Problem

Domination of economic integration by transnational corporations

Nature:

The transnational corporation process of world integration, which concentrates strategic "overhead" in the home countries, creates international dependence through hierarchy as well as through regional inequality. Furthermore, it raises questions about how the world community should share in financing the world overhead, since all but a few core countries participate at only a "lower echelon" of the productive activities integrated through transnational corporations operations. Transfer pricing (including profit and royalty remissions), and international tax avoidance through transfer pricing, redistribute world income and finance the concentrated development of transnational corporations' overhead. In the longer run, perhaps more important than the unequal distribution of transnational corporations' surplus is the unequal accumulation of productive and technological capabilities in the home countries of the transnational corporations' parents. That concentration and captivity of key productive activities in the home countries could make host economies more dependent on those enterprises as they move through production, deepening into areas which could potentially create higher domestic value added (for example, from the last touches of import substitution to intermediate products and capital goods, or from commodity and mineral production to resource-based industries). The higher value-added activities, particularly those which involve more than returns to large-scale financial capital, might demand a high component of decision-making as well as highly skilled personnel. Through the historical performance of the transnational corporations, such capabilities might have been kept captive by the parent firms in their country of origin. This more complex form of dependency is particularly relevant to countries which attempt production-deepening through regional cooperation.

Background:

The enormous spread and growth in the activities of transnational corporations during the past 20 years has been a major factor in establishing the present structure of world industrialization and trading patterns. Their activities cover all economic sectors - agriculture, mining, manufacturing, services including banking, insurance and shipping, as well as wholesale and retail trading. Their power in these sectors has become dominant, enabling them to influence world supply and demand patterns, especially through their ownership of or control over capital, technology and its development, their generation of particular management skills, and the close tie-up in their activities between production, marketing and distribution.

Transnational corporations play an important role in existing world trade and industrialization structures. While their activities are heavily concentrated in the developed countries, those in developing countries are by no means insignificant in terms of either their industrialization or their trade. Such corporations are major channels for the transfer of technology and for the provision of investment capital to developing countries. They provide a substantial part of their imports and have made an important contribution to their exports of manufactures, although these are still small. It is on account of the dominant market power which they hold in both developed and developing country markets that they are able to resort to a variety of restrictive business practices which limit the actual and potential benefits accruing to developing countries from activities undertaken in their territories.

Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic GrowthGOAL 16: Peace and Justice Strong InstitutionsGOAL 17: Partnerships to achieve the Goal
Problem Type:
E: Emanations of other problems
Date of last update
18.09.2019 – 16:11 CEST