Summary of article 4
The growing interdependence between
transnational corporations and governments The rapid growth of foreign direct investment has brought the transnational
corporation centre-stage in the international political economy. Governments’
responses to international economic developments are inherently ambiguous. They
want the benefits of foreign direct investment and are increasingly prone to intervene
to increase their share, but fear the consequences when other nations do the same.
They also fear possible losses of national sovereignty. What is the role of government
in the growing economic interdependence? What is the relationship between the
TNCs and local government? How TNCs and government response to the changes of
global economic became more crucial to both. The world is moving toward more and
more interdependence among nations, through trade, investment and cooperative
commercial relation, combined with relatively little restriction on cross-border entities.
Firms pursue growth global through market-seeking, resource-seeking and
efficiency-seeking methods. All these motivations guide policy choices
simultaneously in different parts of a single enterprise. Many TNCs are building
world-scale efficiencies in functions such as technology and information systems, and
their trade across regional boundaries is growing in the intangibles of knowledge and
finance. Because the investment is one of the keys to economic growth, governments
are motivated to seek as many sources of new investment as possible. Inward FDI is
only a marginal proportion of total national capital formation. But enhancing the
investment function by promoting inward FDI is a double-edge sword. It can create growth and add needed skills, but it can also create hinder growth and create strategic vulnerability. With these complex relationship, the competing national and international forces can be form a triangular diplomacy model. One side of the triangle represents competition among firms for shares of the global market place. Another represents the agenda of bargaining between firms and governments. The third represents competition among governments, in terms of trade policy, the web of bilateral and multilateral treaties and domestic policies that have international repercussions. As diplomacy shifts from competition for power from more territory toward a competition for wealth as a means to gain power, TNCs have a more direct influence on the conduct of intergovernmental relations. A further manifestation of triangular diplomacy is that, when government clash in one industry, the repercussions can be felt in others. One symptom of a government clinging to Ricardian notions of comparative advantage is when it measures national competitiveness primarily in terms of trade performance and the presumed effect on the exchange rate. The problem is that the central tenet of the theory -the immobility of assets across borders- no longer holds true. Not only does capital move in the place of goods, but also other factors of production, especially the created, intangible assets of technology and organizational skill, are increasingly mobile within firms. Created assets are primarily in the form of human capital-the stock of knowledge, technology and organizational capacity, infrastructure and governing policies. In nowadays, the location of TNC are more prefer to located in where they can have ready access to a
pool of highly trained labour. They focus on long term costs can be lowered to enhance the durability of the firm’s competitiveness. The globalization of markets
does not mean that governments lose control of their economic destinies. But to retain control, they must revise their approaches to capture the benefits from new, innovation sources of advantage within their own borders. There are many obstacles to be overcome before effective policy coordination can be achieved. Not only must policy makers shift from a static, defensive posture and come to grips with the global dynamics, but they must also have to understand more fully how the interplay of regulatory and competitive forces impacts on industries in different ways. Governments need to restructure their own internal systems of management so as to gain the maximum benefits from an integrated system of governance. The global economy needs a stronger international polity to foster greater clarity, consistency and credibility in policy development. The real gains from policy coordination are unlikely to be reaped until there is a stronger basis for partnership between governments and firms, regardless of nationality of origin. Both need to adjust their behavior to understand the other side better.