Multinational Corporations and Small Developing States: A New Regionalist Rejoinder
Hugh Todd, ( MSc), Lecturer, University of Guyana
Clement Henry, PhD Candidate, University of the West Indies
The early twenty-first century has been occasioned by a significant rise in international business in the category known as foreign direct investment. Foreign direct investment (FDI) is one of the riskiest forms of international business and, in theory, represents the final stage of going international by multinational corporations (MNCs). The proliferation of MNCs in the twenty-first century has been stimulated by the neoliberal formula administered through the Washington Consensus, as a key tenet of a capitalist free-market driven economy. Further, the scholarly logic that neoliberals penned was that the tenets of the neoliberal order were able to produce an exponential growth and prosperity for the world’s economies.
Contrary to the neoliberal doctrine, empirical macro-economic data analyzed over the last two decades have revealed that the prevailing developmental gap had further widened between the developed and developing economies due to effects of the Washington Consensus. Such a dispensation has been widely articulated in the literature as being a direct result of globalization. In the result, national competitiveness emerged as a central tool to the increasing disparity between developed and developing economies of the free-market capitalist system.
Developing economies, cognisant of the reality that no domestic individual firm, industry or country has the ability to counter the forces, which the globalization phenomenon has occasioned, have sought the embrace of new regionalism as a counter and buffer. Interestingly, MNCs being a progeny of the neoliberal model have benefited from international market access due to economies of scale, economies of scope and competitive advantage. Even though, new regionalism began in the mid nineteen eighties a proliferation of new regional schemes began after the cold war ended in 1989. Further, new regionalism differs from the traditional forms of regionalism, as the former is much broader in scope and multidimensional in structure.
The literature on old regionalism, focused exclusively on the integration move in Europe during the 1940s to 1960s. The eventual failure of the neo-functionalist school based on limited spill over within Europe, as well as the theory’s contradictions to empirical developments of the 1970s, brought an end to the first wave of regionalism. Likewise, other attempts at regional integration during the 1970s and early 1980’s outside of Europe either failed or fell dormant.i According to the literature, however, there has been a rekindling of interest by scholars in the study of regional schemes during the mid to latter 1980s, of which, Hettne and Soderbaumii were the chief proponents. Jens-Uwe Wunderlichiii submits that new regionalism began when a renewed interest in regionalism coincided with rejuvenation in European integration following the Single European Act that essentially spurred a new dynamism of regionalism beyond Europe. Beyond Europe, the North American Free Trade Agreement (NAFTA), Mercosur (Southern Common Market) and the Caribbean Common Market were created. Of note also was the assertive nature of The Southern African Development Community, the Asia-Pacific Economic Cooperation Forum and the Association of Southeast Asian Nations (ASEAN). More recently, one can recognize that the Union of South American States, the Community of Latin American States and the Pacific Alliance represent a proliferation of new regional schemes resulting from geopolitical changes following the end of the Cold War as well as the globalization phenomenon.
Breslin and Higgott define regionalism as the political process in which states drive cooperative initiatives, while regionalization refers to the “processes of economic integration which, while they may be influenced by state policies, are essentially the uncoordinated consequences of private sector activities.”i Hettne, et al, define new regionalism by stating:
“Where-as the old regionalism was specific with regard to objectives, some organizations being security oriented and others being economically–oriented, the new [regionalism] is a more comprehensive, multidimensional process. This includes trade and economic integration, but also environment, social policy, security and democracy, including the whole issue of accountability and legitimacy.”ii (Hettne, et al, 1999,)
New regionalism has been that initiative undertaken by developing economies to meet the challenges and take advantage of the opportunities presented by the globalization phenomenon in a highly competitive international system.
MNCs and Small Developing States
The removal of barriers to trade precipitated by the neoliberal prescription has enhanced international trade and paved the way for MNCs to expand their operations in new markets in the developing economies. The scale of business operations and gross sales of the top twenty MNCs is larger than the GDP of most developing economies; and therefore implicitly outstripping inherently vulnerable small developing economies. In the contemporary global environment, MNCs dominate FDI, which is also a major source of investment in small economies. While there are pros and cons with regard to direct investment in small economies, the hosting of MNCs, once effectively regulated at the level of central government and its affiliate institutions, can be a form of resilience building for the host country. However, pointedly, MNCs have the advantage of out-manoeuvring small economies at the negotiating table due the former’s resource capacity both legally and technically. Consequently, the predominance of MNCs from the industrialized West have undoubtedly been an attractive source of FDI, as neoliberal economics became accepted as the global status quo for international trade and business.
Developing economies while signing on to the Washington Consensus in order to rejuvenate their economies following the debt crisis, began to see the benefits of neoliberalism accruing in much greater proportions to the developed West. This widening of the asymmetric gap between the developed and developing economies required a counter initiative to the neoliberal formula.
New Regionalism, MNCs and Small Developing States: A Regionalist Perspective
Renowned scholars and academics in the field of International Relations view the birth and spread of new regional schemes as a direct counter to the globalization phenomenon – the impetus being the neoliberal economic model. Couched in the neoliberal literature was the view that MNCs were salient to the capitalist free market doctrine. While large developing and emerging economies in Asia, Africa and Latin America are more robust than inherently vulnerable small economies in the Pacific and the Caribbean; the dominance MNCs in the latter is much greater. The regionalist sees new regionalism as a viable platform to manage the flow of international business in the form direct investment. The inherent characteristics of small states (small population, limited resources, limited capacity both public and private) render these economies open to the attractiveness of MNCs. Regionalists will also argue that the competitive nature of the international system due to the globalization phenomenon is a severe challenge to developing economies.
In particular, small states are incapable of going it alone in the highly competitive global environment. New regionalism is therefore an effective platform designed to create a buffer to the globalization phenomenon in the form of an economic space where member states enjoy preferential market access. Such a zone, in theory, should allow for a balanced approach to development among member states as they shield their economies from the forces of globalization. Implicit in such a construct (new regionalism), is the framework to provide measures to manage the dominance for MNCs from the industrialized West. Importantly, the scope and multidimensional framework of new regionalism allows the leadership of member states to coordinate regional policies that could be beneficial to the entire community. Such an undertaking would require leaders of small developing economies to design comprehensive policies and agreements relating to FDI for all member states.
In particular, the Caribbean Community (CARICOM) would be able to bolster the efforts of the economic zone should the region collaboratively address the inflow of MNCs. Establishing regional policies on FDIs would allow for a regional negotiating machinery which could enhance the benefits of the host state as well as encourage any overspill to member states. The regionalist would support such an undertaking by small developing economies since it would provide greater capacity to better respond to the neoliberal tenet – MNCs. This effort should begin with the establishment of a technical negotiating body in CARICOM, CARICOM foreign missions representing the entire Community, collaboration with the Council for Foreign and Community Relations, as well as the Caribbean Association of Industry and Commerce.
It is our submission that the regionalist approach to MNCs in small developing economies is can be a comprehensive framework geared towards effectively overcoming the challenges while taking maximum advantage of the openness to the international system.