multinational corps and economic interconnectedness apa
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Corporations and the Economy
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Running Head: TECHNOLOGY AND THE GLOBAL ECONOMY
Multinational Corporations and Economic Inter-Connectedness,
From the 1960s to Today
Steven B. Biasca
Jesse Bethel High School Humanities Academy 11
United States History & American Studies Summer Research
Assignment
Mr. Ron Garrison
August 19, 2009
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Abstract
Throughout history, industrialization has greatly shaped society,
the economy, as well as the United States political system.
Through the development of multinational corporations, new ideals
regarding business have been established. In addition, large
corporations have held great influence over the development of
Big Businesses, Government, and Labor. However, many of these
corporations have globalized American capitalism into many new,
developing countries for several reasons.
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Multinational Corporations and Economic Inter-Connectedness,
From the 1960s to Today
There are many factors that led to the growth of
multinational corporations that are still around today.
Industrialization has played a key role in the development and
stabilization of many growing corporations. As a result, many
businesses began functioning on a multinational level, often
depending on other corporations and countries for labor,
competition, and resources thus exemplifying their economic
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inter-connectedness. The creation of these multinational
corporations, such as Wal-Mart Stores, Inc., Chevron, and Nike,
led to a surge in the economy, which, in turn, created a strong
economy where many benefited as a result of the creation of
credit and lending practices. In addition, with the development
of these multinational corporations came the rise of Big
Business, Government, and Labor. The coupling of the latter three
socioeconomic entities demonstrates the interconnectedness
between various multinational corporations and the economies they
have established whether they are at home in the United States or
abroad in overseas countries. In the words of Professor Murray
Low, of the Columbia Business School, The American dream is no
longer in America. Corporations today are now placed on a global
scale and creating very complex economies in todays society.
Throughout history, industrialization lead to the growth of
businesses that eventually flourished into Big Businesses that
operate on a much larger scale than many locally based companies.
For example, many car companies are not only based on a national
level, but are categorized under multinational companies, e.g.,
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Ford, Honda, and Nissan. Industrialization has allowed these
companies, and many others like them, to thrive and have great
effects on todays society, economy, and political processes. The
effects that industrialization have had on the economy are often
viewed as a domino effect. The United States experienced an age
of industrialization all the way through the early 19th
century,
and as a result, new technology was created. Consequently, the
United States, as well as many other countries, experienced a
heightened growth of businesses. Since new businesses were
forming and growing at a phenomenal rate, the worldwide economy
began to expand and became stronger. According to the website
EconomyWatch, the Industrial Revolution influenced many
countries, especially the United States, to develop the
manufacturing sector and expand trade. Therefore, many
multinational corporations, such as Microsoft and Apple Inc.,
soon emerged. The following chart, Figure 1, demonstrates the
process by which these multinational corporations formed. With
the formation of these new corporations came new government
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Figure 1. Much of todays economy is the result of the Industrial
Revolution from the early 19th
century; which allowed small
businesses to grow into multi-national corporations as a result
of lower transportation costs. From there, strengthened economies
formed on a global scale, which allowed a greater exchange of
money between both countries and several corporations.
