Transnational Enterprises

Their Impact On Third World Societies And Cultures

Krishna Kumar

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000010022
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This book represents the first attempt to conceptualize the social and cultural impact of transnational enterprises on host nations and to provide empirical and analytical material on the subject. Well-known social scientists focus on three critical areas: social inequalities, knowledge systems, and lifestyles and values. Collectively, they advance

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Social and Cultural Impact of Transnational Enterprises: An Overview

Krishna Kumar

The main purpose of this overview of the social and cultural impact of transnational enterprises (TNEs) is not to articulate a sociological paradigm which can help to organize ideas, research findings, and substantive discussions on the subject in a theoretical framework. Nor is it to identify all possible kinds of influences and effects which TNEs as distinctive economic bureaucracies, linking two or more nations in an economic relationship, can have on social and cultural elements and processes. Our objective is rather limited: we confine ourselves here to a brief discussion of only those impacts which have been stressed in the growing literature on transnational enterprises. The discussion is analytical rather than theoretical.

Two limitations of the present, discussion can be mentioned here. In the first place, our focus is essentially on macro dimensions. Thus we do not examine the micro-level issues pertaining to what happens within the confines of a TNE in home or host nations, where people from different societies and cultures interact for rational, goal-oriented activity. In the second place, our emphasis is on developing nations. The term developing nations has undoubtedly lost some of its precise connotations and discriminating property in recent years for it has come to include nations such as Brazil, South Korea, and Taiwan which have sizable industrial sectors, as well as those countries which are yet to make any headway towards industrialization. However, despite its obvious limitation, we still find it of some heuristic value. We take it to be a residual category referring to those nations which cannot be classifed as industrialized and which have not opted for a socialist model of development. This overview is organized as follows: we begin with a working definition of transnational enterprises and briefly mention the recent trends and patterns in direct foreign investment. The second section examines the effects of TNEs on social structures and inequalities while the third section focuses on TNEs' impact on cultural systems. Finally, we explain the organization of this volume.

Transnational Corporations: Recent Trend and Patterns

Since scholars have offered a wide variety of definitions of TNEs using different criteria-variables, it is necessary to mention that we follow the United Nation's definition which has the widest acceptance. Following this definition, TNEs are defined as the enterprises which "own or control production or service facilities outside the country in which they are based."¹ These enterprises can operate in extractive, agricultural, manufacturing, or service sectors and can be private, semiprivate, or government-owned operations. Obviously, this definition excludes all those firms which do not own or control production and/or service facilities in foreign countries, and yet are involved in substantial foreign operations. The enterprises which operate within the confines of national boundaries have been termed as national enterprises (NEs).

There are no reliable figures about the number of TNEs. However, a recent survey conducted by the European Economic Community noted that there were about 10,000 TNEs which were operating in more than one country.² The actual number might be slightly higher because the survey was made in 1973, and since then there has been further internationalization of national firms both in industrialized and developing nations. The conservative estimate of subsidiaries owned by TNEs is 50,000, which attests to their importance in the movement of the factors of production and products across national boundaries.

The majority of TNEs are undoubtedly based in a few highly industrialized nations. While the number of countries in which TNEs are based has increased with the economic development and technological sophistication of these nations, most of the largest firms continue to be domiciled in the United States, U.K., Germany, Japan, and France.³ The current volume of direct foreign investment is estimated to be 287.2 billion dollars. (Out of this amount, the U.S. share accounts for 137.2 billion, which is followed by the U.K. with 32.1 billion dollars.) The shares of Germany, Japan, Switzerland, France, and Canada are 19.9, 19.4, 18.6, 11.9, and 9.8 billion dollars respectively. In percentage terms it can be suggested that, taken together, these nations account for 86.9 percent of the direct foreign investment. Thus TNEs, despite the adjective transnational, are in practice owned and controlled by the nationals and governments of a few countries.

There is also a degree of concentration of foreign subsidiaries within a few large TNEs. It is estimated that less than 200 TNEs control half of the total direct foreign investment. According to Sauvant and Mennis "approximately four-fifths of all foreign affiliates are owned and controlled by parent enterprises headquartered in five major investor countries (the U.S., U.K., Germany, France, and Switzerland) and although no figures are available on the degree of foreign affiliate-concentration in terms of major enterprises, it can be expected that 150 major TNEs control a substantial number of them."⁴ However, the recent trend seems to show a slight decline in this concentration. A majority of the subsidiaries are either wholly-owned or majority-owned.

Although TNEs operate all over the globe, the bulk of their investments are located in industrialized nations. In fact, over the last decade, the U.N. data show that there has been an absolute and proportional increase in the volume of TNEs' investment in these nations. About 76 percent of the total direct foreign investment, that is, about 191.66 billion dollars, was in the industrialized nations in the year 1975. In the case of developing countries, while there has been a significant increase in foreign investment (from 32.55 in 1967 to 67.34 in 1975), its relative share has declined. It was estimated to be 31 percent in 1967 and only 26 percent in 1975. However, it should be noted that the "presence of foreign multinational corporations in the developing countries is generally of greater relative significance, since their economies account for much less than half of that of developed market economies."⁵

About 50 percent of the assets of TNEs are in manufacturing, while the remaining are equally divided in extractive and service sectors.⁶ There is, however, an asymmetry in the industrial distribution of TNE activities in industrialized and developing nations. "Whereas in developing countries half of the estimated stock of investment is in extractive industries and a little more than a quarter in manufacturing, in developed market-economies half of it is in manufacturing, and about 30 percent is in extractive industries."⁷ However, these estimates were made in the early seventies and the situation has slightly changed since then. There has been a dynamic growth in the manufacturing sector in developing nations.⁸ The most recent data show that the percentage of assets of the U.S. TNEs in the manufacturing sector has increased from 34.1 in 1971 to 39.1 in 1974 and those of the U.K. TNEs from 40.5 to 47.6 for the same period. Nearly half of the investment of Japan in developing nations is in the manufacturing sector.⁹ The most pronounced growth in developing nations has been in the operations of service TNEs.

