The outcomes of globalisation Guyana and the wider world by Dr Clive Thomas Stabroek News October 8, 2000 Dr Clive Thomas continues his series on globalization with a look at the trans-national corporations, or TNCs, as they are better known. What have been the major outcomes of globalisation? How has the global economy performed in the period of globalisation, particularly since the 1980s? What have been the major global trends in international production, international trade, international investment, technology, consumption, financial transactions, and capital markets? What have been their environmental, social, and political consequences? For the next several weeks, the series will concentrate on responses to these basic questions. As we saw last week, globalisation supported and promoted by liberalization has been associated with an unprecedented growth of the global economy. This rapid expansion has, however, been associated with rising inequality and a considerable degree of global instability. On average, every 2-4 years we have had a major crisis in global financial markets. The last such started with the Asian crisis of 1997, and spread to other markets around the globe. The contagion effects of this global crisis was particularly felt in the Latin American region. At the same time, the gap between the rich and the poor countries, and between rich and poor in several major economies, has widened, even if the poor generally are no worse off, except for Africa. This week we begin our examination of these issues by looking at international production, for reasons that will soon be obvious. International production One thing that must be understood is that at the heart of the globalisation process is the rapid expansion of international production. To some writers this is the most distinguishing feature of globalisation. International production refers to the production of goods and services in host countries that are controlled and managed by firms from elsewhere in their parent countries. In other words, this is the activity of the typical TNC. The current United Nations estimate is that there are about 60,000 TNCs with 500,000 foreign branches and affiliates. The concentration of activity among these TNCs is staggering. Of the 60,000, the 100 largest TNCs alone account for 15 per cent of the total foreign assets and 22 per cent of the total sales of all TNCs. General Electric is the largest TNC in the world, when ranked by foreign assets. There are only two TNCs from the developing countries among the top 100. These are Petroleos de Venezuela in neighbouring Venezuela, and Daewoo of Korea. There is also considerable geographical concentration in the location of the TNCs. Over 90 per cent of the top 100 TNCs are headquartered in the European Union, Japan and the USA. Size The size of these TNCs is enormous. The United Nations estimated that in 1998 the value of output of TNCs is about one-quarter of the total value of global output. This amount is also equal to about one-third of the value of total output in the host countries, where these firms operate. Amazingly, the total sales of the foreign affiliates of the TNCs, had revealed the phenomenal sum of US$11 trillion. To gauge the importance of this sum, one should note that this is more than 50 per cent larger than the total value of world exports (US$7 trillion). This result has come about largely during the past decade or so. It indicates that the international production of TNCs has outstripped the growth of world GDP and world exports in the age of globalisation. Never before in history has the international production of these firms been the dominant feature of the global economy. Nature What is the nature of these firms? Most of the international production is in services in the developed countries, and manufacturing in developing countries. It should be noted, however, that investment in services in the developing countries has also been growing quite rapidly. This pattern of investment sharply differs from that of the earlier investment of TNCs, which focused on the primary sector in developing countries, particularly minerals and agriculture. We can note in passing, that in this regard the pattern of foreign direct investment in Guyana, differs markedly from the global pattern in developing countries. Here, by far the greatest concentration of foreign investment is in primary production, mainly minerals and forest products. Technology A key factor in this outcome is the role that technology plays in international production. This is reflected in the fact that the leading sector in international production is technology intensive industries. A decisive advantage of the TNCs is their control of technology and innovation. Research and development (R&D) by these firms lead to new products and services, which give them an advantage over competitors. This technology is then embodied in the capital goods that they export to their foreign affiliates. They also quite naturally provide training and offer their own skills to facilitate their use of the technology overseas. All this however, has to be paid for. Such payments represent a substantial source of income to the TNCs. By the same token, these constitute an enormous flow of resources out of the host countries to the parent countries of the TNCs. Most of the R&D of the TNCs is conducted in the home country. When R&D goes overseas, the bulk of it is located in developed economies. This helps to reinforce the usual outcome, where recent estimates show that 92 per cent of global investment outflows goes to the developed countries. The United Nations Centre on Transnational Corporations (UNCTC) publishes an annual report on the activities of these firms. This is the main source of data on TNCs. These reports are however voluminous publications. The 1999 Report was 500 pages long! Persons who are interested in detailed information should consult this source. Next week we explore some further aspects of these TNCs. Follow the goings-on in Guyana in Guyana Today