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This paper summarizes the conceptualization of a world economy dominated by transnational corporations, creating an international political and economic environment where less developed societies are pushed to "modernize" as dependent capitalist economies. This notion is, of course, the cornerstone of dependency theory as created and developed in Santiago, Chile, during the 1960s. I include Sunkel's text in this section to contribute to the understanding of the basic tenets of what is known as  integrated international production systems . Róbinson Rojas, 1990.


( CTC Reporter (Autumn 1985), a publication of the UN Centre on Transnational Corporations )

There are some crucial questions relating to the TNC which one cannot begin to understand, much less to answer, if one does not have a more realistic picture of contemporary capitalism. The so-called market has in fact been superseded to a significant degree by public and private planning. To a very large extent, the visible hands of the State and the TNC have long replaced the mythical invisible hand of laissez-faire capitalism, if it ever existed. It is not really the individual institution of the TNC as such that is the object of so much attention. There have been individual instances of large world-wide business organizations in the past which have not aroused such great concern. The focus is rather on the emergence of a transnational business system with such a great potential for socially uncontrolled power and influence that international society finds itself forced into a profound reorganization in order to accommodate it.

Interest in the TNC has been aroused because it has become so obviously visible, owing mainly to the political, financial, environmental and other incidents in which it has been involved. But it should be recognised that this is only the tip of the iceberg, the visible emerging representative part of a system in the process of structural transformation.

It should be easy to recognise that both in the developed and in the developing countries a kind of dual but closely interrelated segmentation of the economy is taking place. On the one hand, there is the oligopolistic economy and competition of the transnational giants. On the other, we have the traditional market economy of medium-sized and small producers. To this second economy we must add the vast mass of the semi-capitalist (marginal, informal) economy in the developing countries and the growing segments of structural unemployment and the underground economy in the industrial countries. The traditional and new sectors of small capitalistic and semi-capitalistic producers participate partially or totally in markets characterised by oligopolistic price competition in which the individual producer has little power. They have to abide by the rules of a game imposed from above by government and the transnational oligopolistic segment. The managerial class of the transnational business system, in contrast, possesses sufficient power and influence to set the rules of the game, either by trying to induce or force the authorities to adopt the rules which TNCs require for their growth and expansion, changing the authorities if necessary, or by circumventing established rules. This kind of corporate behaviour must therefore be considered normal and not exceptional.


And there is conflict in this mutual adaptation because TNC policies are based on considerations which trascend those of host as well as home countries. TNC policies are the outcome of the structural requirements for survival and growth of the oligopolistic transnational segment of the world economy, present to a greater or lesser degree in all countries, and the managerial class of this aggregate of TNCs is in charge of formulating and implementing those policies, notwithstanding their contradiction with national policies. These will have to be reformulated by their colleagues in the State techno- bureaucracy in order to accommodate the demands of the transnational process.

The transnationalisation process has in fact consisted, among other things, of the formation of new structural actors and new structural links among them and across national boundaries. This situation gives rise to a host of questions regarding the control of the national State over these actors. It raises questions about the nature of the national State itself. If a national bourgeoisie has in fact become structurally integrated and transformed into a transnational bourgeoisie, how one can expect the State to represent the interests of an evaporating national bourgeoisie, not to speak of those of the working classes?

There are by now enough indications in actual historical experience and in the literature that a transnational or supranational capitalistic system is emerging, overlapping national states DE FACTO, and even DE JURE, as witnessed by the conditions under which accumulated foreign debt is being renegotiated. Private transnational financial integration during the 1970s has been a crucial phase of the transnationalisation process and the main cause both of the generation of the huge foreign debts and of the way they are being handled by Governments and banks - i.e. between a small cartel of transnational banks and the local financial authorities representative of the transnationalised business segments of the debtor nations, under the policing of the IMF. Can this perspective be simply dismissed on the doubtful grounds frequently invoked that Governments are increasingly powerful? If, as is more probable, Governments and TNCs are adapting to each other, would this not be a sign that it is the emerging transnational capitalist system rather than the national Government which is growing more powerful?


