Multinational Corporations and Transnational Corporations in the Development of

Third World Economies

1.1Introduction

Multinational Corporations[MNCs} are business organizations with headquarters

in one country but with operating branches or factories in other countries.

Examples of MNCs in Nigeria include MTN, Airtel, Anglo-Dutch Shell, Procter

and Gamble, British American Tobacco among others. This study has the objective

of examining the negative effects of multinational corporations.

In recent times there has been growth in the number of MNCs operating in the

world. This phenomenon can be explained by the increase in free trade

arrangements across the world. This had led to reduction in barriers and had made

it easier for businesses to start-up operations in other countries. Secondly, there are

potential cost savings made by operating in a low-cost country and this can be

translated to bigger profits. Thirdly foreign operation might be closer to important

markets and thus facilitating ease of exporting of goods and services. Fourthly

access to local resources that might not be available in home country is also factor.

This paper has the objective of examining the impact of Multinational

Corporations and Transnational Corporations on the development of third world

economies.
1.2 Theoretical Framework: Dependency Theory

Dependency theory is one the theories that had been used to explain the

underdevelopment of third world countries. The school of thought largely arose in

the Latin America as a critique of the mainstream modernization school of

development. The Modernization school had argued that past and present

traditional and pre-modern can become modern [interpreted as westernized]

through a specific process of economic growth and transformation in social,

political and cultural structures. In his study, Andre Gunder Frank1 submitted that

modernization theories are misleading and do not explain the reality of

underdevelopment. This is because modernity theory distorts the historical orgins

of underdevelopment and the agenda carried out by developed countries in their

former colonies which made the bulk of the underdeveloped countries.

Dependency theories locate the origins of underdeveloped countries in the unequal

relationship fostered during European imperialism and expansions 2. For Rodney3

the major purpose of colonial conquest and rule is to return profit extracted from

the periphery in Africa to metropolitan countries in Europe and thus further

worsening the underdevelopment. Writing specifically about the situation in the

Southern part of Africa, Amin et al noted in passing that:

Imperialists partitioned the countries in Africa and then forced

the African peasantry into reserves, deliberately planned to be
inadequate for the purposes of ensuring the failure of
 subsistence in earlier traditional forms. The discovery of the
mineral riches of Southern Africa (such as gold and diamonds
in South Africa, copper in Katanga in Zambia) just when
capitalism was entering a new stage of monopolistic expansion
inspired a particular form of colonization of the economy of the
reserves4.
Classical dependency theory has the following postulates:
Firstly the underdevelopment trend in the third world countries is directly related

to the relationship of dependency which exist between the rich-industrialized

countries and the underdeveloped third world nations.

Secondly the underdeveloped nations are conceived as the periphery while the

developed nations are conceived as the metropolitan center. In the analysis, the

centre represents the developed industrial capitalism while the center represents the

underdeveloped and backward region. Thus the underdeveloped states of the

periphery are locked in an exploitative relationship with the wealthy developed

nations of the centre.

For the dependency theorists, dependency is a conditional external to the

underdeveloped regions and imposed from the outside. It is also analyzed in most

terms as economic condition. The social and cultural aspects of dependency are

often discounted with. Furthermore the state of underdevelopment in the periphery

and the advanced development at the centre are not separate phenomenon but two

sides of one historical process of capital accumulation. Therefore in this analytical

construct, development and underdevelopment are mutually exclusive. In other

words, for the dependency theorists, given the historical relationship between the

centre and periphery, development is impossible in the periphery.

The underdevelopment fostered in the periphery by a comprador class of elite

which cooperates in the process of exploitation. In a study, Ferroro5 argued that

the diversion of economic resources is maintained not only by the power of the

rich industrialized states but also through the cooperative agency of the power

elites in the dependent states. In other words, the elite maintain a dependent

relationship because it furthers their private interests and agenda which dovetails

that of the dominant states6. This makes the interest of the dependent elites to be

antagonistic to the overall interests of the majority who are the poor. Therefore the

interests of the poor who are the majority in a dependent state is seen as equal to

the national interest. Hence national interest can only be fulfilled by focusing on

the needs of the poor within a specific dependent society ‘rather than through the

satisfaction of corporate or governmental needs’7.

The application of dependency theory to explain rural underdevelopment within

underdeveloped countries has been attempted by Matunhu8. The study noted that

rural areas economic development points at the putting in place of metropolitan-

satelite relationship at different tiers in the economic and social structures of the

society9. Hence while ‘Europe and America are busy exploiting Africa, urban
areas are also busy exploiting rural areas…thus poverty at all levels is attributable

to inhibiting relationships [internal colonialism] between the developed

communities [urban areas] and their satelites [rural areas]10.

The major criticism of the dependency school is that it places emphasis on

relations between nations and not among classes11. Furthermore the theory had

sought to understand the dynamics of capitalism without a grounding in its

organizational units12.

1.3 Development of Third World Economies

MNCs have some advantages in their host conutries. Local jobs are created and

this go a long way in reducing local unemployment in hos coutries. For example

investment by foreign Telecom companies in Nigeria has created thousands of

direct and indirect jobs in Nigeria. In addition, there is an increase in national

output. National output is the gross domestic product and the increase of this leads

to higher standard of living in the long run. MNC may increase a country’s exports

and this may lead to positive balance of payments. Furthermore, MNCs may

increase tax revenue of the host government. This may lead to provision of better

government services. The skills of local workers increases through technology

transfer engendered by MNCs.

In spite of the above listed advantages, there are many negative effects of MNCs.

Firstly MNCs usually give high income jobs to foreign workers and expatriates.

The low paying jobs are usually reserved for the locals. This is usually common in

companies operating in free trade zones. In addition MNCs usually repatriate

profits back to home country. With this arrangement, local profit tax is avoided or

watered down. For example the South African Telecom giant MTN had been in

running battle with Nigerian government over its repatriation of its billions of

dollars profit from Nigeria to South Africa with the assistance of local banks in

Nigeria.

MNCs also engage in squeezing out of local competition in places where they

operate. Furthermore there is less cultural diversity in their operations. Finally

large scale production could lead to damage of the environment. For example the

activities of crude oil production and exploration in the Niger Delta has led to the

oil spillages which leads to environmental degradation in the Niger delta

ecosystem.

From the foregoing it can be seen that the forces of globalization had led to recent

growth of MNCs in recent times. The study had shown that there are advantages to

a host country from the operations of MNCs. However it appears that negative

effects bulked larger than the positive effects in the operations of MNCs. Therefore

there is need for increased local governance and regulation of their activities. The
watchword should always be equal and beneficial partnership between the MNC,

host Government and the host communities under the auspices of sustainable

development.
ENDNOTES

1. Frank, A.G Crisis in the Third World (New-York: Holmes and Meier,1967)

2. Ibid

3. Rodney, W How Europe Underdeveloped Africa (Dar-es-salam: Bogle

L’Ouveture Publications, 1972)

4. Samir, A., Chitala, D. and Mandaza, I., SADCC Prospectus for

Disengagement and Development in Southern Africa: Studies in African

Political Economy( United Nations University, London: Zed Books Limited,

19887)

5. Ibid

6. Ibid

7. Cited in Howe, G.N “Dependency Theory, Imperialism and the Production

of Surplus Value on a world scale”

www.citeseerx.ist.psu/viewdoc/download?doi=10.1.1.917.4522&rep=rep1&

rep=rep1&type=pdf, 2006 accessed 21August 2018

8. Ibid

9. Ibid

10.Frank, A.G Crisis in the Third World

11.Ibid

12.Ibid