Knowledge Update

Does Multinational Corporations influence State Sovereignty?

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Introduction

The international system is influenced by two dominant approaches; Neo-Realism and Liberalism. Neo realist views the international system as a structure influenced by anarchy due to lack of central authority. Therefore, for states to survive, they must acquire power and security. While the latter argues that the international system can be cooperative and peaceful through international institutions; UN, IMF World Bank, etc. They put forward motion that through international trade and economic ties relationships between nations will lessen tension and prevent war.

Globalization in the 21st century has paved the way for multinational cooperation (MNC) to become key players in shaping economies, especially in developing nations. Third world countries grow their economy either through official development aid (ODA) from other states and international institutions (IMF, World Bank) or through foreign direct investment (FDI) where MNC plays significant roles. Historically, MNC can be traced back to the 18th century with the establishment of the British India Company, the company was granted rights to trade between Europe and East Indies. However, the system was state-dominated then, but as MNC evolved the dependency on states lessen over time (Kapfer, 2006). 

Contemporary, the dynamics of the international system has laid the foundation for cooperation’s to be efficient in coordinating global strategies for production, management practice, Profit maximization and adaptive in a different environment to take advantage of opportunities provided by the states. Hence, power gradually shifted from states to cooperation (Kapfer, 2006). The advancement and growth of MNC such as Apple, Google, Microsoft, and other telecommunication companies have begun to be at the expense of states sovereignty. Here we use the term Sovereignty in one’s ability to control its affairs both internally and externally.

Accordingly, these MNC play a significant role in supporting sustainable development in developing economies by providing investment and jobs. However, due to their level of influence and their financial power bank, their ability to determine or interfere in domestic’s politics is alarming to the world leaders. Domestic politics influence international politics, and developing states tend to suffer most domestically when non-state actors begin to dabble into their affairs. This is be done through lobbying of politicians and interests groups that plays a significant role is state’s legislative process.

So, where does the power lie, States or corporations? Well, the answer is not quite simple, both actors do play vital role to the progress of the other. Despite the power and influence of MNC, states power can control to an extent over MNC actions, they have the authority to allow a company do business in their territory and can provide protectionist policies to shield local firms. However, this can hinder or stagnate economic growth if done extremely. Why? Because MNC find manipulative ways to reduce their cost of production by unwilling using outdated production techniques, For example, the Chrysler used outdated and inefficient practices in Mexico. On the other states must accommodate the reality of given some sovereignty in order for their economies to develop through multinational cooperation’s

 

References

Kapfer, S. (2006). Multinational corporations and the erosion of state sovereignty. Illinois State University.

Kline, J. (2006). MNCs and Surrogate Sovereignty. The Brown Journal of World Affairs, 13(1), 123-133. Retrieved July 12, 2021, from http://www.jstor.org/stable/24590648

Lawrence, Robert Z. 2005. Comment. In does foreign direct investment promote development? Washington, DC: Institute for International Economics.

 

Mr.  Farid Iliyasu Illo is a Lecturer II of the Department of International Relations, Skyline University Nigeria. He holds a Master’s Degree in Strategic Studies from University Utara Malaysia (UUM)

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