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regulations that began taxation on these immense corporations,
which actually implemented a controlled economy in the United
States. For example, on August 15, 1971, President Richard Nixon
presented the United States with his New Economic Policy, which
created a council that regulated the amount corporations could
increase workers pay and sale prices. The execution of the New
Economic Policy was considered to be a bold move taken by the
President to strengthen the American economy, in the words of
Mr. W.P. Gullander, who was the president of the National
Association of Manufacturing (NAM) at the time. In addition, the
combination of both industrialization and the formation of
corporations also lead to the creation of government agencies
that monitor nearly all business practices. These agencies
include The Bureau of Economic Analysis (BEA), which provides
accurate economic accounts data, to The Economic Development
Administration (EDA), which stimulates industrial and commercial
growth, and many other agencies that assist in monitoring other
business activity. It becomes apparent that these agencies would
have never been formed if it were not for the development of
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multi-national corporations. In addition, industrialization and
the corporations that soon followed also had a great effect on
todays society. After the Industrial Revolution, the United
States formed many businesses and had a demand for industry; the
combination of the latter two socioeconomic principles supplied
society with many new job openings, both here in the United
States as well as in other countries overseas. However, the
creation of these multi-national corporations also placed various
burdens on society due to depressions and recessions. This is
demonstrated in the current recession where many industrialized
countries, not just the United States, are in an economic
slump. According to the Department of Commerce, the United
States Gross Domestic Product (GDP) for the first quarter of
2009, which is based on various economic principles such as the
amount of imports, exports, and government spending, has sharply
declined by approximately 6.1%. This signifies the decrease in
worldwide economic activity. Throughout history, however, society
has also benefited from the establishment of these corporations
due to the formation of labor unions. Following the Industrial
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Revolution, many businesses formed, and with them came labor
unions. These unions assisted society by negotiating better
wages, safer working conditions, and benefits with the employing
corporations. In the end, it becomes evident that multi-national
corporations have had a significant effect on todays society,
economy, and political procedures by strengthening various
economic markets, creating thousands of jobs for society, and
indirectly influencing the creation of various political
policies.
The development of multinational corporations has also
contributed to the rise of Big Business, Big Government, and Big
Labor. To begin with, Big Business is roughly defined as a
large, lucrative corporation that is either individual or
collective. Royal Dutch Shell, Exxon Mobil, and Wal-Mart Stores,
Inc., are prime examples of Big Businesses that operate on a
multi-national scale. According to Fortunes Global 500, Shell,
Exxon, and Wal-Mart are the top three worldwide companies,
respectively, with the largest annual revenues for the year 2009,
Figure 2. Since 2005, Wal-Mart has seen a Percent Net Sales
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Increase of more than 7% each year. Royal Dutch Shell has nearly
doubled their annual revenue from 2005, totaling in approximately
$4.59 billion in 2009, which ranks them as number one in the
Petroleum Refining Industry whereas Exxon Mobil is the runner-up
with a whopping $4.42 billion. These considerable and recurring
increases illustrate how multi-national corporations have
contributed to the rise of Big Businesses. Large corporations,
such as the latter three previously mentioned, generate extensive
annual revenues and profits, leading to large conglomerates that
dominate the economic markets. In addition to developing the
class of Big Businesses, multinational corporations have also
shaped the expansion of Big Government. The term Big
Government is commonly used to refer to a government that is
excessively
Annual Net Revenue for Top Three Worldwide Corporations
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Figure 2. The top three worldwide corporations for 2009 are Royal
Dutch Shell, Exxon Mobil, and Wal-Mart Stores, Inc.,
respectively. Each of the multinational corporations has seen a
prominent and steady increase in their annual revenue. This
economic trend demonstrates the growth and rise of Big Businessesthat are operating worldwide.
Year
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large, corrupt, inefficient, and/or involved in areas of public
policy. Big Government is practically a government body that
attempts to control or regulate certain aspects of the private
business sector. The development of multi-national corporations
has indirectly led to the rise of Big Government by influencing
new policies and regulations. The car company General Motors
(G.M.), which was at one point in time, the largest worldwide
corporation in the automaker industry, is a prime example of
government regulation as well as the rise of Big Government.
General Motors filed for Chapter 11 bankruptcy protection in June
of 2009 and later received nearly $50 billion from the
government. As a result, General Motors is now considered to be a
government-owned entity, according to The New York Times, and
the government now holds approximately 60% of the corporations
shares. Furthermore, the new administration under President
Barack Obama has also coerced General Motors chief executive,
Rick Wagoner, to resign. In addition, the government has also
appointed the new chairman, Edward Whitacre Jr., to G.M. The
mandatory restructuring of this worldwide corporation vividly
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portrays a rise in Big Government. The new administration is now
stepping into the business sector of the economy and is
implementing new regulations and reforms on worldwide
corporations. With the rise of these multi-national corporations
comes a rise in Big Government as the need for regulation and
control of the economy increases. However, developing
corporations have not only resulted in the rise of Big
Government, but have also contributed to the rise of Big Labor.
