Question

Critics of globalisation often say that Multinational Corporations (MNCs) challenge the sovereignty of nations. Evaluate this claim using evidence.

Answer 1

MNCs, then, must operate independently of states and state policies. This argument, though, suggests that MNCs pose “significant challenges to the sovereignty of all states” because they are independent of states and have a considerable amount of power (Walters 1972, 127-138). For example, states should be concerned with the power that MNCs have because of their ability to determine employment and, ultimately, the prosperity of the state (Ball 1968, 163-170). The power and influence of MNCs on the global and national economies, though, is greater than many policymakers may realize for four reasons. First, MNCs often export goods within the corporation across national borders, and these transactions are often not tracked under the traditional concept of international trade (Hadari 1973, 729-806). Second, foreign direct investment is not always correctly estimated or determined. Third, the way “in which the ‘boundary’ of a firm is defined” does not account for the total impact that a MNC has on the economy (Stopford 1998-1999, 12-24). Finally, MNCs are incredibly efficient, adaptive and resourceful entities. These reasons suggest why many policy makers fail to understand the full impact of MNC investment on a country’s economy. In order to fully understand the power that MNCs have it is necessary to look at the nature of the MNC.

One of the most important issues states face is the growing power of the multinational corporation(MNC) at the expense of state sovereignty. While anti-globalists often argue that MNCs are more abane than a boon to stateseconomies, recent evidence shows that foreign direct investment fromMNCs can help promote and sustain development in many countries. In fact, countries that choosenot to encourage foreign direct investment from MNCs or are not offered any are often lessdeveloped. Therefore, states have become reliant on MNCs to integrate their economy into theglobal economy and to encourage development. This reliance, though, explains in large part whyMNCs have gained so much power. MNCs have immense influence in the international system,participating in the majority of global economic activity and growth.

Sheer size of MNCs creates potential problems for national governments on a range of issues:

location of production, jobs, technology, managerial expertise,

Tension arises because goals of MNCs may conflict with the goals of governments