Exploitation: necessary evil… or a race to the bottom?

Transnationals. The word evokes images of Nike or Apple-like corporations paying below-poverty level wages to a faceless, nameless and powerless mass of workers in an underdeveloped country toiling away in inhumane working conditions. In many ways, it is an accurate portrayal of the power imbalance between those that own the means of production, and those who are the means of production. Economists would say that transnational corporations and their exploitative nature are an unavoidable stepping-stone towards bringing a country out of poverty and perpetual underdevelopment. This is an important issue for us here at Trusted Clothes, as many of those faceless workers are employed by the clothing manufacturing transnationals.

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Most people understand the main reason why offshoring happens for transnationals: cost reduction in the form of low wages. It is one of the main drivers why TNCs are attracted to underdeveloped or developing countries. And the main reason why governments try to attract these corporations? Job creation. When a multinational moves into its host country, it typically creates many jobs (but not always) in its own sector. There is also a bleed-over effect: the arrival of an MNC will usually (again, not always) translate into increased demand for affiliated sectors. For instance, Shell receives oil exploration rights in host country, and the heavy machinery sector in that country start seeing more sales. Why not always? Because of regulations from the World Trade Organization(WTO) telling countries that they can’t force a foreign multinational to buy their raw materials from local sources, or that they must hire employees from the host country. But even if they do, the fact remains: the exploitation still persists, because the majority of jobs created in a host country by transnationals are low-skilled, low pay assembly-line jobs. These jobs offer very little added-value to the skillset of the worker, and there is a big downside to working for an MNC: the fundamental right of the worker to strike is almost completely superseded by the transnational’s ability to offshore, so that when the going gets tough, the company just migrates to another country, leaving workers jobless. TNCs also have the effect of creating ‘dual’ economies within a host country. When a country wants to attract big corporations to spend money in the form of Foreign Direct Investments(FDI), what it typically does is set up Export Processing Zones(EPZs) with the aim of increasing its export earnings. That zone becomes a hub of economic activity, but at the expense of the traditional, subsistence level economies that exists in underdeveloped nations. In theory, that same bleed-over effect that benefits related industries should happen between the EPZ economy and the existing one, but in reality, what happens is that the two economies exists simultaneously and creates greater inequalities in the host countries.

This is not to say that multinationals have nothing positive to contribute to its host country. It can be argued that although most profits that MNCs make do not get back to host countries, the chain of positive impacts that they induce are more beneficial to the economy, if we consider the long-term consequences. TNCs provide the pre-conditions for a growth-oriented economy by creating greater economic activity within those export zones, triggering a self-sustained growth cycle. Because those firms inside the trade zone will not always be foreign-owned, eventually the local businesses will catch up, and turn those export zones for the host country’s own benefit. Think of the presence of multinationals like this: a spark-plug that ignites the fire that starts the engine of a juggernaut. That juggernaut is a modern, industrialized economy that we here in the West take for granted. The best example that illustrates this is China. Chinese firms have used, since their creation in the late 70s and early 80s, special economic zones to increase their exports to the rest of the world. The Chinese have used their manufacturing sector and export power to create such a staggering trade surplus with the rest of the world(especially the US) that this issue became a top priority with President Barack Obama during his first term presidency. China has further used its newfound wealth to build up a substantial reserve of American bonds, basically becoming the largest foreign creditor to the US. So it is possible to turn the tables on the exploiter. Not only that, China has done it in the exploiter’s own playing field.

So. Are transnationals a necessary evil on the road to prosperity? Or is it the road to hell? I think it depends on how you play it. Having transnationals as an engine of growth can work, but only if they are balanced by a strong, centralized government with very clear goal of growth and how to achieve it and spread it around. The American model of laissez-faire government simply will not work in developing nations when dealing with multinationals. Without clear protection and a way to channel profits back in a way that maximizes the benefit to people, it could become the road to hell.

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portrait of William Lee

About the Author

This is Will, current content coordinator at Trusted Clothes. Will is a writer at heart with a journalism print background. An award-winning writer and video producer, Will divides his time between super-heroing at Trusted Clothes and being a complete die-hard Star Trek fan. And wearing funny Captain Picard shirts too.

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