The term Big Labor is typically used when referring to large,
structured labor unions and is commonly also known as organized
labor. In todays society, organized labor unions, or Big
Labor, and several multi-national corporations appear to be
intertwined. One of the largest organized labor unions today is
the American Federation of Labor and Congress of Industrial
Organizations (AFL-CIO). The AFL-CIO was established in 1955 to
improve the lives of working families to bring economic justice
to the workplace and social justice to our nation. The creation
of the AFL-CIO and many other labor unions like such were created
in response to the development of multi-national corporations.
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For example, the United States Department of Labor cited the
worldwide corporation Wal-Mart Stores, Inc., in 2005 for
violating child labor laws. In this case, 24 violations were
cited in Arkansas, Connecticut, and New Hampshire, leaving Wal-
Mart with a $135,540 settlement to pay, according to the
Associated Press. However, the effects of Big Labor are not only
felt at home in the United States, but they are also noticeable
on an international level. The AFL-CIO is also affiliated with
the International Trade Union Confederation (ITUC), which is a
worldwide union organization that represents over 150 million
workers, according to the AFL-CIO. The ITUC and AFL-CIO both
vouch for equality in the workplace, fair wages, and a safe work
environment, which is all in response to a rise in developing
corporations that began to dominate the economy and exploit their
workers. In the end, it becomes evident that the growth of multi-
national corporations has significantly led to the rise of the
Big Business, Government, and Labor. The growth of multi-national
corporations has indirectly allowed Big Businesses to expand by
creating an economic market where certain companies form a
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monopoly in particular industries, allowing them to generate
large revenue and profits. Big Government has been on the rise
since the world economic market and global companies have been in
need of regulation. Lastly, Big Labor has become widespread since
the employees of these multi-national corporations have lobbied
for work improvements. These three social and political aspects
have been on the rise, collectively, ever since global
corporations have been flourishing.
Furthermore, the exportation and globalization of American
capitalism, or business that is conducted through multi-national
corporations, has had a significant effect on the worldwide
economy and society. Many corporations have begun the process of
globalizing their business into several other developing
countries other than the United States. This process has
developed a new, key economic ideal: offshore outsourcing. This
newly emerging business concept is a synthesis of both
offshoring and outsourcing. According to the BNET Business
Dictionary, offshoring is defined as The transfer of service
operations to foreign countries in order to take advantage of a
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supply of skilled but relatively cheap labor. In the case of
offshoring, services remain within the corporation but are
executed in a different country. Contrastingly, outsourcing is
defined as the transfer of the provision of services previously
performed by in-house personnel to an external organization
(BNET). With outsourcing, many large corporations subcontract
certain services to separate subsidiaries, which are also often
located in a different country. Many corporations are turning to
offshore outsourcing to allocate nonessential services overseas
in an attempt to minimize production and labor costs. Many
substantial corporations such as AT&T Wireless, Microsoft, and
IBM, outsource a significant portion of their information
technology services overseas to various countries such as India,
China, and the Philippines. Multi-national corporations typically
outsource information technology services to newly developing
countries for several reasons. By outsourcing peripheral services
of their corporation, businesses can focus on the core products
or services that they provide. Furthermore, by eliminating
nonessential functions from a companys central structure,
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companies can place a greater focus on more critical aspects of
their business. In addition to creating a greater focus on a
corporations essentials, outsourcing allows many businesses to
curtail manufacturing and labor costs. The exportation of the
textile industry to overseas countries has become increasingly
popular to major corporations that are operating on a worldwide
scale. Many outsourcing firms, such as The Outsourcing Network,
contract manufacturing operations to overseas vendors that
produce products for companies at a nominal cost. By doing so,
companies can cut production costs by 20-40%...by making your
company more efficient (The Outsourcing Network). Although
offshore outsourcing may have its benefits for the massive multi-
national corporations that utilize this tactic, offshore
outsourcing greatly affects the surrounding economy and society.
