Multinational corporations would benefit from an international agreement on foreign direct investment, but not all people and states would benefit from such an agreement. There are many preconceived notions about Multinational Corporations (MNC), which Balaam and Veseth work tirelessly to argue against. These notions are shared by many and in some ways cannot be overlooked in the grand scheme of MNC sot Transnational Corporations (TNC) as Balaam and Veseth define. MNCs bring a lot in the way of foreign direct investment and this brings up the age old question of exploitation and domination of a less economically developed country (LEDC). MNCs and TNCs are seen as huge companies originating in the economically developed countries that are very influential and hold sway in the international Political economy (IPE).
Do MNCs exploit and actually harm countries with foreign direct investment (FDI)? We first have to look at the positive side. FDI from MNCs in economically developed countries brings in much needed cash flow, jobs, and they create economic development. Many countries seek to draw in MNCs for this very purpose. This is all well and good until Balaam and Veseth turn their argument to include the Washington Consensus. In the 1990s the world saw an increase in FDI flows and these reflected the growing transnational markets, regional and global. Balaam and Veseth note that many ‘less developed countries’ (LDC) have adopted the Washington Consensus policies. They say that these policies create an environment more conducive to TNCs investment, but is that what is best for a LEDC? The effectiveness of the Washington Consensus is underscored by its failure to understand the many conditions of a LEDC and its governance. When a LEDC adopts the Washington Consensus it opens its, often, unstable economy and government to the world. There is very often a problem of foreign debt and the policies of the Washington Consensus require LEDC to focus capital on building pointless infrastructures while its people are dying because of lack of healthcare or are in need of an education system. Among the many policies outlined in the Washington Consensus one is the liberalization of FDI. Beyond the controversy of FDI many countries now actively seek it to grow their economic situations.
Earlier this month the Foreign Policy magazine claimed that the “next great place for multinational corporations to invest” may be Rwanda. The landlocked African country just might be the place as Rwandan President, Kagame, seeks to create a new view of the country as a business friendly venue. This is an instance where FDI by MNC very well may be benefiting both the state and the people. Kagame recently visited the US and met with the CEO of Starbucks and Costco to discuss specialty coffees. Other Rwandan officials have met with executives from Alltel, Bechtel, and Columbia Sportswear. Google has also been a part of Rwanda’s development by providing ad-free and free-of-charge web-based software to government ministries, each ministry gets its own domain name. This is an instance where the development of government may also lead to the advancement of the Rwandan people. However we need to be sure to look at the potential impact of FDI. Specialty coffees may increase the workforce, new corporations invested will also grow the workforce, but Rwanda needs to be sure that its people are not exploited for their labor. MNCs/ TNCs are often toted as companies that exploit LEDCs for cheap labor. This is most likely not the case.
Another great example of FDI by MNCs in Rwanda is the work of an American millionaire, Greg Wyler. Wyler and his company want to make Rwanda completely wireless to make Rwanda the most modern wireless, developing country. The Rwandan government hopes this project will make the country a rival to the high-tech Indian city of Bangalore. Wyler believes that with making the country wireless it will create so many opportunities for economic development and unrestricted entrepreneurship. This is an FDI by MNCs that I have to argee with skeptics in that if you have an economically developing country that has a starving population, then what good will free internet access provide? Nevertheless this increase in FDI in Rwanda is a prime example of how FDI by MNCs has the potential to change peoples lives and benefit both the state and those it serves.
Today MNCs/ TNCs are motivated not from monopoly power , but by investment abroad in the new competitive environment that is found in transnational markets. This environment where MNCs work best is brought about by a liberalization of trade and investment policy. The Washington Consensus pushes these changes and many countries are now working to adopt them to increase their FDI. This is where countries should take a warning and remember that they cannot forget the people that they serve. Economic advancement is important if a country is to grow in standard of living, but it has to be done where people are not left behind. Change in policy to facilitate MNCs investment has the great potential to bring positives for LEDCs.
Balaam and Veseth. Introduction to International Political Economy. Upper Saddle River, New Jersey: Pearson Education Inc, 2005.
‘Web Access for All Rwandans.’ Spiegel Online International. . (date accessed 17 April 2007)
‘We wish to inform you that Rwanda is open for business.’ Foreign Policy Passport Blog. . (date accessed 17 April 2007)