Multinationals can switch from agriculture to commodity production

06Jul 2016
Muharram Macatta
The Guardian
Multinationals can switch from agriculture to commodity production

The best hope for our developing country to attain economic growth is through integration into the world economy. And our tool, if only we are willing to use it is…’the multinational company’.

The presence and activities of multinationals in our developing country has been a subject of controversy in discussions on development, politics and economics.
Renewed confidence in the positive benefits of multinationals has led many other countries previously resisting multinationals in the 60s, 70s and 80s to be more open in the 90s.

However, the government has been liberalising multinational companies regimes as they have come to associate them with positive effects for economic development and poverty reduction in our country.

If aid is given or foreign direct investment through multinationals occurs at this stage, injections of investment can lead to rapid growth. Multinationals can facilitate the industrialisation process and input science and technology needed for our developing country to industrialise.

Of course, in practice, objectives to attract multinational companies differ by country and the impact of them is not always desirable. However, economic growth combined with an increasingly globalized world enable them to become a useful tool for an industrialisation economic growth.

This analysis will face up to shape that within a country planned strategy of growth, integration into the world economy through collaboration with relevant multinational companies can help our developing country grow economically.

This review will dispute the claims of dependency theorists who claim that integration into the world market must lead to underdevelopment and instead suggest a modern mercantilist perspective where development benefits from a mix of the country and market is the best strategy for achieving economic growth.

The question is not so much whether or not to use multinational companies; the case for, is overwhelming. Rather, we suggest the more pertinent question is how to use multinational companies as part of a focused strategy of growth.

A broad interpretation of multinationals will be used; a large company that operates in more than one country, usually entailing foreign direct investment (FDI) by a corporation.

This is opposed to a purely domestic business which has no operations abroad. There are estimated to be “63,000 multinational corporations in the world. Nike, IBM, General Motors and McDonalds” are typical examples.

Between them, they are responsible for “two thirds of global trade and 80 percent of investment”. Economic growth will be understood to mean an increase in a country’s real GDP.
Soon after independence, most of former colonies were
faced with issues of economic underdevelopment. Although economic development was crucial to establish in national identity and ensure internal political stability, political leaders often viewed former colonial powers with some suspicion.

Some leaders of the new nations believed Western led capitalism was partly responsible for the backwardness of the countries. In our part of the developing world, these sentiments helped shape a cautious approach to adopting Western influence and methods of economic development.

Liberal free market economies were viewed with a certain degree of scepticism and many developing countries adopted closed, protectionist economies in an attempt to grow from within.

However, without a liberal free market economy, there is little entrepreneurship or incentive to industrialise as people do not directly profit from their work. The starting position for developing countries is a largely agrarian society; we may suggest this is the first of five stages of growth.

This pre-capitalist society existed everywhere before the industrial revolution; there is limited output because of a lack of science and technology. We also suggest that development requires substantial investment in capital.

For the economies of developing countries to grow, the right conditions for such investment have to be created. These conditions can range from transport and communication infrastructure to tax breaks and financial incentives for multinationals to invest.

Barriers to trade have also, from a liberal perspective, prevented the development of our developing country. Whilst in many cases we have goods to export, barriers imposed by developed countries prevent profitable trade. Rather than enlarging our East African Community’s market with SADC, we are constrained within our domestic market.

If trade takes place in a liberalized and free market, where people, goods and money have access to every country, greater equality between countries would exist and our developing country would be able to integrate much more easily into the world economy.

Without the opportunity to break into the world economy, many developing countries will not be able to develop substantial economic growth; the cycles of poverty cannot be broken from within the domestic economy.

The level of investment needed to raise productivity and incomes is not possible. Thus foreign direct investment through multinational corporations is essential for industrialisation enabling integration into the world economy and economic growth.

Modernization theorists and economic liberals suggest that an open economy free from political interferences is needed to help generate the large amounts of investment needed to foster sustained economic growth and development. From a modernization perspective, foreign trade is perceived as ‘the road’ to market expansion and economic growth.
We are knowledgeable to understand the need for FDI to introduce modern technology and production skills. Without integration, liberals suggest developing countries will find economic growth slow as trading within a domestic market results in a poor balance of payments.

Liberals would suggest that a free market economy promotes growth and can provide the solution for our developing country to integrate into the world economy.
Liberals of open, global markets suggest that the free market guarantees optimal economic growth and in the long term will bring about improved living standards for everyone.

It is opportune to suggest that developing countries have become nothing but a nuisance in a world economy dominated by multinational corporations and global markets for capital, commodities and labour.

We, therefore suggest that democratic control through states is outmoded and instead people can exert their will through free choice as consumers. However, we would suggest that a completely unregulated market without any consideration for a broad strategy of growth can create dependency issues.

Integration can be in terms of trade, capital flows and an increased interconnectedness. Thus, integration into the world economy from a liberal perspective is a positive development for our developing country.

Trading in the world economy allows countries to use their comparative advantage, producing what they produce best and most cheaply in comparison to others for the international market.

Multinational corporations or companies can facilitate the creation of a comparative advantage by capitalising on one of the most readily available resources in our developing country i.e. Gas, Helium Gas, Minerals, and cheap labour.

By industrialising and creating labour intensive manufacturing jobs, multinationals can effectively ‘kick start’ integration into the world economy through the trade flows required for business by them.

Liberals suggest that developing countries should be expected to follow the same developmental path taken earlier by developed countries in the West. We emphatically believe that industrialisation through multinationals corporations or companies combined with a free market economy have allowed many previously agrarian based economies to grow out of poverty.

The international operation of these corporations is consistent with liberalism but is directly counter to the doctrine of economic nationalism and to the views of countries committed to socialism and state intervention in the economy.

Liberals show that for those that have chosen to become integrated into the world economy, the rewards have been significant. For instance let us see exactly how other countries have productively performed:

In fifty years, “Taiwan has transformed from an agrarian economy which was poorer than much of sub-Sahara Africa to a country now as rich and prosperous as Spain. From 30 million people entrapped in absolute poverty in the 1950s, it now has virtually none absolute poverty and real wages are now ten times higher than they were fifty years ago.”

Similarly; Singapore supports a liberal perspective having developed from a struggling colony to a modern, developed country in the last forty years. “GDP growth rates have continued to be 10 per cent on average over the past 4 decades.”

At the same time, the accumulated stock of FDI as a per cent of GDP “has risen from 5.3 per cent in 1965, 17.1 per cent in 1970, 51.8 per cent in 1980, 87.2 per cent in 1990 and 98.4 per cent in 1998.” Singapore effectively tailored industrial policies to attract multinationals and successfully managed Multinationals companies.

The case for trade liberalization is that it brings out the best use of resources, the theory of comparative advantage. When countries specialise in producing goods and services in which they are efficient, they can produce these at a lower cost than other countries.

Trade liberalisation thus leads to increased prosperity which can benefit the poor as well as the rich; developing countries can gain more from trading than not trading.

If you are going to combat poverty you need economic growth…growth requires that resources are switched out of agriculture so they can be used in the rest of the economy.

There is a strong correlation between economic growth and being open to trade. Multinationals can facilitate the switch from agriculture and help countries specialise in producing a certain commodity.

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