Posted: May 29th, 2015

Global Production: How should we Regulate Multinational Corporations’ Contributions to Australian Society and Economy?

Global Production: How should we Regulate Multinational Corporations’ Contributions to Australian Society and Economy?

Executive Summary

This study has been undertaken to provide recommendation and evaluation of global production in Australia. It focuses on how Australian government can regulate multinational corporation contribution to Australian society and economy. The report has been structured with two sets recommendations. One for the set is appropriate for a neo-liberal government and the other set for a socially democratic government.

Multinational corporations are involved investment and international trade activities that have played a key role in strengthening ties that join countries. Currently, they have experienced structural change due to the expansion of economy and internet. With the improved technology, they are playing an increasing role in the country’s economy and the society. They play a significant role and accounts for the largest share of the international investment. This paper discusses global production and environmental issues that arise from their action. It will discuss how the freedom of multinational corporations that makes it hard for the government to regulate their actions in order to ensure that there is harmony with the government policies and does not infringe on the rights of citizens. Based on the information on the findings of the issue, the paper provides a recommendation of the action that should be undertaken to regulate the actions of these corporations successfully. The recommendations will be two folded. One set will be appropriate to the neo-liberal government and the second set will be for the social democratic government.

Introduction

Politics of Globalization has resulted in a collision between internationallyintegratedsystems of productionandsocialsystem of production that are favored by the multinational corporation (McDougal, 2000, p. 4). Globalization of businesses has presentedsomechallenges to thegovernment (Lohmann 2011, p. 67). A multinational corporationrefers to an organization that controlsorownsgoodsandservicesproduction in its countryandmore than one outsidecountries (Globalizing Production, 19). Australia has some of the biggest companies that operate globally such as Rio Tinto. Thevariousactivitiescarried out by multinational corporationsincludeimportingandexportingproductsandservices, investing in foreigncountries, transactions of licenses in foreigncountries, manufacturingcontractsandopeningmanufacturingfacilities in foreigncountries. Theactivities of multinational corporations are operated by thefreemarketsystemandeconomicliberalism (Kresl 2005, p. 417). The number of Multinational Corporation is increasing at an alarming rate (Globalizing Production, 20). In Australia, multinational companies have not only failed to engage in environmental sustainability practices but they have avoided paying tax. The Australian government has tightened transfer pricing legislation to maximize the contribution of multinational enterprises to the economy and society. Multinational corporationshaveundergonesomestructuralchanges that are reflected in their operationsespecially in developingcountriesresulting from therapidgrowth of foreign direct investments. Somecompanieshaveneglectedtherules order to gainunduecompetitiveadvantage over their rivals. Thispaperprovides a detailedanalysis of global productionandtheaction of multinational corporations in Australia. It will focus on the neoliberal and social democracy approach to the global production and regulation of multinational cooperation contribution to the economy and citizens. Therationaleforthisstudy is to come up with a recommendation based on the neo-liberal governmentandsociallydemocraticgovernment to regulate multinational corporations’contribution to theeconomyandthesociety.

Literature Review

Neoliberalism

Neoliberal ideas on global production hold the notion that the competition drives the prosperity of the economy. A well developed regulatory apparatus and legal system are vital to the regulation of activities of global production at multinational corporation level (Degeiner, 2010, p. 192). In 1983 and 1996, the government performs a micro-economic reform program and economic liberalization. The major characteristic of neoliberal approach of globalization is the new power given to the owners of the multinational corporations that benefits from economic policies related to liberalization of trade, innovation and decreased state of restriction on the labor. There are the various dimension of globalization hence there are various ideologies that shape neoliberal approach on how it should be done. Neoliberalism demonstrates various ideologies of globalization that vary widely with time and across the country by ignoring the government as the body for formulating policies and high preference for markets (Ronald & Hogg 2013, p. 4).

Globalization of production has led to favoring of liberalization of trade over protectionism resulting into reduction in tariffs, floating currencies, subsidies and global trade agreements. Neoliberalism approaches poverty from the development of enterprise, decentralization of private-public partnership and development that results in increase in standards of living. Neoliberalism had policies and reforms that emphasized the importance of government intervention in the economy. Some of the neoliberal tenets of globalization included liberalization of trade and market solution the problem of policy. Neoliberal idea ideas on the globalization of production emphasized the need of limiting the risks associated with new technologies with an aim of increasing profits. Public policies of neoliberal have been contested and point to the deficit in the governance of global production. Neoliberal policies have focused on trade liberalization while ignoring redistributive issues that has led to poverty. Global production should indirectly solve the problem in the society through increased productivity and economics expansion (Degeiner, 2010, p. 200). Multinational corporations must possess and develop capabilities and resources to overcome risks related to the market in the overseas operations (Wiedmann, Lenzen, Turner & Barrett 2007, p. 12).