It seems to be clear that contemporary transnational capitalism bases much of its formidable dynamism on the ever-increasing and diversifying stimulation of consumption, and on continuous technological innovation in products and process of production. The unique contribution of TNCs is their ability to convert different kinds of lasting knowledge into commercially viable processes and products. Furthermore, the commitment of significant amounts of resources to technology is largely induced by the expectation of monopoly rents from new products and processes, as well as from the need to match the efforts of other such firms in order to protect their market share.

But since monopoly rent decrease over time, TNCs are forced to keep innovating products and processes in order to keep reaping monopoly rents over time, before they decline and eventually disappear. For this same reason, and owing to competition among themselves, they are also forced to keep tapping potential markets in all available "host" countries. In order to keep this growth mechanism functioning, both home and host countries provide substantial subsidies to the transnational corporate system: on the part of the developed countries, basic research, R & D, and government spending, particularly in the military-industrial complex, the international transportation and communication network, tied public foreign loans, foreign aid and technical assistance, etc.; on the part of the developing countries, protection, low-interest credits, special tax concessions, low salaries and docile labour, etc. On the other hand, through its pervasive influence on consumers, producers and Governments, the transnational corporate system stimulates by all possible means the accelerated diversification, obsolescence and replacement of existing consumer and producer goods. It has in fact discovered the technique of planning the accelerated expansion of consumption. Keynes may have been dethroned from the realms of government economic policy making, but TNCs have not missed the essence of his message: stimulate consumer spending.

If it is true, as stated above, that transnational capitalism is, on the one hand, heavily subsidised, and that, on the other, it has the power to influence public and private spending, there are no solid grounds to claim, as is often done, that their spread implies increased productive efficiency and reduction of risks, with a positive effect on the allocation of resources. There is no doubt that this is a convenient situation for TNCs to be in: they are able to mobilise not only their own resources, but also the resources of others throughout the world in order to combine them in economically feasible and commercially profitable activities.

In the process of doing this, local entrepreneurial groups are expropriated, traditional and not so traditional economic activities are disrupted, unemployment and underemployment are generated, national decision-making centres are eroded, balance-of-payments problems are aggravated, huge foreign debts are accumulated, and property and income are increasingly concentrated. All this does not preclude growth in per capita income, because the transnational segment of the economy and its ancillary activities expand, albeit at the relative expense of the rest of the economy. It is obviously not the TNC as such that induces this kind of process in developing countries, but the new transnational capitalistic system of which the TNC constitutes its dynamic kernel.


It is clear from the above that the most characteristic and significant change that has taken place in recent decades is the internationalisation of manufacturing production. To bring out this fact forcefully, there is a need for an adequate time perspective. Before the 1950s, foreign private capital was invested mainly in public services, mining, agriculture, and petroleum. Excluding petroleum, in all other sectors, foreign investment has declined substantially, while increasing dramatically in manufacturing and such related services as banking, marketing, mass media and advertising. This highly significant structural change can also be observed in the statistics on the evolution of the number of subsidiaries in developing countries.

The reorientation in the activities of TNCs represents the reorganisation of the international economy and the emergence of a new international division of labour. Before the Second World War, we had the nineteenth-century pattern of manufacturing countries and primary producers. But since industrialisation took root and expanded in developing countries during the inter-war period and especially during the post-war decades, a new pattern started to superimpose itself on the previous one.

The new model is operationally structured around the large manufacturing TNC that has emerged as a dominant factor on the economic landscape in the last few decades, mainly as a consequence of the huge expansion of government contracts -especially in armaments and space exploration- and the spectacular technological progress which resulted partly from this.

In the plants, laboratories, and design and publicity departments, as well as in the planning, decision-making, personnel and finance organisations that constitute their headquarters -always located in an industrialised country- the big TNC develops
a) new products;
b) new ways of producing those products;
c) the machinery and equipment needed to produce them;
d) the synthetic raw materials and the intermediate products necessary for their production;
e) the advertising needed to create and activate
their markets; and
f) the subsidiaries, joint ventures or licensing arrangements necessary to market, assemble or produce them in other countries.

