Third World Governments and Multinational Corporations: Dynamics of Host's Bargaining Power
| Date | 01 May 1991 |
| Published date | 01 May 1991 |
| Author | Shah M. Tarzi |
| DOI | 10.1177/004711789101000303 |
| Subject Matter | Articles |
237
THIRD
WORLD
GOVERNMENTS
AND
MULTINATIONAL
CORPORATIONS:
DYNAMICS
OF
HOST’S
BARGAINING
POWER
SHAH M.
TARZI
INTRODUCTION
In
their
economic
relationships
with
multinational
corporations,
Third
World
countries
would
seem
to
have
the
critical
advantage,
inasmuch
as
they
control
access
to
their
own
territory.
That
access
includes
internal
markets,
the
local
labour
supplies,
investment
opportunities,
sources
of
raw
materials,
and
other
resources
that
multinational
firms
need
or
desire.
In
practical
terms,
however,
this
apparent
bargaining
advantage
on
the
part
of
the
host
nation,
in
most
instances,
is
greatly
surpassed
by
the
superior
advantages
of
the
multi-
nationals.
Multinational
corporations
possess
the
required
capital,
technology,
managerial
skills,
access
to
world
markets,
and
other
resources
that
govern-
ments
in
the
Third
World
need
or
wish
to
obtain
for
purposes
of
economic
development.
In
addition
to
firm-specific
assets -
technology,
managerial
skills,
capital
and
access
to
markets -
the
economic
power
of
the
multinationals
grows
out
of
a
combination
of
additional
factors.
First,
foreign
investment
accounts
for
large
percentages
of
the
total
stock
of
local
investment,
local
production
and
sales.
Secondly,
multinationals
tend
to
dominate
key
sectors
of
the
economy
that
are
critical
to
the
host
states’
economic
development.’
Thirdly,
multi-
nationals
usually
prevail
in
the
highly
concentrated
industries
in
the
Third
World -
petroleum,
aluminium,
chemicals,
transportation,
food
products
and
machinery.
This
economic .
concentration
in
single
industries
gives
the
multinational
firms
oligopoly
power,
allowing
them
to
monopolize
and
control
supply
and
price
in
a
way
that
does
not
occur
in
more
competitive
industries.’
In
the
first
decade
and
a
half
after
World
War
II,
the
multinational
corporations
were
so
powerful
that
they
could
essentially
prevent
any
chal-
lenges
to
their
dominance
from
host
governments.
The
unique
position
they
held
as
the
sole
source
of
capital,
technology
and
managerial
expertise
for
the
Third
World
states
gave
them
special
negotiating
advantages.
Third
World
1
This
appears
to
be
the
case
in
those
Third
World
countries
where
multinationals
play a
key
role
in
the
economy -
Argentina,
Brazil,
Indonesia,
Mexico,
Venezuela,
Chile,
Malaysia,
Peru,
the
Philippines
and
Singapore.
For
further
evidence,
see
Raymond
Vernon,
Sovereignty
at
Bay:
The
Multinational
Spread
of
US
Enterprises
(New
York:
Basic
Books,
1971).
2
Multinationals,
for
instance,
retain
control
over
copper
in
Chile
and
Zambia,
and
bauxite
in
Jamaica
and
Guyana.
In
the
Middle
East,
where
ownership
and
control
over
raw
materials
production
has
been
transferred
to
host
governments,
these
states
are
heavily
dependent
on
the
multinationals
for
processing,
shipping,
marketing,
and
distributing
their
oil.
Additionally,
the
multinationals
dominate
the
newly
emerging
sectors -
manufacturing
and
electronics -
in
the
economies
of
some
of
the
more
advanced
countries
such
as
Brazil.
See
Joan
Edelman
Spero,
The
Politics
of
International
Economic
Relations
(New
York:
St.
Martin’s
Press,
1985),
pp.
271-2.
©
International
Relations,
1991
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