Introduction

 

In the current world, we are facing a level of globalization never experienced before. Inevitably this led to an increasing power and influence of companies, namely Multinational Corporations (MNCs). These can be defined as corporations that operate in their home country as well as in other countries (CFI Team, 2022). This fact has been raising some questions about the extent of MNCs’ influence in political systems and more importantly at which point they are more powerful than countries. At first, it may seem inconceivable, however, if we analyze better what is happening nowadays, we see that companies are becoming larger and are spreading across the globe. According to David Francis, we are now living in an era of Meta Nationals, which are companies that have become stateless as is the case of Accenture, a consultant company. He also states that from now on “the most powerful law is not that of sovereignty but that of supply and demand”. For instance, in 2016, Apple’s reserves exceeded the GDP of two-thirds of the world’s countries and the ten largest banks controlled nearly 50 per cent of assets worldwide (Francis, 2016).

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Consequently, the main purpose of this paper is to assess to which extent multinationals can influence and risk the democratic system of a country. To answer this question, I will first present the core literature used, then I will discuss two cases where it is possible to see how the relationship between MNCs and Governments was established. The first one presented is the “Banana Republic”, where I will explain its history and how it impacted the Central American Countries’ political systems. In the second case, I will be analyzing the relationship between high-tech companies, namely the ones located in Silicon Valley, with the North American Government. In the conclusion, I will try to answer the paper’s question as well as succinctly present the key ideas of this essay.

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Literature review

 

In this section of the paper, I will be presenting a context, in terms of academic research, on the relationship between MNCs and governments and the lobbying that exists in this environment. In Nownes’ book, he describes the process of lobbying and who are the actors involved in it. In his book, he describes two different lobbying techniques: to meet personally with legislators and to meet in person with executive agency staff. He believes that, regardless of who is lobbying or what their intentions are, meeting personally with politicians is crucial to be more persuasive. The data has shown that even though contributing money to political candidates is a popular lobbying technique, lobbyists do not believe that money will persuade policymakers to act in their favour. The author draws a correlation between lobbyists with a large base of supporters who can mobilize and the success that they obtain in lobbying, as well as the number of resources that they have with their success (Nownes, 2006).

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In Kim and Milner’s article, they found convincing evidence of an increase in lobbying expenditures when firms become MNCs and that the larger they are the more they try to exercise political influence. They may have strong political influence in their home countries due to their global economic dominance. The more firms interact with the government and its regulations, the more political action they seem to take. These corporations’ decisions have significant implications for a wide range of policy issues worldwide, such as taxation, investment protection, and immigration. Their political activities may lead to actual policy changes and demonstrate that lobbying by firms can affect national policies and influence individual legislators. The authors argue that firms that are politically connected benefit economically from it and that larger firms, namely MNCs, are more prone to establish these connections. (Kim & Milner, 2019).

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Ney’s paper explains a counterargument to the theory that MNCs intentionally control governments in their best interests. He believes that MNCs are not likely to “render the sovereignty of the nation-state obsolete” (Nye, 1974, pg. 153). He says that the firms have a different impact depending on it is operation, for instance, they may have a stronger influence in weak governments rather than in more powerful ones. According to the author, there are three important roles that these firms have in politics; the first is their direct role in private foreign policy. He mentioned the case of United Fruit in Guatemala in the 1950s which illustrates how companies use their economic means in direct bargaining with host governments for favorable policies. The second role of MNCs is the unintended direct impact of instruments of influence. Here he argues that governments are the ones who use corporations as an instrument to manipulate and control other nations. The basis of this argument is that direct investment creates an international interdependency that governments may try to manipulate for their political purposes. The last role is an indirect one where MNCs set their agenda: according to Nye, these corporations only create conflicts with the states as a by-product of their business activity, thus they are not intentional (Nye, 1974).
 

Banana’s Republics

 

Even though it happened many decades ago, the first case study that will be presented is the Banana Republic. It is an interesting case to analyze due to its complexity and the impact that it had on the Central American political regimes. At the end of the 19th century, some American companies realized that it was cheaper to import bananas than produce them locally, thus they moved to Central America to produce this fruit (Eschner, 2017). One of the companies that marked history was Chiquita, initially named Boston Fruit Company. It started exporting bananas from Jamaica to the United States at a very affordable price. Additionally, due to its successful campaign promoting bananas, Chiquita managed to popularize its consumption (Rinhart, 2022). Part of this campaign was based on the distributing of manuals to schools where it was explaining the nutritional benefits of this amazing tropical fruit (Stromberg, 2016). Consequently, banana demand started increasing continuously, which led companies to negotiate with the governments of Central America. In these agreements, companies were entitled to provide funds to the state, and in exchange, this would give lands and adjust public policies to their interests (Rinhart, 2022). Therefore, they were building infrastructures such as railways and ports in exchange for the promised land. This relationship became so strong that some owners of these companies started getting involved in the political sphere of these countries. For instance, Zemurray was particularly involved in Hondura's political system in 1903. This company, Cuyamel, supplied weapons to the coup in 1911 which brought to power Zemurray’s ally (Eschner, 2017). The cheap land and the relaxation of the policies allowed these companies to have slaves. As a result, the companies were able to use competitive prices which made these companies grow even more (Stromberg, 2016). At a certain point, Chiquita had so much power and influence in Guatemala and Honduras that it created a “state” within the state. That is why we now refer to these political systems as “banana republics.” Governments, like Costa Rica, Honduras, and Guatemala, which were poor and desperate to develop their communication channels borrowed money and gave away their land in exchange for railroads. Sporadically these governments would be deceived by the firms that only built the infrastructures they needed for their business and not the ones they were required. Other times the U.S. government would intervene by providing loans to these countries in exchange for more flexible policies on imports and exports (University of Toronto, n.d.). These dynamics started to shake a little bit with the first democratic movements in these countries. In 1954, Guatemala was living through its first period of democracy when President Jacobo Árbenz was implementing agrarian reforms, which protected the locals. However, the United Fruit Company, with the help of the U.S. government, ousted him (Rinhart, 2022). These cases illustrate how the relationship between multinationals and corrupt leaders influenced the political development of countries, namely the ones with a weaker democratic system.
 