Regulation of technology has depoliticized regulation of technologies that are used to enhance productivity. According to the neoliberal production standards storage and distribution of goods are regulated by international organizations that translate social and economic interests into a scientific framework.

Social Democracy

Social scientists have the idea of trade liberalization and deregulation boosts the economy. Instead, it presents new forms of inequality such as growing wealth inequality despite the increase in wealth due to globalization. Social democracy goal in the regulation of multinational corporations is not in the interest of capital. Exposure to the global economy through multinational corporations calls for more social democracy to provide for compensation for the effects caused by globalization. Global production is useful in development, but it has negative implications that have to be confronted. The power of multinational corporations is presenting numerous problems to the society. Multinational corporations have neglected the collective need that in turn has led to environmental damage.

Although globalization has brought enormous benefits to the consumers through the creation of demand for new products, operation of multination corporations presents a big risk to the environment (Epstein & Buhovac 2014, p. 23). Competition policies should adopt a tough line to limit the monopoly power of multinational corporations. Many markets need regulation to regulate their operation and ensure that they do not have an adverse effect on the stakeholders. The role of public policy is to mediate with markets and enable them to operate while protecting citizens (Graham & Woods 2006, p. 887).

Under global production, a global governance concept is necessary, and it has to bind the dynamics of the global markets to democratic, ecological and social values. Multinational corporations are taking over some part of the government capacity to regulate production. Globalization has presented new problems and threats such as environmental degradation. Sustainable development is a useful concept in the regulation of the contribution of multination corporations to the economy and citizens. It combines ecological, social and economic dimension of the globalization. The fundamental components of the sustainable development include economic growth, environmental protection and social equity. Global environmental problems are caused by an essential search of profit among multinational corporations that leads to natural resources damage (Epstein & Buhovac, 2014, p. 23).

Discussion

Neoliberalism

Under neoliberalism, the economy is a free market that is identified and characterized through it rules and logics. Neoliberalism rejects the intervention of the government in the domestic economy. It focuses on fewer restrictions on the business operation and free markets. Neoliberal globalization facilitates economic changes occurring in industrial production. Global competition has been facilitated by the liberalization of trade resulted in technological innovation. As new technology and materials are introduced in the markets, public concern have been mounted worldwide with respect to environmental, social, safety and health implication of firms practices and products. The goal requires some regulation to limit inefficiency in the marketplace such as inefficiency in the trading system and tendency to move towards monopoly. Public concern over the negative impact of multinational corporations on the environment has become frequent.

Efforts to regulate international labour standards have emerged due to the pressure that has been exerted by competitive dynamics through global production. To regulate the contribution of the multinational corporation to the economy, it is necessary to shift capitalist production towards the new spaces in the world economy. Neoliberalism provides principles that guide arrangements that codify global economy rules. Multinational corporation trade agreements facilitate expansion of its production and enhance its power. They promote free market practices in the economy markets (Degeiner, 2010, p. 200).

According to neoliberalism, corporate social responsibility is the adoption of a set of policies guidelines or code that initiated and driven by the multinational corporations. The rise of neoliberalism led to a significant shift away from state intervention in regulation activities of corporations. There are two factors that make corporation adopt corporate social responsibility. They are an expectation of their stakeholders such as consumers for responsible corporate conduct and the government threat of imposing new binding regulations on the corporation. Government threat of imposing new regulation is neoliberal view, and it should be out into action when company activities cause an adverse effect to the stakeholders.

In Australia, manufacturing and industry sectors make a significant contribution to the growth of the economy. The manufacturing sector has the capacity to add a great value to the economy hence plays a vital role in improving Australian performance in the performance of environmental sustainability (Mudd, Giurco, Mohr & Mason 2012, p. 56). Australians manufacturing and industry sectors also play a critical role in helping other sectors to adapt to climate change through recycling, energy and water efficiency.

Social Democracy

The ability of the local government to control the economy and regulation of capital has been limited by obstruction of engaging in practices that will lead to loss of capital. Government policy on regulation of multinational corporations and taxations has to be tailored to the needs of the society. Greater accountability and regulation are required in the face of global production to for the coordination of production, investment, and trade (Wolfe, Robert, Krueger, Anne 1999, p. 342).

Globalization today has contributed to a significant extent into economic uncertainty, growing disparities and stagnant in the growth of real income. Aspects of globalization include growth in liberalization of trade, reduction in the cost of communication and transportation and growth in the production of multinational production (Macapagal-Arroyo 2004, p.16). It demands political concern due to an increased role of globalization in the market. Globalization has restrained domestic policies, but the real benefits depend on how the regime shaped the development of its policies (Globalizing Production, 10). International organizations play an essential role in shaping the evolution of policies, and it limits national choices and values (Graham & Woods 2006, p. 881).

