The Development of Transnational Corporations

Introduction:

A Transnational corporation is a corporation that exercises economic power across national borders and throughout the world from its home country.[1] A transnational corporation is a more specific term used to describe a certain type of multinational corporation. A multinational corporation is a broader term commonly describing any corporation that conducts business between at least two nations. Habitually, multinational corporations consist of independent running departments in the nations that the organization resides in.[2] Being that there are over 70,000 multinational organizations; the term transnational corporation is used to describe only the top tier of capital creating organizations.[3]

This paper will discuss some history and historical struggles of transnational corporations, while also describing some of the present activities that transnational corporations take part in and what they have evolved into.

Characteristics of a transnational corporation:

General characteristics of a transnational corporation include being a multibillion dollar a year industry that often times have larger budgets than small countries. Transnational corporations also contribute significantly to individual nations through foreign direct investment, creating thousands of jobs, and investing in the companies’ infrastructure; often within lesser developed countries.[4] Transnational corporations have considerable sway with governments due to the economic benefit that nations can receive from these organizations.

The Knights Templar:

Transnational corporations are thought to have first appeared several hundred years past with the Knights Templar. The Knights Templar was commissioned at the Council of Troyes, in 1128. The Catholic Church officially composed this uniquely formulated group of warrior priests to ensure the safety of European pilgrims to the newly reclaimed the holy land.[5] Unofficially this group, who took oaths of poverty, became the first real international banking system throughout Europe.

The Power granted to the Knights Templar by the Catholic Church included allowing them to freely cross borders throughout Europe and the Middle East, as well as granted them massive fortresses built originally for the crusades. These assets given to the Knights Templar, along with the well educated priests that the Knights Templar consisted of, set in stone the organizations manifest destiny to be one of the first transnational corporations.[6] The Knights Templar would later use their knowledge and assets to finance work projects and issue credit. As their banking system advanced it allowed individuals to deposit valuables in one place and withdraw their assets anywhere throughout the vast area in which the Knights templar conducted business.

Reasons that differed the Knights Templar from other organizations included their large size. The Knights Templar’s large size and scale of operations is one of the main characteristics that established them a transnational corporation. This distinguished the organization from other organizations at the time who conducted business locally; perhaps conducting business in a single a town, city state, or maybe country.

Along with size, the Knights Templar was distinguished apart from other organizations by their cohesive, uniformed, business activities. Through using a chain of command, lead by the Grand Master, they could make appropriate business decisions that would quickly trickle downward through the chain of command and throughout their territory.

The downfall of the Knights Templar was to be the struggle of the governments’ attempts to control the power of transnational corporations.[7] The first of the medieval kingdoms to turn against the Knights Templar was France, because Phillip IV acquired about a loan from the Knights Templar and was denied. In retaliation, as well as jealousy of their wealth, Phillip IV placed a tax on all clergy and the Knights Templar and begun arresting them. After this, the Knights Templar began to lose favor in many of the medieval governments thus leading the organization to be taxed further.   Along with this came the loss of one of the Knights Templar’s greatest asset, their ability to cross borders freely. This fall from grace, along with a series of battles concluding with the Knights Templar losing all of the holy land, was to be their downfall. Finally, in 1312 Pope Clement V dissolved the order of the Templar officially dismantling the organization.[8]

The reason for the Knights Templar’s downfall is a reflection of today’s governments continuing demand for control of transnational corporations. The dilemma lies in the fact that these corporations contribute greatly to the economy of a country, however they also require a government to cooperate and favor transnational corporations. Governments will often feel compelled to give tax breaks and subsidies to continue conducting business more cheaply, efficiently, effectively, and sometimes illegally while still remaining in the country.  While this pushes governments to want to limit or put a cap on the further strengthening power of the transnational corporations but not being able to because of the threat that the corporations will pull their business, and billions of dollars, out of that economy.

The East India Company:

Since the time of the Knights Templar, being sponsored by the Catholic Church, transnational corporations had then evolved to being sponsored by the state. Such is the instance as with the East India Company.

The East India Company was founded on December 31, 1600, by the English Crown. The company was created as a response to the defeat of the Spanish Armada which opened doors for England to create a monopoly trading with East, especially with the regard to the spice trade.[9]

The first years of the company were lucrative. However, soon after the East India Company was chartered competitors entered the market; the United East India Company which was created in 1602 to protect the Dutch’s holdings in the Indies.[10] Problems soon arose over whom would control trade with the East. The two companies soon were at a near war with one another over control trade with the East, culminating with the massacre of Amboyna in 1623.[11] It is important to note that though the governments of England and the Netherlands had commissioned the companies the battles which the companies commenced did not incorporate ether government. The two governments only imposed administration after these skirmishes to make a ruling as to whom the fault lie with.