TNEs exercise effective control over their foreign affiliates, both directly and indirectly. Some of the earlier European and American TNEs were more like octopuses, who have little control and coordination over their limbs. The situation has drastically changed in recent years because of the remarkable developments in transport and communications, especially satellite communications. Several studies have indicated that the real power in relation to overall strategic decision-making is concentrated in a small group of decision-makers.¹⁰ Large TNEs prefer to have an organizational structure based on product division. Thus, the status of the product rather than the distinctive characteristics of the host countries is the basis for global strategy. Paradoxically, there has also been a trend towards joint ventures in developing nations, as more and more nations are demanding equity participation. The Japanese TNEs in Asian countries were the pioneers in establishing joint ventures. However, it is doubtful that joint ventures are enjoying more freedom than the majority-owned subsidiaries in respect to planning their long-term goals and strategies.

The above features of direct foreign investment should be kept in mind while discussing the effects of TNEs on the societies and cultures of developing nations.

Impact on Society

The TNEs' impact on the societies of developing countries can be conceptualized in various ways. The constraints of space and lack of data do not permit us to focus on all the important social institutions and processes. Therefore the discussion is confined to the impact on two major social classes--workers and entrepreneurs. In addition, we discuss their effects on ethnic stratification and economic inequalities.

Social Classes

A social class can be defined as an aggregation of persons who occupy similar positions with regard to economic roles. Broadly speaking, there are four important classes--the peasantry, a land-owning class which consists of absentee landlords and renters, workers, and entrepreneurs--in a less-developed society. All these classes can be affected by TNEs, in one way or the other.

However, the effects of TNEs on peasantry and land-owning classes are not discussed here, for there is little social science literature on the subject. Historically, by investing in extractive and agricultural sectors, TNEs have led to the transformation of peasantry into wage-earners in enclave economies. For example, Kabala M. K. K. Kabunda has shown that Unilever disrupted the existing social systems and contributed to the proletariatization of the peasantry in several regions of Zaire.¹¹ TNEs also attract peasants to urban areas in search of employment. Thus, they might be indirectly responsible for the peasants becoming wage earners (in case they are able to secure employment) or joining the ranks of the uprooted, unemployed labor force in the industrial centers of developing nations.

TNEs also dislodge landowners or enter into alliance with them by purchasing or leasing lands for their operations. Little is known about the long-term consequences of such transactions. However, in the literature on colonialism there are pointed references to the role of foreign investors who with the cooperation of colonial authorities established working alliances with the land-owning classes. Some scholars have also suggested that the economic integration of Latin American nations in the world economy during the nineteenth century brought significant transformations in their agrarian social structures. Thus, Cockcroft et al. attribute the growth of the latifundista system in Mexico with European and North American countries.¹² However, whatever might have been their role in the past, TNEs do not seem to have a significant impact on peasantry and land-owning classes in most of the developing nations. The overall investment by TNEs in extractive and agricultural sectors in these countries has been decreasing in recent years. In fact, more and more host governments are not enthusiastic about it. As a result, their direct impact on the above-mentioned classes is more a matter of intellectual curiosity rather than an immediate concern to policy makers.

Working class. The concept of the working class, as used here, refers to that segment of the population which is employed as wage earners in extractive, manufacturing, agricultural, or service sectors of the economy.

The contribution of TNEs to the growth of the working class is both direct and indirect. TNEs employ skilled and unskilled workers in their subsidiaries. More importantly, depending upon their integration in local economies, they have backward and forward linkages which create additional jobs. It has been estimated that about two million people are directly employed by TNEs in developing nations.¹³

Despite significant investments in extractive industries in developing nations, TNEs create limited job opportunities in this sector which has become highly capital-intensive in recent years. Technological developments over the last three decades have been responsible for a higher capital-labor ratio with the result that employment in some extractive industries has actually fallen in many countries. Taking 1970 as a base year for his computations, C. V. Vaitos found that employment in the tin industry in Malaysia declined from 100 in 1965 to 84 in 1973 and in Chile (for all extractive industries) from 140.6 in 1964 to 98 in 1973.¹⁴ The same pattern is discerned in Gabon and Venezuela. Although the high manpower outlay required during the early stages partly explains this decline in employment, the main cause remains the increasing technological sophistication irrespective of the national or transnational nature of the enterprise.

In...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of Tables
• Acknowledgments
• 1 Social and Cultural Impact of Transnational Enterprises: An Overview
• PART 1 IMPACT ON SOCIAL CLASSES AND INEQUALITY
• PART 2 IMPACT ON KNOWLEDGE SYSTEMS
• PART 3 IMPACT ON CONSUMPTION PATTERNS AND VALUES
• PART 4 SELECT BIBLIOGRAPHY