Globalization of businesses presents opportunities, but at the same time poses regulatory challenges. The government has adopted to regulate actions of multinational corporations with an aim of facilitating competitive markets and upholding social and public goals. Self-regulatory efforts have been incorporated through the use of multinational enterprises guidelines that ensure that corporations support principles of environmental conduct, human and labor rights across global operations (Lohmann 2011, p. 81). Corporations are supposed to regulate their conduct in harmony with the government policy (Graham & Woods 2006, p. 868).

Corporate social responsibility is a difficult concept because it overlaps with other concepts such as environmental responsibility, environmental accountability, and sustainable business. It is highly contextualized in terms of national environment and corporate environment. According to neoliberals, corporate social responsibility refers to the adoption of codes or guidelines and voluntary policies initiated by corporations. According to Australian Treasury, Corporate social responsibility refers to corporation management of social, economic and environmental impact of its activities (Golob & Bartlett 2007, p. 6).

As multinational corporations grow bigger, their impact on climate is increasing. The primary goal of multination corporations is making a profit, and this have given rise to damaging results such as environmental change, violation of human rights and manipulation of international agreements. Many companies such as fossils and energy industries have contributed to a significant extent in environmental damage and the cost of environmental problems is borne by the society (Christopher, Chapman & McClure 2011, p. 752).

Multinational corporations have failed to exercise corporate social responsibility in their operations. They have focused more on making a profit and gaining competitive advantage while neglecting the issue of pollution through the emission of harmful gasses and depletion of natural resources. Global production has mounted a considerable pressure on natural resources and has impacted the environment negatively. As a result, the long-term effect of globalization will impact the society and the growth of the economy negatively. The negative impact of the multinational corporation such as pollution has imposed an extra cost to the organization. Production of a multinational corporation does not pay attention to the high-tech legislations against environmental damage (Head, Adams, McGregor & Toole 2014, p. 179). Multinational corporations have abundant resources in boosting their production in terms of investment capital and technological investments (Timothy, slide 12).

Recommendation based on the Neoliberal Approach

Neoliberalism is a political economy theory that asserts that free market capitalism is the best on the basis of political organizations (Kinderman 2012, p. 29). It is based on the pursuit of the citizens’ economic freedom through the development of free markets and protection of private property and limitation of the government power (Ronald & Hogg 2013, p. 2). Individuals should be given freedom to participate in the marketplace the way they want, and multinational corporations should be given the ability to compete unrestrained by regulations that would hinder them from maximizing their returns. Neoliberalism seeks to minimize government regulation of by emphasizing on the expansion of market options and individual choices through competitive markets for environmental emission to reduce pollution. The government should focus on the promotion of economic development through privatization of programs concerned with social insurance (Ronald & Hogg 2013, p. 4).

The government has to guarantee for integrity and quality of money and set up legal functions and structures to secure the rights of properties. Moreover, it should enforce laws that guarantee proper running and functioning of local and international markets (Degeiner, 2010, p. 200). Neoliberal policies are associated with many benefits in the regulation of global production such as privatization and deregulations (Ronald & Hogg 2013, p. 5). The policies formulated to regulate their activities should only act as a guide and not restrict them from making profits. Through liberation, multinational corporations will be accountable for their actions and ensure that their actions do not benefit then only but also the society and the economy of the nations.

Recommendation based on Social Democratic Approach

According to the socially democratic government, the society, and the economy should be run democratically to meet the needs of the public and not for some people. In the multinational corporation, profit that is enjoyed by some people is generated at the expense of the well-being of the society. The structure of the government should be changed in order to achieve a more just society that promotes the general welfare of the public. The government should create a big corporate bureaucracy to control the activities of the multinational corporation and protect the society. Worker and consumers who the most affected by the activities should control the resources rather than using to generate profits for capitalists (Epstein & Buhovac 2014, p. 23). The activities of multinational should be brought under greater control by use of regulation and tax incentives. This practice will encourage the corporation to operate in the interest of the public and outlaw destructive activities such as environmental pollution and exploitation of natural resources. Moreover, companies can be held accountable through unions and public pressure. Social democratic government must be launched at the international level to bring multinational corporations under democratic control and ensure that workers efforts reach the border. A set of regulations should be enforced to regulate the activities of the multinational corporation at international level. In their production process, the government should ensure that they incorporate practices that protect the environment and help the society to adapt to the climate changes.

Conclusion

Neoliberalism view of global production differs significantly from social democracy view. Neoliberalism favors free market does not support government intervention in the multinational operations. In contrast, social democracy government advocates for the regulation of global production by the government policies for the well-being of the society. Its holds the idea that the government structure should be changed to cater for the concern emerging due to global production. Multinational corporations’ power has made it difficult for the government to restrict their practices resulting to environmental degradation.
Reference list

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