A decade or two ago big businesses in the US have moved their production to other locations with cheaper labor. That ran contrary to the national interests of the US but that made perfect sense if we look at the situation from the point of view of making profit.
There are often incentives for companies to operate in different locations and it might be that labor is cheaper somewhere else, that other regulations are less onerousin another country and it might be that listing in the US might be more expensive and more conditions to comply with compared to listing in some other location. So, it is not only where you physically operate, but where you chose to have shares listed can be dictated by financial considerations and other regulatory considerations.
And the companies really are only considering their own interests rather than the national interests when making that decision because the directors make a decision in the interests of their shareholders and that’s really the main thing they are considering. They are not considering the national interest, it is not really a priority, even legally it is not a priority.
Although, most corporations, particularly multinational corporations do consider their corporate social responsibility obligations, there can often be backlashes if they decide to operate offshore. If the labor is cheaper – that’s ok, but if they really exploit the position you get the sort of backlash that we’ve seen internationally with Nike where the market thought that they were exploiting labor and there were boycotts against their products. So, it can work both ways.
And if we look at the net worth of certain corporations, I mean with market capitalization of several billion US dollars, they are comparable to states.
Yes, it is probably true that some big multinational corporations would have a net worth bigger than many countries.
Which definitely makes them large scale players to be accounted for. Does that mean that in the modern world we have two different categories of global players, one category includes national governments and blocks of countries, and the other categories includes corporations?
Well, I suppose that’s true at one level. Corporations of course are not making directly political decisions, they are not in the UN. But certainly by virtue of their commercial operations and their power which flows from their size and their wealth they may well be able to influence political outcomes. If they decide to operate in a small country by virtue of their size and their investment in that country, they may well be able to have a greater influence over the political situation in that country than you would normally expect from just a commercial operation.
Keturah, how do you think the trend is going to develop? Is the role of national governments somehow going down in the globalized world?
I don’t think that is actually the case for the wealthier nations but certainly the potential for big multinational corporations which might be operating in smaller less developed, less wealthy countries – there is the potential for that. But I’m not really aware of any examples but that might well be the case. You can certainly say theoretically that there is the potential for that to occur. But for the developed countries, I don’t think that there is any threat to their national sovereignty in any way.