The multinationals’ age is everywhere but in the economics curriculum
This paper has been included in the publication
“The Economics Curriculum: Towards a radical reformulation”
Abstract
The paper starts with the provocative assertion that TNCs have very little impact on today’s economics curriculum. It aims to show that an understanding of modern economies cannot be arrived at without an understanding of how TNCs operate. It then briefly reviews some of the main theories of the TNCs in the last 50 years. It considers the relationship between economics and the study of TNCs arguing for the relevance of inclusion of such a study for both the micro and macro curriculum. At the micro level the issue of strategic behaviour by TNCs is discussed in relation to the opportunity for strategies offered by transnationality. Such opportunities are related to the enhanced bargaining power – particularly towards labour and governments – open to TNCs. It is argued that the existence of nation-states with their different regulatory regimes in such elements as labour markets, social security and fiscal regulations may create opportunities for specific strategies open to companies that operate across borders. Some macro issues of TNCs’ activities and behaviour are considered, particularly in relation to the manipulation of transfer prices.
I agree with this paper. Our understanding of TNC is limited, to an extent, because our understanding of firm decisions is also limited.
From one perspective we have seen TNCs pay hefty premium while acquiring local companies where economic models, even those including cross-border tax benefits are unable to capture the real value add to the buyer company. The reason, I believe, is that TNCs straddle Macro-economic advantages and micro-economic advantages. They can derive their value from either or, ideally, both. This means Economics as we are taught must focus on something that is as capable to explain both.
Second, from policy side we have little room to understand whether national and state level policies have any degree of freedom left at all OR are we converging towards a universal regulatory model.
Third, there needs to be an inquiry to the legal aspects of economic decisions. It seems (on the ground) that legal nuances can create or destroy, or simply distort advantage in favour or against firms, TNC or otherwise.
All in all, I think this is a worthy subject, though the theories cited may not be adequate.
Rahul
Dear Rahul
many thanks for your perceptive comments. I agree with you. The issue of relationship between micro and macro is very relevant in understanding TNCs’ strategies. It is the existence of nation states with their different regulatory regimes that (a) generates the need for specific theories and studies of transnationals over and above studies of the firms; and (b) generates scope for strategies by corporations that can plan, control and organize activities across frontiers – the TNCs. These strategies give them advantages compared to actors who cannot plan and control across frontiers such as labour or governments or suppliers. Therefore the macro aspects of nation-states and their policies are at the heart of why we should study the TNCs and how we should go about them.
I have developed these ideas in ch. 14 of my 2012 book (E. Elgar).