Silicon Valley – High-tech companies

 

Over the past years, governments have become less powerful, while companies are becoming increasingly influential, especially Big Tech companies (Terzi & Marcuzzi, 2019). A clear example of this is the impact that Silicon Valley has on Washington. This region is well known for being the home of large companies such as Microsoft, Google, Amazon, Apple, and Facebook.

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Over the years these companies have been pouring money into Washington to protect their oligopolies even though the government has been trying to control the political influence that these firms have. In 2016, Tech companies, which are dominating the U.S. lobbying industry, spent $49 million on Washington lobbying. They have been applying influence on policymakers and citizens through soft power techniques, which can include funding think tanks, research bodies, and trade associations that lobby the states (Solon & Siddiqui, 2017). A survey done by Political Scientists at Stanford University about the impact that these companies have on policymaking suggests that, on the one hand, they can promote the implementation of policies regarding social and economic areas. On the other hand, they may fight for labour and business deregulation (Manjoo, 2017). 

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These companies have been implementing sanctions for users who do not comply with their policies, such as temporary suspensions or permanent bans (Terzi & Marcuzzi, 2019). More recently they started manifesting their opinions publicly, as was the case of the presidency of Donald Trump, which led to his expulsion. These companies started to criticize his policies on Muslim immigration, transgender rights, and white supremacists. These events intensified the discussion on the political force that Tech Giants can be (Manjoo, 2017).

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In the last few years, we have been seeing multinationals like SpaceX, Facebook, and Alphabet developing innovative projects for society and taking, in part, the place of governments. According to the authors, if the states allow companies to act in their place in a new large-scale business, it is probable that these companies end up behaving in their best interests. Afterwards, it will be almost impossible for the state to reclaim its power, thus “taking back sovereignty from multinationals will require international cooperation” (Terzi & Marcuzzi, 2019).

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Conclusion

 

The overall idea of this essay is to explore to which extent MNCs are a risk not only to the sovereignty of a country but to democracy. Even though it has not been presented clear evidence that MNCs are intrinsically bad for democracy it is explained how they influence policymakers. Thus, by doing a deeper analysis based on democracy we may say that in fact, these firms are a risk to democracy since many times they act to preserve their interest. Given the fact that MNCs’ CEOs are not appointed by the population as politicians and governments are, we may reach a point where several dictators, the CEOs, govern the world without being popularly elected. It is worth mentioning that further analysis of MNCs from other countries is needed to evaluate more deeply the impact that they have on democracies. Nonetheless, the findings of this essay point towards a connection between MNCs and undemocratic practices.

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References

 

CFI Team. (2022, November 26). Multinational Corporation (MNC). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/management/multinational- corporation/

Eschner, K. (2017, January 18). Where We Got the Term “Banana Republic” | Smart News| Smithsonian Magazine. Smithsonian Magazine. https://www.smithsonianmag.com/smart- news/where-we-got-term-banana-republic-180961813/

Francis, D. (2016, April). These 25 Companies Are More Powerful Than Many Countries – Foreign Policy. https://foreignpolicy.com/2016/03/15/these-25-companies-are-more-powerful- than-many-countries-multinational-corporate-wealth-power/

Kim, I. S., & Milner, H. v. (2019). Multinational Corporations and their Influence Through Lobbying on Foreign Policy. Multinational Corporations in a Changing Global Economy.

Manjoo, F. (2017, September 6). Silicon Valley’s Politics: Liberal, With One Big Exception - The New York Times. The New York Times. https://www.nytimes.com/2017/09/06/technology/silicon-valley-politics.html

Nownes, A. J. (2006). Total lobbying: What lobbyists want (and how they try to get it). In Total Lobbying: What Lobbyists Want (And How They Try to Get it). https://doi.org/10.1017/CBO9780511840395

Nye, J. S. (1974). Multinational Corporations in World Politics. Foreign Affairs, 53(1). https://doi.org/10.2307/20039497

Rinhart, G. (2022, August 12). What’s a banana republic? A political scientist explains. The Conversation. https://theconversation.com/whats-a-banana-republic-a-political-scientist- explains-188573

Solon, O., & Siddiqui, S. (2017, September 3). Forget Wall Street – Silicon Valley is the new political power in Washington | Silicon Valley | The Guardian. The Guardian. https://www.theguardian.com/technology/2017/sep/03/silicon-valley-politics-lobbying- washington

Stromberg, J. (2016, March 29). The improbable rise of the banana, America’s most popular fruit

- Vox. Vox. https://www.vox.com/2016/3/29/11320900/banana-rise

Terzi, A., & Marcuzzi, S. (2019, February 6). Global: Are multinationals eclipsing nation-states? | IPS Journal. IPS. https://www.ips-journal.eu/regions/global/are-multinationals-eclipsing- nation-states-3245/

University of Toronto. (n.d.). Banana Republics - Visualizing the Americas. Visualizing the Americas. Retrieved January 9, 2023, from https://visualizingtheamericas.utm.utoronto.ca/key-moments/banana-republics/