Many economists point out that offshore outsourcing can
indirectly assist in the strengthening of the American economy by
producing inexpensive products. The lower market prices of
products are due to the reduction of manufacturing and production
costs via offshore outsourcing. The American consumer benefits
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from production cost reductions since they gain access to
quality, yet affordable, products that are often imported from
overseas manufacturing and production firms. However, the
offshore outsourcing of manufacturing processes can also have an
adverse effect on the American economy. By allocating jobs from
the United States to developing countries overseas, the American
society experiences a shortage of jobs or a loss of available
positions with major conglomerates here in the United States. As
a result, many American workers are left unemployed since
production costs overseas are significantly cheaper than they are
in America. This is clearly demonstrated when the unemployment
rates of the United States are examined across a ten year period,
Figure 3. From the year 2000, the United States annual average
unemployment rate has seen a considerable rise, reaching a
whopping 8.67% in the year 2009 (U.S. Bureau of Labor
Statistics). This upsurge of the unemployment rate is a trend
that is partially blamed on the distribution of jobs that were
once performed at home in the United States. This is evidenced by
the report Mass Layoff Statistics Data in the United States and
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Domestic and Overseas Relocation, conducted by the Bureau of
Labor Statistics. According to this report, there were
approximately 2,379 cases where employers laid off more than 50
workers at one time, which are considered to be a mass layoff.
As a result, nearly 470,000 people lost their jobs, and out of
the 470,000 jobs or positions, 50,000 were moved out of the
United States to overseas countries. This demonstrates the
globalization of American business as well as its effects. It
becomes evident that the exportation of American capitalism has
had extensive
Average Annual Unemployment Rate, 2000 to 2010
Unemplo
yment
Rate
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Figure 3. Annual average statistics are according to the U.S.
Bureau of Labor Statistics (BLS). Since the year 2000, the
average annual unemployment rate has been on the rise. The 2009
unemployment rate (8.67%) is nearly double what it was in 2000
(3.97%). *According to Nouriel Roubini, a business professor at New York University, economic analyst, and author for Forbes
Magazine, the projected 2010 annual average unemployment will be
approximately 11%, based on the amount of current job losses, a
reduced Gross Domestic Product (GDP), and a worsening labor
market*
Year
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effects on not only the American society, but society in general,
by saving multi-national corporations substantial sums of money
through productions and labor cost cuts. In addition, globalizing
American capitalism has created new labor opportunities in other
societies overseas as a result of offshore outsourcing. However,
this has also affected the American society by removing jobs once
performed at home in the United States, thus causing a nominal
increase in the United States unemployment rate. Therefore, the
diffusion of American capitalism has had great effects both at
home and abroad.
The formation of multi-national corporations has had great
effects on society. From the creation of a prosperous and growing
industry emerged corporations that would soon expand trade to a
global scale. Consequently, the exchange of capital led to a
strengthened economy, new economic regulations, and various
political policies. Furthermore, large conglomerates operating
worldwide have also influenced the rise of The Big Three: Big
Business, Big Government, and Big Labor. Many businesses have
grown into Big Businesses by expanding their services and
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products into newly developing countries and markets, thus
forming dominance over the economic market. As a result of
growing economic activity came the need for government
regulation, or Big Government. In an attempt to control certain
aspects of the business sector, the new government administration
has implemented new policies to regulate how many corporations
conduct business. However, with the rise of multi-national
corporations, which typically employ a vast number of workers,
came the need for Big Labor. Labor unions were established in an
attempt to protect both employees and their rights, indicating a
rise in Big Labor. Nevertheless, multi-national corporations have
not only influenced a rise in The Big Three organizations. Many
businesses have expanded into new markets and have globalized
American business. By doing so, many new labor markets have been
established overseas via offshore outsourcing. Therefore, this
has also led to the exportation of American jobs, thus leaving
some Americans unemployed. In the words of Henry Ford,
Competition is the keen cutting edge of business, always shaving
away at costs. In todays society and economy, this seems to be
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the chief business principle that many corporations conduct their
business by.
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