Despite this example of violence without much of any attempt from the companies to come to an agreement, England’s Charles II later issued a new charter to the East India Company that expanded the organizations authority to include “The right to acquire territory, exercise civil and criminal jurisdiction, make treaties, wage war, command armies, and issue its own money.”

The administrative action that the English and Dutch governments took regarding these two companies is comparable to the general policy of how governments today regulate transnational corporations. Governments tend not to interrupt the day to day dealings of transnational corporations. Instead, governments choose to take punitive actions against companies which have broken the law. Even after a transnational corporation has committed an illegal act the government still feel obliged to give transnational corporations more power because of the economic gain a country can acquire, as is the instant regarding the new charter given to the East India Company by Charles II.

The laws sluggish reactions to transnational companies is in part because the government upholds these organizations to a higher standard, and that it is also assumed that someone within the chain of command will stop illegal business handlings. These corporations exude a major source of economic gain to nations and this will often influences governments to be more lenient towards less then ethical actions committed by transnational corporations.[12] Governments would have extreme trouble monitoring these organizations due to the fact that transnational corporations are immense operations that would require far too many resources to regulate their day to day operations. Thus in place of observing all operations of transnational corporations, guidelines and official record keeping are established that must be abided by. These guidelines allow transnational corporations to conduct business efficiently, without constant intervention from the government and ensure the relative legality of organizations’ interactions. These formal records are also provided as crucial evident in a case when major infractions take place.

In addition, the East India Company was one of the first to employ foreign direct investment. In 1612 the company built their first factories in Surat to produce textiles that would be sent back to England for resale.[13] The successes of these factories in Surat led to further investment in foreign economies such as Calcutta and Madras. Later, Catherine de Braganza of Portugal would present a dowry of the Indian seaports Chittagong and Bombay to Charles II, thereby putting these ports under English control and opening more foreign direct investment opportunities for the East India Company.[14] The company soon had over 23 factories in India and continued investing in foreign markets. In 1711 the East India Company opened factories in Canton, China which furthered their monopoly on Asian textiles.

The East India Company invested in foreign markets for a variety of reasons. Firstly, the goods that they exported out of Asia were goods that could not be manufactured or did not exist anywhere else, such as silks, indigo die, and tea. This gave the British a total monopoly on most goods from Asia. By 1720 fifteen percent of imports to England were from India and most were channeled through the East India Company.  The East India Company also acquired raw resources more cheaply from the East as well as a large source of cheap labor in Asia to be exploited. The company was forced, and did so without any reservations, to use the superior English military to suppress riots against nationalist to protect their investments in Asia. The riots ended up being a major cost to the company, and led to the British nationalization of the East India Company.

The foreign direct investment that the East India Company practiced was not an investment to better the nations that they conducted business in; other than England of course. The direct investment only dealt with increasing production and export to increase the company’s economic gain. History looks back on many of the practices of the East India Company as negative business practices, and their foreign direct investment plan is certainly to be considered one of them.

Modern transnational corporations:

Today transnational corporations still participate in foreign direct investment with lesser developed countries, with the same goal of economic gain for their company through using inexpensive resources, and easily accessible cheap labor. However, attempts are now made to in some way to help develop the underdeveloped nation they are working with. Transnational corporations will outsource jobs that can be done more cheaply in foreign countries, which are often less developed. Transnational corporations in the modern day do not solely interject capital into an underdeveloped economy but often education too. When investing in other countries a company will need to invest in educating future employees. A company may even need to set up training facilities to educate employees, since there may be no prior knowledge locally regarding that industry.  Because of the company’s need for educated employees the country will benefit by having more educated citizens, due to the technical training given to the companies’ employees. One example of this is transnational corporations investing in India’s upper educational systems to create a long-term source for skilled labor.[15]

Transnational corporations have perhaps lost some of the power that they once had. They are no longer commissioned by the Catholic Church or the government. Presently, they may have contracts with a nation to fulfill a specific need; such as oil production, military technologies, import, export, and manufacturing of specific goods. However, they are still the massive economic powers in the global economy.[16] The main difference today is that there are many more of these corporations covering many different markets. Transnational corporations, as said earlier, earn huge amounts of money, and many pull in a greater income than some countries.

Conclusion:

Transnational corporations have developed over time to presently being much more willing to give and assist the places in which they conduct business. Governments are now much more willing to stand up against transnational corporations when they have broken or stretched the law. Governments today do not hesitate in investigating and braking up monopolies, such as the US Department of Justice’s antitrust investigation of Microsoft in 1998.[17] There is more support than ever to maintain a free market in a none-monopolistic environment that supports market verity and consumer products inexpensive.[18] Even though governments are more willing than ever to stand up against transnational corporations they still feel immense pressure from them to grant tax breaks and lower tariffs under the threat that a corporation will leave the country with all of the economic benefits that a transnational corporation can provide.

*The bibliography has been removed and can be obtained from Michael W. Anderson

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