Problem

Destabilizing financial action of transnational enterprises

Nature:
The degree of stability of exchange rates and the adjustment mechanism provided by the international monetary system affect the policies of transnational enterprises. Such enterprises are able to move massive amounts of funds across borders in a short space of time, aggravating monetary crises.

In addition to the problem of the high levels of profit repatriation when there is a fear of devaluation in a country, another tactic which can be used by the transnational enterprise is to defer payment from its affiliates in the country concerned to the subsidiary or perhaps even to the parent company for goods that had been purchased from it. In addition, the subsidiary could be required to make immediate payment for all purchases made from affiliates, instead of permitting a normal 30 or 90 day payment period.

Furthermore, transnational corporations tend to move funds into and out of currencies to maximize their profits by taking advantage of interest rate differentials and tax advantages which are available in one country compared with another. This potential has been greatly enhanced by dramatic changes in international banking and consortia arrangements. Such action also contributes to the fundamental disequilibria in the balance of payments of some major industrial countries.

Incidence:
For example, it was found in a survey of 115 foreign-owned subsidiaries in the UK that close to 30% of such firms in 1964 and 1965, when devaluation of the sterling seemed imminent, remitted over 100% of their earnings, whereas in the previous three or four years no dividends had been paid. In so doing, the subsidiaries in question paid dividends out of accumulated profits and, in a few cases, virtually all of the retained earnings were remitted.
Claim:
Megacorps are much more than simply giant units of economic enterprise, capable of executing large-scale business transactions. They are also significant political and economic powers. This is a new species of political entity, in direct competition with its ancestor species, the modern nation state. Born out of limited-liability laws, nurtured by capitalist culture, and lacking any natural sense of limits, megacorps extend themselves like cancer cells, poisoning their host planet in the process. Their motivation is to increase their market value on behalf of their owners.
Problem Type:
E: Emanations of other problems
Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic GrowthGOAL 13: Climate Action
Date of last update
13.04.1998 – 00:00 CEST