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8.3: The State and the Multinational Corporation

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  • The industrialised state of the twenty-first century is going through significant stages of adaptation and transformation in response to economic globalisation and losing its privileged position in the international system. Not only the rising powers of Brazil, Russia, India and China but also multinational corporations represent a serious challenge to its once dominant role. There is now little expectation that major economies will adopt a light regulation economic policy style along the lines of the once dominant US model. Instead, the notion of the competition state captures best how since the 1990s government actors have created more business-friendly regulatory frameworks actively supporting internationally operating firms in their efforts to generate more growth and employment opportunities. A well-trained domestic workforce becomes, in this context, an important asset to promote a particular territory for the allocation of foreign direct investment.

    Despite similar pressures to reduce government expenditure, states have also continued to diverge in the way they provide welfare for different social groups within their societies. It has become popular to privatise public services and leave the task of their delivery to companies rather than the state. As a consequence, the role of the civil servant is now similar to that of a business manager overseeing the spread of markets into new areas such as education, health and security. Yet, in line with the Polanyi-type adjustment process, government agencies and state organisations cannot entirely shed their responsibility for some of the negative effects of radical policies associated with market liberalisation, especially in trade and finance. Economic globalisation creates ‘winners’ and ‘losers’, which leads to the issue of inequality in societies. To win the support of the ‘losers’, governments typically have to offer compensatory measures through income redistribution, retraining programmes or further educational opportunities. The budgetary resources necessary for the funding of such activities brings into perspective taxation as a main attribute of modern forms of government as well as an indicator of state power relative to other actors in the international system. As the international controversy around the tax bills of large multinational corporations like Amazon has shown, there is a general public expectation that multinational corporations should make a fair contribution to the states in which they generate their profit. After all, for their business models to succeed they have to be able to draw on a well-developed infrastructure, an educated workforce and general health care.

    Furthermore, through direct tax evasion, or the use of regulatory loopholes, large corporations may gain a decisive advantage over local suppliers operating in the same market sector and offering comparable services. For example, due to different tax laws within member states of the European Union, the video streaming service Netflix International was exempt from UK corporation tax despite having around 4.5 million paying customers in the UK. In line with the letter of the law, it only paid 5 per cent income tax in Luxembourg. Although this is a regional example, multinational companies with global operations can also shift profits to countries where lower taxes apply by transferring royalties between different branches of their business. What emerges is a picture of waning state power with global business actors playing off different tax regimes to their own advantage. Seen from their angle, multinational corporations are merely following the rules of the game as implemented by governments in their national systems. If the rules change, their behaviour will change as well. Indeed, due to public pressures there seems to be evidence of a step change in this issue, at least in Europe where corporations like Google and Starbucks have been reprimanded.

    Multinational corporations in their interaction with civil society have sometimes been the target of non-governmental pressure groups and trade unions, which call for boycotts due to breaches of international environmental or labour standards. More frequently, however, liberal approaches have singled out their exceptional capacity to create wealth at a national, as well as international, level. Their cross-border investment activities in home or host states are often assessed positively as they ensure technology and capital transfer, develop managerial skills in diverse country contexts and ensure market access while simultaneously creating new jobs, thus providing a ‘social’ service in lieu of those typically seen as justifying the state and, therefore, excusing them from taxes. In the case of Apple this has taken the form of a global supply chain by which the bulk of its products are designed in the United States, but manufactured elsewhere – predominantly in China – due to lower costs. This is also an indication of the impact technological change in the production process has on the multinational corporation–state relationship. Seen from the Polanyi angle it is no surprise that when Apple’s chief executive officer Steve Jobs was asked by US president Barack Obama why manufacturing could not return to the US, he simply replied, ‘Those jobs aren’t coming back’ (Duhigg and Bradsher 2012). Even the most powerful national politicians find it hard to deal with the social consequences of these technological innovations in the global market.