Global Companies’ Effect and Need for Regulation

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Table of Contents

Introduction
The Negative Effects of Global Companies
The Positive Effects of Global Companies
Conclusion
Reference List

Introduction

Global companies make it into the news every day and their CEOs top lists that register the wealthiest people in the world. Those corporations provide products and services that people use every day. Most average individuals only consider these businesses in terms in which they simplify life. However, the existence of those companies is often tied to such problems as a lower quality of life and less democracy. They accumulate financial and political power that only benefits the executive branches of said corporations and has no positive effect on the country’s prosperity. Since discovering the harmful impact of global companies on their homelands and its citizens, several propositions for countering their accumulation of financial and political power have been proposed. The purpose of this paper is to analyses the disastrous effect big corporations have on regular people and advocate for some type of regulation in this area.

The Negative Effects of Global Companies

Global companies are well-known around the world as they cumulatively provide most general products and services that people use in their everyday life, which accounts for the businesses’ revenue. Those corporations include such big names as Amazon, Apple, Toyota, Microsoft, AT&T, Wells Fargo, Walmart and BP. As one can ascertain from the list, a global company can provide any type of products, including cars, technological devices, gas, wireless networks, bank and delivery services. It is also important to note that many people associated with these businesses are currently considered the wealthiest individuals in the world. In particular, Jeff Bezos, the founder and CEO of Amazon, has the most substantial net worth. At first glance, the presence of global corporations and billionaires in a country should indicate national prosperity and high quality of life. However, even in the earlier years, the cause and effect relationship between these two components has been called into question. Many works have outlined the specific disastrous impacts global companies have on their homelands and the average people living there.

The Resource Curse

One of the most mentioned problems that big corporations lead to is the resource curse. This phenomenon pertains to countries with a lot of natural resources, in particular, fossil fuels. The logical outcome of such circumstances is that these nations experience significant financial growth and progressive development in the political sphere. However, the reality more often than not shows contrary results. In fact, natural resources are associated with “lower values of the Human Development Index (a composite development index of life expectancy, education and GDP per capita), undernourishment, higher child mortality and limited access to safe water” (Ali, Murshed and Papyrakis, 2020, p. 438). Those countries tend to have less democracy, less economic growth and a lower quality of life with a lot of their citizens living in poor conditions.

The cause of this observed reality is the oil and gas corporations monopolizing the mineral reserves and profiting off them by selling them internationally. However, the revenue that they receive as a result of these transactions becomes concentrated around the elites, in particular the government. Experiencing the sudden financial gain, the establishment then puts all of its efforts into maintaining and growing it, without allocating resources to the middle and lower classes, residing in these countries. As the quality of life for the elites takes a surge, they do no find it necessary to strive for changes within the nation. As a result, the existence and growth of global companies profiting from natural resources, in no way benefit the general public and stops any development within the countries.

A classic case of the resource curse can be observed in Nigeria, a nation that is the sixth-largest exporter of oil in the world. Before the 1970s, when natural resources were first discovered in the African republic, the country profited from the agricultural sector. Nigeria was “the key exporter of diverse products, such as groundnut, cotton, cocoa, palm oil, timber, hides, and skins” (Elwereflli and Benhin, 2018, p. 1139). This export generated enough revenue and also provided almost three-quarters of the population with jobs. However, once natural resources were discovered, the government allocated all its effort into supporting the oil industry, which replaced the agricultural one. This left a lot of people jobless and opened the government up for corruption due to the significant contrast between the incomes of the elite and the general population.

However, there is a way for a whole country and all of its people to benefit from natural resources. For instance, Norway, the fifth largest world exporter of oil, suffers from none of the typical problems associated with natural resources, despite appearing on the market around the same time as Nigeria. Their prospering economy and democracy can be attributed in part due to the fact that this Scandinavian country did not change its industrial structure, continuing to profit off other products. Also, the government instilled several policies that restricted the amount of political and financial power oil companies could accumulate. As a result, people did not lose their jobs and Norway did not suffer from the oil industry becoming more competitive. The sum of profits coming from the export of their usual goods and natural resources propelled the country towards prosperity instead of pushing it towards a financial disaster.

