three to five thousand and their share in global FDIs could exceed 50 percent, admittedly not so much because of the state-owned TNC expansion as due to the abrupt drop in private TNC investment. The economic landscape of gigantic state-owned TNCs and remnants of private enterprise, which survive the attack of stomping antiglobalist crowds with their banners and state-minded bureaucrats, should bring much less transnationalization and many more conflicts. As a matter of fact, the governments of the recipient countries would have more grounds to regard the economic activities of TNCs as a cover for secret ploys of Washington or Tokyo, as it already happens with Moscow and Beijing. In any case, the role of TNCs as the engine of global economic development will be substantially impaired, possibly with the exception of less developed countries. Today, they also find it easier to interact with large-size state-owned TNCs implementing mammoth projects on special regulation terms than with hundreds of private TNCs whose attraction requires daily meticulous efforts for the improvement of investment climate.
A Challenge for World Politics
The key challenge for global politics seems to be finding optimum mechanisms for engaging TNCs in the development of rules of the game for governing world economic processes.
Currently, the possibility percentage of these scenarios seems to make 25:60:15, this proportion being quite healthy. On the one hand, the role of TNCs in driving the global economy may hopefully grow, so that in one hundred years the Strangling Ficuses and Web of Lianas alternatives could increase their share in global production at least to two-thirds. On the other hand, there is every reason to avoid both excessive TNCs’ expansion towards politics and their submission to government bureaucrats and managers of state-owned companies, who have already demonstrated that their activities are often much further away from the interests of citizens than those of the most egotistic TNCs (Baobabs in the Savannah).
Within the most plausible Web of Lianas scenario, the key challenge for global politics seems to be finding optimum mechanisms for engaging TNCs in the development of rules of the game for governing world economic processes. The rules produced without their participation seem to have negligible chances of success.
Firstly, the TNCs surpass national governments in the knowledge of global markets and their mechanisms, and this information is essential for the development of effective regulations. Secondly, the TNC participation in elaboration of internationally significant rules should guarantee that the regulation policies do not toss the baby out together with the bathwater by recklessly limiting the economically effective activities in the struggle against the broadly understood (often perversely) sources of instability and inefficiency, which seems to be vividly demonstrated by many currently discussed prescriptions against the financial crisis. And thirdly, remember that regulations developed without TNC participation and contradicting their interests have little chance of survival as the TNCs will have a strong incentive to shirk the deficient norms. Under the circumstances, higher role of the TNCs in global politics seems not just inevitable but mostly desirable.
1. As per standard definition, a TNC means a company with economic divisions in more than two countries operating under a decision-making system which permits coherent policies and a common strategy. See United Nations Conference on Trade and Development (UNCTAD). Transnational Corporations Statistics.
2. World Investment Report 2011. N.Y.: United Nations, 2011. P. 1.
3. World Investment Report 2012. N.Y.: United Nations, 2012. P. 24.
4. Ibid. P. 24.
5. Ibid. P. 4.
6. De Grauwe P., Camerman F. How Big Are Multinational Companies? // Tijdschrift voor Economie en Management. 2002. Vol. 47. № 3. P. 311–326; World Investment Report 2011. N.Y.: United Nations, 2011. P. 24.
7. Afontsev S.A. Political Markets and Economic Policy. Moscow: KomKniga Publishers, 2010. Pages 294–301.
8. World Investment Report 2011. P. 284; World Investment Report 2012. P. 99.
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