Therefore, both the import-substituting and the export-promoting strategies of industrialisation are part of the TNC's strategy of penetration of foreign and their own domestic markets. External public and private credit and international technical assistance contribute efficiently to expanding the global markets for the big TNC -North American, European or Japanese. In a world of defenceless consumers (faced with advertising, consumer credit and the "demonstration effect"), a new form of international division of labour appears, with its corresponding agent: the international manufacturing oligopoly.

At present we seem to be moving a stage further, towards the twenty-first century pattern of international specialisation, with the ( former?) industrial countries moving towards the service economy, and some of the Third World countries becoming (at least partially) industrial economies, the new dynamic agent being the transnational oligopolies specialising in R&D, communications, information and finance. As in the previous phase, there is also the same techno- scientific specialisation: the centre concentrates on the generation of new scientific and technological knowledge, which is also moving from manufacturing to services, and the periphery on its consumption and or routine utilisation.


The last point is very important, because it implies that in the field of science and technology, where the TNC is supposed to make its most essential contribution - the ability to combine different kinds of lasting knowledge into commercially viable processes and products - that contribution is not transferred to developing countries. It is true that the developing country may obtain, through skilful negotiation and policies, a larger share of the benefits from the use by the subsidiary of parent technology, such as local skill formation, various socially valuable externalities, a higher proportion of local inputs, and a larger share of profits. But as far as transfer of technology is concerned, what developing countries obtain are strictly end products, not the capacity to develop them. Regardless of their efforts, those elements that are essential to the competitive advantage of TNCs are likely to be kept off-limits to host countries.

As a matter of fact, the tendency of local firms and subsidiaries towards the wholesale importation of technology, ready-made and foolproof (or not so foolproof, as shown in the case of Bhopal) has deleterious effects on such local technological activity as may exist. It may even replace technology developed through long experience and adapted to local conditions, with very negative effects on natural resources and the environment, employment ( particularly in the case of services), use of local materials and the balance of payments.

On the other hand, such scientific and technological research as may exist and be of potential value for the TNC can be monitored by its local technological staff and sent to headquarters for proof. This tapping of R&D by the net of technologists of the TNC around the world goes undetected by the scientific community of the developing countries and is another instance of its advantage of "world-wide sourcing".


There are other critical aspects of the contemporary world economic situation which could benefit from a more appropriate conceptual approach. Consider, for instance, the United States economy, which has in recent years shown enormous and growing deficits in its fiscal and international accounts. These are financed by the rest of the world, whose exports to the United States are growing faster than United States exports, while a voluminous and growing flow of financial resources is converging from all over the world to that country. Both phenomena are closely related, since the United States Government's demand for funds to finance its deficit is a major influence on the unusually high levels of interest rates, which attract massive flows of overseas funds and has led to an unprecedented strength of the dollar, thereby contributing in turn to a large expansion of cheap imports. In the rest of the world, the imbalances in the United States economy lead to high interest rates and the adoption of recessionary policies in order to avoid inflationary pressures from arising in foreign exchange, savings/ investment and factor markets. This contributes to low investment and high unemployment, in a general situation of low growth and high instability.

If the United States economy is considered just another national economy - bigger but not basically different - those enormous and growing fiscal and external deficits constitute unbearable macro-economic disequilibria, which must be corrected with some of the same recessionary medicine that the IMF administers so readily to other economies that spend above their means. But the United States economy is of course not just any other economy, and the world economic system is not just a collection of national economies.

The United States economy constitutes in fact a hegemonic and predominant segment of a highly transnationalised and interdependent global capitalist system. The interests of transnational capitalism require the restructuring of both the world economy and of its core, the United States economy, so that they can become mutually compatible and functional to the further progress of the transnationalisation process. The aim would be the elimination ( or renovation ) of those branches of the United States economy which are no longer internationally competitive, in order to make space for the imports from those countries which represent the most competitive production sistes for TNCs. On the other hand, structural adjustments are being pressed on developing countries which would encourage them to concentrate on internationally competitive branches and open up to the more efficient and dynamic science-and-technology-based industries and services located mainly in the United States, but also in other home countries of TNCs.
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