The Finance Curse

The finance curse is in some ways related to the resource curse. However, it has a broader scope and can happen to any nation where a global company starts gaining financial and political power. This phenomenon states that while economic prosperity can be profitable, “above a certain size, financial sector growth fails to deliver expected benefits to a country, and can even harm it” (Shaxson, 2018, p. 17). One of the biggest reasons for the finance curse’s disastrous effects is crowding-out. This phenomenon describes the process of the financial sector becoming the country’s only goal and pushing out all other industries, including agriculture and manufacturing, which are generally considered essential for the country’s prosperity.

Another effect of the finance curse is the brain drain which accounts for big companies attracting the most educated members of society away from smaller businesses and even the government which causes damage to both (Shaxson, 2018). The result of all of these overlapping phenomena is political capture. This happens when global corporations gain enough financial power also to obtain political power resulting in the government veering towards authoritarianism. These companies can then control the development of the country to their benefit, which has a destructive effect on the institutions that help regular people. At this point, it becomes tough to solve the rising problems that reel the nation towards the growing gap between the lives of the elite and regular people.

Modern Slavery

Modern slavery does not have a concrete definition; however, most people use this term to describe forced labor and human trafficking. In the case of this paper’s topic, this term is more encompassing as “the line between slavery and other highly exploitative labor relations is by no means consistent or transparent” (Stringer and Michailova, 2019, p. 195). Making more and more money becomes the focal goal for global companies so they seek ways in which they can increase their revenue and minimize their investments. Often, the chosen method for that becomes using cheap labor overseas. This labor is considered forced as, due to the poor living conditions in the countries selected for manufacturing, people have no choice but to sign up for jobs where they receive close to no money.

Even within the companies themselves, the employees, who provide a lot of the work that helps the corporations get their revenue, receive less pay than they are entitled to in reality. All of the issues mentioned above can be prevented by “resilient market-regulating, market-stabilizing, and market-creating institutions acting as mediators to the financial market in facilitating growth” (Law, Kutan and Naseem, 2018, p. 174). However, most countries do not take the necessary steps in preventing those problems from appearing.

The Positive Effects of Global Companies

Many ordinary people do not consider global companies to be detrimental to a country and its citizens and, therefore, do not advocate for regulations to be implemented in the financial sector. One of the reasons for this belief is the hope to one day be rich enough to be part of the elite and to have all of the loopholes, rich people have created for themselves, work in their favor. However, this aspiration is misguided as a tiny per cent of the population makes up the ruling class, and the chances of entering it are slim to none.

Several researchers also outline the positive effects that global companies have on the lives of the general public. These analysts argue that big corporations “are vilified in a way that obscures the innovation they spur and the steady jobs they produce” (Atkinson and Lind, 2018, p. 1). However, both of these points are true only at the surface level. While it is true that global companies are often leaders in terms of innovation, their growing influence at some point in time contributes to the creation of monopolies. Then it becomes tough to talk about as the total number of innovations is inversely correlated with concentration (Tepper and Hearn, 2019, p. 54). As far as jobs are concerned, it was mentioned earlier that global companies often use their influence to force people to work for less than their work is worth.

Conclusion

Global companies are often synonymous with success and are believed to bring prosperity to the countries where they are located. However, the truth of the matter shows a different reality where nations with big corporations experience a lower quality of life and less democracy. This phenomenon happens as a result of global companies gaining enough financial and political power to instill policies that help them continue to profit. In order to stop the growing influence of big business, governments need to consider making regulations that would help police the affairs of big businesses.

Reference List

Ali, S., Murshed S.M. and Papyrakis, E. (2020) ‘Happiness and the resource curse’, Journal of Happiness Studies, 21, pp. 437-464.

Atkinson, R.D. and Lind, M. (2018) ‘Is big business really that bad?’, The Atlantic. Web.

Elwereflli, A. and Benhin, J.K.A. (2018). ‘Oil a blessing or curse: a comparative assessment of Nigeria, Norway and the United Arab Emirates’, Theoretical Economic Letters, 8, pp. 1136-1160.

Law, S.H., Kutan, A.M. and Naseem, N.A.M. (2018) ‘The role of institutions in finance curse: evidence from international data’, Journal of Comparative Economics, 46(1), pp. 174-191.

Shaxson, N. (2018) The finance curse. Buckinghamshire: Tax Justice Network.

Stringer, C. and Michailova, S. (2019) ‘Why modern slavery thrives in multinational corporations’ global value chains’, Multinational Business Review, 26(3), pp. 194-206.

Tepper, J. and Hearn, D. (2019) The myth of capitalism: monopolies and the death of competition. Hoboken: John Wiley & Sons.

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